The increasingly litigious nature of commercial dealings means that all professionals are becoming increasingly aware of risk management, and how to manage any claims which arise. It is a rare accountant in public practice who will never be worried that they have made a serious mistake, and whether they may be sued as a result of that mistake.
The first step to minimising the likelihood of a claim is to have an effective risk management system.
Some basic principles of risk management are:
- Ensure that you are clear about the advice which is being given, or the work which you are undertaking. This is becoming more difficult during a transaction, because often advice is given in a less formal way (i.e. through email or even by SMS). This means that it is fundamentally important to scope the task at the beginning of the transaction. This should not be hidden within the depths of the retainer agreement - there needs to be a very clear statement as to precisely what advice is being provided by the professional.
- Ensure that you and your staff get enough rest and take regular holidays. This is one of the basics. If you notice a person in the office (or yourself) making regular errors this is a warning sign that a break needs to be taken. Client demands may seem to be overwhelming, however, the costs of a claim, financially, from a reputational perspective and the enormous amount of non-billable professional time, may be absolutely crushing.
- If you notice that the general error rate within the firm is rising (even small errors), consider what steps are necessary before any serious problems occur. Are your staff spread too thinly, is more training required, do you have the wrong mix of staff?
- Consider seriously whether you want to work with dangerous clients, and if so, what particular risk management strategies need to be employed for those clients. You will have a feel for clients who are particularly dangerous -often they are inexperienced and chaotic with chaotic correspondence styles (we all know the emails which are sent by these clients at 3am, which are confused and often rambling, where a major part of the task is deciphering the email).
- Remember that a number of large clients have now participated in programs where staff are taught how to shift risk to their advisers. This is particularly so with larger corporate clients.
- The importance of contemporaneous file notes cannot be over-stated. In Watson v Foxman &Ors (1995) 49 NSWLR 315 the Court held that, as a matter of ordinary human experiences, the recollection of spoken words in a conversation is often fallible for a variety of reasons. The fallibility of human memory arises as "recollections of what was said, or intended, are inevitably clouded by the overlay of emotion and by the intrusion of individual hopes and expectations and feelings of entitlement". As a general summary, where there is only oral evidence between a client and an adviser as to what has occurred, the courts are often likely to prefer the evidence of the client, on the grounds that the client only had one matter going on, whereas the adviser had multiple matters going on, and hence, the client's recollections are likely to be more accurate. A contemporaneous file note can be a circuit breaker in these situations.
- Only work in an area where you are skilled. The general anecdotal evidence is that people who are real industry experts in an area are less likely to make errors.
- Be sure that you stay up to date professionally.
- Ensure that all staff who work for you understand the importance of risk management. Too often, only professional staff are included within risk management training. However, there are often cases where other staff can be an important part of the team to catch and prevent errors.
- Ensure that you have effective staff engagement in your firm. One has a feeling for when staff care about a firm, and the outcomes. If staff are not mentally engaged, they will not go the extra mile to prevent errors occurring. It is often the mentally engaged junior who sees possible errors and brings these to your attention.
- Be especially careful of experienced staff coming from other firms. These staff may not be as bonded to your firm and committed to firm procedures as people who have worked within your firm for a lengthy period. You may also be surprised at the different procedures between firms. Often a system is holistic, so that there are methods of catching errors which are effective when the entire system is implemented. A person used to a different system may not continue on with the systems which were used in their previous firm, but not quite fit into the procedures used in your firm. That is the worst of all worlds. It is also not uncommon for staff moving from a different firm to have exaggerated their experience, so that you may believe that they have skills which they do not have. Almost every principal will be familiar with this situation.
- There is no substitute for proper supervision, and a situation where at least two skilled people work on a matter - one more junior and one more senior. In this situation, errors are much less likely to occur.
- Consider where you can use checklists in your firm. Checklists dramatically reduce the chance of error. These should be created, and then regularly updated, and kept in a place where all staff can access them.
- Consider which areas of work are particularly dangerous, and ensure that, where possible, there is a second principal or other senior staff member involved to provide a second set of eyes.
- Consider clients who are particularly vulnerable - the adviser will have a higher duty of care in those situations. Examples of these are if you are dealing with a client who has a physical disability, is elderly, or has English as a second language. In such a situation, you should be especially careful, and you may wish to ensure that a second staff member is present with you during meetings. If there is any question about language, the Commonwealth provides an excellent interpreter referral service.
- Understand that a complaint being made may have a serious effect on the professional confidence of a staff member. Frankly, if it does not have a negative effect on the staff member's professional self-confidence, then you should be worried. The staff member is likely to need support and supervision, as they have probably lost faith in their own judgment.
- Ensure that matters are properly explained to clients in writing at the outset, and that clients understand risks. While there are some clients who are unreasonable, and who will seek to take advantage of an opportunity to make a claim, even where they were warned of the risks involved, most clients are reasonable, and will say later "yes, you warned me".
- If you do receive a complaint, consider what other matters or clients may have been affected by similar circumstances. There may be an opportunity to fix the problem in respect of other clients, with minimal cost and penalties.
- Have properly documented policies and procedures within the firm, so that principals and staff know what is expected of them.
- Have an electronic communications and social media policy, and ensure that your staff follow this.
- Consider noise levels in your firm -a noisier environment generally leads to a greater error rate.
An important part of an effective risk management system is reminding principals and staff of the system, and keeping people focused on risk management.
This is an extract of a paper written by Fiona Halsey for the Tax Institute conference, which was presented on 24 August 2012. If you would like a full copy of the paper, please contact any of us at Halseys or Licensee Solutions.
Required Action
Ensure that your firm has an effective risk management system in place. If you need assistance, please contact any one of us.
