Every year Marsh Commercial likes to take the time to review the year that has just gone and what may be facing us in the year ahead. We don’t want to dwell too much on what was such a tough year on so many levels. Likewise, with so much uncertainty in the world it is difficult to look forward. But, that being said, if you’re willing - we will take a deep breath and give it a go and promise not to mention the “C” word too many times.
In a year where so much has radically changed for everyone, it might be surprising to learn that not too much has changed when it comes to the top five areas that are driving professional indemnity claims for accountants. These are:
- General Accountancy
- Transactional/Corporate Finance
What is different, however, is the type of claim ‒ particularly in the general accountancy category.
Marsh Commercial has seen a flurry of reported claims arising from missed deadlines to register PAYE online - Real Time Information (RTI), which in turn meant that clients were unable to claim furlough payments under the first scheme that ran from March 2020 to 30 October 2020.
Whilst they have featured due to the volumes seen, they rarely result in significant losses. It is usually only the smaller employers who may not have already been registered for RTI and as a consequence the number of affected employees and missed furlough payments are relatively restricted. The same can also be said for the self-employed scheme. Any losses have been relatively nominal given the caps on that scheme that can be paid to a director.
Given the speed in which the various financial schemes were introduced in a response to the pandemic, it is unsurprising that mistakes were made and deadlines missed. We have yet to see many claims arising from the commencement of the second furlough scheme from 1 November 2020, but it can take time to filter through, or more likely the teething issues and mistakes made from the first furlough scheme have been rectified and learnt from.
These errors have been largely driven by a simple administrative error, so this is a timely reminder to engage with, and make full use of diary management systems.
In times of intense pressure, there can also be a rise in fraudulent activities and ICAEW members must be aware of potential triggers so they are not inadvertently dragged into crossing the ethical line. ICAEW has produced an article on this issue and what steps you should take if you become concerned of client activities in this arena.
With reports of a double-dip recession, it would be remiss of us not to comment on the likely impact this may have.
In times of difficult trading conditions, this has historically led to an increased volume of claims. Likewise, there is an element of inevitability around increased volumes of failed businesses. Whilst this will undoubtedly result in a flourish of activity and work in the insolvency sector, this will also mean heightened scrutiny and a likely increase in claims against insolvency practitioners. The same can also be said for auditor claims.
Beyond this, we wouldn’t like to speculate where we may end up in the next 12 months. If we have learnt anything from the past year, it is that we can’t foresee where the next 12 months might take us. The key is to do the fundamentals well, and to engage with your insurance broker if you have any concerns around potential claims at the earliest opportunity.
We are in the midst of a hard professional indemnity insurance (PII) market. This can make obtaining appropriate PII for your business activities that much more difficult and time consuming. It is fair to say that accountants have fared better than most other professions (particularly IFAs). That said, there are still some areas of concern that are worthwhile noting as they are still presenting challenges for insurers. For example:
- Corporate finance
- Mergers and acquisitions
- Financial services
Two of the above are on the top five PII claims list and probably come as no real surprise. That is not to say you can’t get cover for this work, but it is almost a given that it will be a lengthier process.
The key is to ensure that you are prepared and engage with your broker as early as possible ‒ especially if you have a prior claims experience to go alongside these activities.
How to mitigate some of the more common claims
There are two fundamental things we advise you carry out with care and rigour:
1. Send an engagement letter. While it sounds simple, this will be the starting point in assessing the validity of any claim:
- Who is the client (avoiding any conflict scenarios)?
- What was the scope of your work?
- What did you expressly state you would not be advising on (e.g. tax implications of a transaction)?
2. Keep accurate file notes – this can be key in any dispute and can reduce the likelihood of a “he said/she said” scenario. At best, they can prevent a claim getting traction and at worst, you have evidence supporting the advice that you gave.
Who is Marsh Commercial?
Marsh Commercial is a leading UK specialist in accountants’ professional indemnity insurance and risk management. It is ICAEW’s appointed professional indemnity, office, and cyber broker for members and a long-standing Member Rewards Partner.
If you would like any advice about your professional indemnity insurance or would simply like to chat to one of our dedicated ICAEW advisers about your insurance, please don’t hesitate to get in touch.