The SPG Forum held on 2-4 November 2021 included an insightful and helpful session, ‘A Year of Challenge’ presented by Allison Broad, Senior Manager in ICAEW’s Quality Assurance Department and David Holland, Chief Inspector at the IPA. This proved to be a popular presentation with the presenters providing an insight into how they have been working during the pandemic, how that might change moving forwards, common issues identified on monitoring visits and hot topics. This note summarises what they had to say.
Over the past year, the two RPBs have been carrying out predominantly remote monitoring visits but the scope and format of these visits has remained the same as pre-pandemic visits. While some on site visits are now taking place, it is likely that a more hybrid and flexible approach will be used moving forwards although these RPBs’ preference is to return mainly to face-to-face visits when it is appropriate to do so.
The challenges faced by Insolvency Practitioners (IPs) during the pandemic are now starting to be identified on case files, certainly the oversight of staff, control of cases including the quality control of reports seems to have suffered. These RPBs will be looking at issues on a case-by-case basis to ascertain if the impact of covid is a mitigating factor but cautioned IPs not to use it as a justification especially for serious issues, for example the non-realisation of assets and general case progression, particularly if the IP was taking on new appointments during the same period.
On a more positive note, these RPBs were pleased to see that some furloughed staff had used their non-working time as an opportunity to access more training courses and some IPs had been adjusting their hourly rates to reflect the complexity of the tasks, they were undertaking e.g. charging junior hourly rates where they had been dealing with basic administration tasks etc.
During this past year, common issues identified on monitoring visits related to:
Case progression
Delays have been noted in making distributions particularly not paying interim dividends when there are funds in hand and where the costs do not outweigh the benefit of doing so.
SIP11
The importance of ensuring that measures in place to control funds are effective, documented and reviewed at least annually for adequacy.
Fee approval
Checking that appropriate fee approvals are in place before drawing fees.
Reporting
The quality of progress reports and missed progress reports.
Late registration of IVAs
The Insolvency Service has identified tranches of non-registered IVAs across the profession and is contacting the IPs’ RPB in respect thereof. Regardless of the numbers of IVAs an IP might be appointed on, it was recommended that IPs check that their IVAs are being and have been correctly registered.
The presenters also shared their thoughts on the hot topics that are facing the profession this year and highlighted the following matters which IPs should be mindful of:
Bounce back loans
It is inevitable that some bounce back loans will have been inappropriately applied for by directors. IPs should ensure that their procedures are updated to demonstrate that proper consideration has been given to this issue, particularly with respect to anti-money laundering, SIP2 and CDDA reporting.
When discussing a company’s position as part of pre-appointment discussions with directors , it was recommended IPs look at their take on procedures and ensure that they show good due diligence all the way through with exit routes at the right stages. IPs should be asking about bounce back loans and if the director discloses impropriety, or the IP has concerns about either the company’s eligibility or use of the funds, the IP needs to consider their money laundering obligations and potentially do a defence against ML SAR before they take the appointment, to avoid having issues later dealing with tainted funds. Other considerations to include: does the IP want to act? what company records are available? what is the source of the referral particularly if the director came to the firm via internet-based advertising? what is the source of fees?
It was also recommended that SIP2 investigation checklists explicitly reference bounce back loans. If one had been received, the IP should consider whether the company should have applied for one and whether the funds received have been properly used.
RPS and ERA claims
IPs’ attention was drawn to the importance of making sure that employee and director ERA claims are verified against the company records. Where the IP has been unable to do so, the IP should contact the RPS to discuss before submitting the form.
The RPBs are still seeing some cases where claims have been submitted at an amount higher than the estimated statement of affairs figure and they would expect IPs to review and document the reasons for this. Other concerns identified relate to large holiday pay claims being submitted for directors and different pay rates having been claimed by directors compared to company payroll records. It is not always clear that IPs have considered these types of issues, so improvements are needed to evidencing reviews. It has also been noted on a small number of cases that the ERA provider engaged by the IP has also been engaged by the director, which is considered a conflict. It is recommended that the IP seek confirmation from the ERA provider that this will not happen. IPs were reminded that the responsibility for the information submitted to the RPS rests with them. If IPS do outsource the work, they need to justify and document the reason for selecting a particular provider, as well as ensuring that there is still adequate knowledge of ERA within the IPs’ firm to be able to review the externally prepared submission prior to the IP signing off.
The RPBs have recently received notification from the Insolvency Service of the launch of a themed review on RPBs monitoring of IPs’ compliance with the redundancy payments process.
Anti-money laundering matters
The presenters highlighted the importance of documented anti-money laundering policies and procedures to identify criminal activity and reporting it and being able to demonstrate checks of such policies and procedures for effectiveness. A key part of take on procedures is understanding the risks of that appointment and not just the direct due diligence of where parties live and verification of their ID, for example a proposed MVL understanding where the money came from, was the company being used to legitimise proceeds of criminal activity?
ICAEW and IPA have produced a report that references many of the risks that they see and expect IPs to reflect these risks in their risk assessment. It was also flagged that the CPS has started to look at professionals for failing to report criminal activity.
Helpful links for members –
ICAEW – AML Supervision Report 2020/2021
IPA – Anti-Money Laundering Report 2020/21
ICAEW – National risk assessment (NRA) of money laundering and terrorist financing 2020
ICAEW – Accountancy AML Supervisors Group Risk Outlook January 2021