Emily Pritchard answers your burning questions relating to duty and the establishment of trusts. […]
When Cheap Isn’t Cheerful (part 2)
Matt Neibling, current as of: 26 October 2016.
A recent conversation with a partner from a national firm reinforced just how much risk accounting practice owners and managers are exposed to, without being fully informed and aware.
The issue starts with the dazzling sales messages from some automated online document providers. They claim their robotic systems will deliver time and cost savings which is, of course, music to the ears of tech-savvy managers looking to improve efficiency and the bottom line.
The problem is the inherent risk in operating systems that lack intuition and intelligence. In my article last month, I talked about the simple equation with dumb terminals i.e. garbage in = garbage out.
While this presents obvious quality control problems, it also conceals the failings of simplistic sales messages, namely:
- Efficiency – typically the time and cost savings delivered by robotic systems are substantially over-stated; and
- Risk – automated online document systems operate without professional scrutiny and, as a result, shift the risk for document preparation back onto firms.
Never say never
In larger firms, we’ve noticed the move to automated online document systems is generally driven by managers pressured to find time and resource efficiencies. They implement these systems without appreciating the risk to which they’re exposing the partners and owners.
The accounting firm winds up producing legal documents entirely at its own risk and nobody’s the wiser, until something goes wrong.
Back to my recent conversation with the managing director of the national firm. He was adamant that his organisation would never EVER use an automated online document provider, without realising a decision to shift to a well-known robotic service had already been made further down the chain. Now the system is in place and the document risk has shifted to the firm’s owners, without their knowledge.
Some real-time stories
In an average firm, if one in every 100 documents prepared using an automated system contains an error, that would mean files laced with dozens of hazards.
Here’s a couple of concerning cases that have come across our desks in the past few months:
Case 1: A well-known and long-established accounting firm in Brisbane’s CBD uses a template provider to establish trust deeds. A satellite office of the firm, situated on the city fringe and focused on financial planning, uses that system to prepare a family trust deed, the cover page of which prominently bears both the name of the accounting firm and that of a leading national law firm. A trust is prepared in which the Settlor and the only named beneficiary are the same individual which can mean invalid distributions. Over the next four years, more than $1 million is distributed to that same individual and the issue is only discovered following a routine ATO query.
Case 2: A successful regional accounting/advisory firm has used a well-known subscription-based service to prepare hundreds of trust deeds over a three year period. Following an internal legal review for tax purposes, some deeds were found to include technical errors that meant trust distributions could not be made and many deeds had to be amended. The supplier of the deeds was approached, but declined to remedy the error or compensate the accountant for the cost of those deed amendments, leaving a very dissatisfied firm principal to wear the cost and embarrassment.
A template is a template – until it’s a time bomb
This topic feeds into a broader conversation about the use of templates, which are popularly adopted within firms and generally pose little risk. Templates, like form letters, are convenient and save time, but what about when you’re talking business and investment structures?
While many procedural documents may be relatively low risk, the same can’t be said about trust deeds, loan and governance agreements. You start to wonder where the line should be drawn.
Any of you who attended ATSA in Melbourne this week may have heard a provider spruiking the advantages of robotic services. Think about it. The operator of the robot is the one responsible for what it does. Robotic template providers shift the responsibility, and therefore the risk, on to the shoulders of their customers.
Is the risk worth it?
Some takeouts to consider:
- What is the nature of the document provider used by your business – robotic or intuitive and intelligent?
- Who is bearing the responsibility for the preparation of documents?
- Is your team’s choice of provider putting your business at risk?
- Is the risk worth the perceived efficiency gains?
Automated online document providers are putting accounting practices at risk. If you’re contemplating, or are using, a robotic system, you should check with your PI insurer that you are covered for any errors made in producing documents. Where does the risk lie?