From Routine To Risk: How filling in standard forms for clients can become a legal trap
by Leslie Buchbinder
Public Accountant - October 2012
For most accountants, filling in regulatory or statutory forms for clients is part and parcel of the professional service you provide. Whether clients don’t have the knowledge or information to complete the relevant forms, or simply can’t be bothered, is besides the point.
The usual consequence is that time, volume and costs can see accounting firms delegate relatively routine, mechanical tasks to junior staff and sometimes even inappropriately qualified employees.
Having procedures in place to supervise less experienced staff must be an essential part of this process. I am sometimes struck by the irony that accounting firms can have comprehensive quality control policies, targeting more complex and financially significant matters, but that the more apparently ‘routine’ matters can cause the greatest heartache.
Most accountants are familiar with their obligation to clients under Professional Negligence law. This requires accountants, who have a duty of care to their clients and to some third parties, to exercise reasonable care and skill in discharging their duties.
But accountants are exposed to two other areas, less commonly a focus, which I’d like to explain briefly. These are breach of client contract and potential disciplinary action that can arise when forms don’t get filled in correctly.
From transcription error to breach of contract
One matter which came to Court concerned a situation where accountants miscalculated the amount of depreciation allowable as a deduction and the mistake was then carried through in succeeding years. The error resulted in an overstatement of the tax payable and no refund could be obtained of taxes overpaid in three financial years because they were statute barred. The client successfully sued the accountants, who were subsequently found not only negligent but also in breach of contract, with significant claims for damages awarded.
In a different case, a client provided an only partially completed insurance claims form which needed to be submitted to the insurance company via an online template. In undertaking this task, and providing answers in all the required fields, the employee who filled in the form advertently triggered discovery by the insurer that the client had been turned down by a number of other insurers in the past, as well as a subsequent investigation showing that the insurance policy was in fact based on material non disclosure. Instead of being paid out by the insurer, the client found himself being pursued by them for money they had already paid him and sued for LEGAL TERM IN HERE. His response, in turn, was to sue his advisers for negligence and breach of contract because of the way they dealt with his claims form.
Whether it is a tax return, insurance claim or any other such document, the same principle applies. In accepting responsibility for filling in ‘routine’ forms, accountants are exposing themselves to legal risk which go further than negligence, and may include breach of contract.
It’s not only the legal process you need to be mindful of. Quality control break downs also come to the attention of organisations like CPA Australia. Quite apart from the reputational damage of being brought before a Disciplinary Committee, accountants can also be fined and ordered to attend training programs when they are found lacking.
Exactly this happened a few years ago when a CPA Australia Disciplinary Committee found that a Member had failed to observe a proper standard of professional care, skill or competence and that he had failed to adequately supervise personnel or his practice and/or failed to ensure that internal checking procedures were being effectively applied.
Another form of regulatory exposure arises from cases of aiding or participating in activities by clients which amount of offences under legislation such as the Tax Act or Superannuation Act or even in some cases, such as theft or fraud, the Criminal Code of the State in which you practice.
While most accountants are aware of their duty of care obligations to avoid claims of Professional Negligence, it’s also helpful to bear in mind potential exposure to breach of contract. In particular, remember that your exposure to legal or disciplinary action doesn’t always arise from the most complex or financially sophisticated aspects of your work. Proper quality control processes are critical to ensure that routine form filling doesn’t go legal.
Les Buchbinder, Director, Bowen Buchbinder Vilensky