Mixing the personal with the professional can be an ethical minefield for chartered accountants, especially if it involves family.
Despite the best of intentions, it pays to consider your ethical responsibilities before offering to lend a hand with a tax return, going into business with family or accepting appointments such as trusteeships, executorships or powers of attorney.

Each year a number of cases cross the desk of the Chartered Accountants ANZ disciplinary heads, New Zealand-based Rebecca Stickney and Kate Dixon in Australia, that involve members working with family and the issues this can raise.

 

The complaints cover a range of issues from how members manage the affairs of an elderly relative or client who is losing capacity to providing accountancy services for a member of a family business where relationships sour or the business fails.

While the majority of these cases do not result in referral to the disciplinary tribunal, there is a salutary message for all members contemplating working with family, or already doing so. Members need to remember that having a complaint made against you or being caught up in disciplinary proceedings can result in the imposition of serious penalties, as well as being time consuming and potentially public.

How do members protect themselves, their business and their professional reputation when navigating this territory?

“First of all members need to recognise the work as a professional engagement. If they don’t do this, there is a real risk that members will fail to consider the ethical consequences of their actions. This can be even more of an issue if there is an existing or new problem in the family relationship. It might be hard to separate the family context from how you deal with matters professionally” says Dixon.

In such cases, members need to have a state of mind that always questions whether there will be any ethical consequences if they agree to act. While this might not stop the member from getting involved, it’s critical that members think through their professional obligations at the outset.

Avoiding family baggage

One type of case that arises periodically is where members guarantee a family business that is unrelated to the practice of accountancy. If the business fails and the bank enforces the guarantee this might result in the member’s bankruptcy.

“Those cases are pretty sad,” says Stickney. “Members are trying to help out their family but, unfortunately, it may have a serious professional consequence. If a member goes bankrupt, their membership will usually be suspended for the duration of the bankruptcy.”

The Professional Conduct Committee (PCC) tries to stay clear of cases that purely involve family breakdown or matrimonial-type disputes, as these are outside of the disciplinary jurisdiction.

Nonetheless, these areas are a fertile source of complaints.

While the benefit of the doubt can prevail in many situations, this is not possible in more serious cases. 

In general, the PCC will dismiss these cases unless there is a clear professional element to the complaint. An example of a professional aspect to a family complaint is where the member compiles tax returns for their ex-partner and does not hand over their records in a timely manner following the break-up. Members need to remember that the same ethical obligations apply to the member in this situation as they do when the client is unrelated to the member.

Fights do occur

Members also need to beware of being caught in the crossfire between warring family members. A recent example involved a member, his wife and her brother. There was longstanding discord between the siblings. When their mother ended up in hospital, changes were made to her trust and will by adding the member (her son-in-law) as a trustee and executor. The member also took over the accounting for his mother in law, which had previously been done independently. Concerns were raised about the mother’s capacity to make the changes, even though lawyers were engaged to draft the various documents.

“While the PCC was aware that the complaint arose in the context of a longstanding acrimonious relationship, it also had a professional element” says Stickney.

“The PCC considered that the member needed to balance the ethical and professional responsibilities with his family responsibilities. While the acrimony itself didn’t preclude the member from accepting the appointments, the PCC thought the member needed to take a circumspect approach to accepting the roles particularly given the health of his mother in law.”

There was no evidence that the member, in being appointed as trustee of the mother-in-law’s trust and taking on her accounting work, was trying to do anything untoward.

However, given the degree of acrimony, the urgency to make the changes and concerns over the mother-in-law’s capacity, the PCC thought that the member had not taken sufficient steps to satisfy himself that she had capacity to give instructions.

“In the end, the member received a caution and the case did not escalate because the various changes were unwound quite quickly,” continues Stickney.
However, this had the potential to be much more serious.

Sibling rivalries

In an Australian case, a member was caught up in a family dispute. Even though it wasn’t his family, it still had the potential to cause significant problems for the member. The member held a power of attorney for an elderly client who was so unwell that it affected her capacity.

“There was significant dispute among her children about what should happen to her and her assets. Some of the children didn’t like our member carrying out his roles as attorney and accountant and made a number of complaints about him to us and to other entities.”

Fully cognisant of the situation, the CA sought independent legal advice about what he was able to do and not do and what information he could and could not provide.

“When his client had capacity, her very clear instructions were not to provide any information about her financial affairs to her children. Fortunately for the member, when we received the complaint his client had capacity and so was able to support him in the complaint process.

“She explained that he had acted in accordance with her wishes and that she was happy with his services,” explains Dixon.

“There was no further action taken against the member because he had done all the right things, but it had the potential to be very tricky.”

In situations where family members wrongfully accuse a member of inveigling himself, or herself, into a position of trust or a professional appointment, it is crucial that the member gets legal advice at the appropriate time. When a member goes into this relationship “with open eyes” he or she is better protected.

“It is about taking a prudent approach,” agrees Stickney. “The PCC expects to see proper legal advice, and an appropriate document trail of key decisions or agreements.”

And if a situation does start to unravel? Always get independent counsel, say Stickney and Dixon.

People lose their ability to judge carefully and objectively when a business matter becomes clouded by family loyalties. Members should discuss these types of issues with their professional colleagues or networks and can always contact CA ANZ, in particular the CA Advisory Group.

Conflict of interest

While the benefit of the doubt can prevail in many situations, this is not possible in more serious cases.

In the case of one member heard by the NZ Disciplinary Tribunal, a brother and sister were left property by their father. The CA member was the sister’s husband and the brother made the complaint.

“All three were directors and the member was also a shareholder of the family companies and a trustee of the family trust. So there were all sorts of different roles being undertaken by the member. The assets in question included some commercial property, where the member operated an accounting practice, and the member’s firm provided accounting and other professional services to the family entities, for which the firm was paid,” says Stickney.

The competing financial interests combined with the acrimony of the relationship between the brother and sister created a volatile cocktail.

“At the board level of these companies, the husband and wife were always able to outvote the brother, as it was always two against one.”

“The husband and wife’s interests were also majority shareholders, which impeded the brother’s ability to affect any change in the directorships. Finally, the brother had concerns about the level of professional fees being charged and the tenancy arrangements for the CA practice, which at times had not paid rent.”

For many years these potential conflicts of interest existed (ie the various professional roles and financial and personal interests) but with the breakdown of the family relationship the situation became untenable.

The disciplinary tribunal concluded that “following the breakdown in the personal relationships, the need to address and properly manage the conflict became very real”.

In its findings, the Tribunal stated that it was not enough that the member’s fees be fair and reasonable. Nor did it accept that the member’s greater exposure to financial risk as majority shareholder meant that there was not a conflict of interest.

The Tribunal considered that appropriate safeguards to manage the conflict of interest had not been employed and the professional engagement should have been discontinued.

Safeguards in this case could have included written terms of engagement, written proposals for other services provided by the member and his firm, written notice of the right to take independent advice and written informed consent.

The Tribunal also considered that the member should not have participated in decisions where he had a conflict of interest, notwithstanding the company’s constitution allowing interested directors to vote.

The member was censured and ordered to pay costs of NZ$30,000.

Be alert

“Even though there are cases where there are problems,” says Dixon, “we want to encourage members to share their wonderful skills because they can capably give their families advice, but it’s about being alert when the personal becomes the professional.

“If you have that alertness, it will hold you in much better stead if a complaint is made,” adds Stickney.