The vetting of clients and transactions at the outset of instruction, can sometimes be overlooked, but it is always a safeguard against the risk of matters turning into a potential claim at a later date.
In this article we aim to highlight why properly vetting prospective clients and instructions from existing clients is so important for accountants.
What is the point?
The starting point for client and transaction vetting is to obtain up to date, relevant information about your client/prospect, and what they are asking you to carry out. Armed with this information, you should then be able to carry out an informed analysis as to whether you can accept instructions from this client or carry out a task in relation to that particular instruction.
Without properly understanding (i) what you are required to do (ii) who is asking you to do it and (iii) what is the reasoning behind the instruction, you may find yourself exposed to issues which could otherwise be avoided or mitigated.
Client vetting – prospective clients
Prospective clients should be viewed in the round. Vetting processes should be robust enough to flag up those less obvious problems even when minds might be focussed on other things. It is easy to become embroiled in the business itself, the lure of additional income, particularly if there is a time bar or closing date approaching, before we have taken a step back and given thought to whether this is something we want to, or can, do.
Vetting processes can scrutinise a client's affairs in a way that they might find intrusive, unnecessary, or objectionable. Care must be taken to ensure that the client appreciates why you are asking questions and why, in some cases, you must decline to take on the client. Questions about a client's personal background or their source of funds / business might feel uncomfortable but asking them is important for both your and the firm's protection.
Client vetting - current clients
Client vetting should be an ongoing process. Circumstances can change on a yearly basis, and an updated assessment of the relevant issues at play is best done at the outset of each new tax year, even with longstanding clients. A client's situation can change at short notice: bankruptcy and loss of capacity are just two examples. However, circumstantial changes can be less obvious and easier to miss.
Transaction vetting
If robust client vetting allows you to understand exactly who you will be carrying out services for, transaction vetting aims to identify at the outset whether what you are being asked to do is realistic, achievable and within acceptable risk parameters.
When receiving any instruction during a period of work for a client, nothing should be acted upon without having first checked for any issues which could arise from the action, and which might be avoided. Make sure you have discussed the instruction sufficiently with your client to clarify their objectives and avoid any ambiguities. If there is anything about an instruction which makes you hesitant, ask for a second opinion from a colleague.
The red flags are, in a high proportion of the time – easily recognisable, but the trick is to make sure they are not overlooked.
In summary
Failing to vet clients and their proposed instructions leaves you unable to understand what you are fully being asked to do, or if the activities you are carrying out for them are legitimate and additionally who is asking you to do it. This creates a risk issue for practices, no matter their size or area of specialism.
The good news is that by putting in robust vetting procedures and pro-actively assessing new work, firms can significantly reduce work.