This is not a reference to customs issues for any of you intending to travel to R3’s annual conference, but a few thoughts on the issue of ‘owning up’ to errors found when reviewing your work.
At the start of 2005 the IPA and ICAEW brought in their new annual review systems and although the mechanics of each system differ, they both agreed to recognise an IP’s commitment to improvement by stating that where a default was disclosed, rectified and action was taken to prevent recurrence, they would not impose regulatory penalties. ACCA do not subscribe to regulatory penalties but have always taken the view that when a deficiency was found on a visit but had already been spotted by the IP and appropriate action taken, it would not be treated as significant. We don’t have evidence from the other regulators, but even the DTI are asking about annual reviews in their returns now, so it appears that all of the main regulators are moving towards consensus.
The first question then arises, whether you use our [brilliant] service or adopt another approach, “Is it a good idea, or even safe, to declare a default?”
It does not come naturally to anyone, let alone an IP operating in a highly regulated environment that has traditionally been part-funded by fines and penalties, to admit they have done wrong if they have not been caught. Even if your review is thorough enough to pick up all of your errors, it is often difficult to see why a regulator sees a particular default as more significant and therefore worth reporting. Clearly, they don’t want you to write in about every isolated error, but if you have not raised something significant and your regulator subsequently discovers it on a monitoring visit, you will be exposed to further action. In the worst cases, this could result in more severe penalties if it is considered that an attempt has been made to conceal the problem.
The solution that you would expect me to give is to employ Compliance On Call to review your work and that is, in part, true. We will plan your visit to cover the most risky areas, depending on your practice profile, then conduct our reviews using both our regulatory experience and some inordinately detailed checklists and finally report all of the errors to you, highlighting those that we feel are significant enough to need reporting to your regulator. However, Gareth and I are also happy to help those who have not yet employed Compliance On Call if you call or email one of us. We’ll happily discuss the scope of the review you have done and the issues you have found and suggest matters that you might like to include in your disclosure.
Obviously, there is an angle for us. Of all the IPs who have spoken to us or sought our advice, only a very small number have failed to employ us once they found out just how useful we are. Furthermore, we are already conducting follow up visits to practices I saw last year as a sole trader, in some cases well before I originally recommended their next visit, because the IPs have seen the benefits they gained from their first contact.
The second question that is often raised when discussing disclosure to a regulator is, “Since they clearly won’t just let me off, what action can I expect?”
We would first like to point out that the assumption on which this question is based can be incorrect. In many cases, even for systemic errors, the regulators will ‘let you off’ because they can see that you have addressed the issue and there is no residual risk. In a few more serious cases and in those situations where IPs either declare everything or admit to nothing, the regulators will use the information in their visit planning. The regulators are facing increasing pressure to reduce the cost to their membership of routine regulation and are considering increased use of tools like desktop monitoring to reduce the need for expensive visits. As a result, they are more than ever prepared to consider new factors in their resource planning. Although we have no evidence to support our opinion, it seems likely that a practitioner who is working, with or without an external reviewer, to identify deficiencies accurately and address them in an appropriate fashion will provide more comfort and therefore present less of a risk than a practitioner who takes no action.
The two most common cries I hear on visits are, “That didn’t come up on my last visit from [regulator]!” and, “I haven’t had time to deal with that yet!” Many of you will go three years or more between visits and you don’t need us to point out the changes that have happened in the last three years. It is therefore likely that many of the things you may now do wrong would not have been requirements when the regulators last saw your work. Furthermore, because they are trying to look ‘Big Picture’ and no longer invoking fines for the more routine compliance faults, the regulators are placing more emphasis on an IP’s overall ability to manage his or her cases. There have been instances in the last year where IPs who had previously had ‘clean’ regulatory visits were taken to task, or even faced undertakings or restrictions on their licence because they appeared to be under-resourced or lack technical knowledge of new procedures. In several of these, it was not that the IP lacked technical knowledge or had insufficient resources, but that he had concentrated on his duty to creditors and others connected with his appointment and let the compliance issues slip too far. There has to be a balance between ‘doing the job’ and addressing the regulatory requirements and we will happily help you find that balance by helping you focus on the areas that present the greatest risk to your licence.
To declare or not to declare? (with apologies to Wm Shakespeare)
To answer this, you should first conduct a thorough review of your work. You don’t have to use an external reviewer, but whoever you use should not have worked on the case, so that they take a fresh view and can see the wood for trees.
Having conducted a comprehensive review, list out the findings for each case so that you can identify common or ‘systemic’ errors and compare what you find to other articles in this blog to see if they may be seen as key compliance defaults.
Then take action to rectify what you have found. Next, identify systems changes that will prevent the same deficiency arising in future.
Finally, put a detailed note on each relevant file explaining how the default has been dealt with and, for IPA and ICAEW practitioners, prepare a summary to include in your annual self-certification form or return as appropriate.
Alternatively, call or email Gareth or Bill and enlist professional help.
