Here is a brief round-up of the main issues which came up with my visits in 2015.
Shorter visit times and (mostly) lower charges – it’s nice to start on a positive note – with two exceptions, caused by firms taking on new partners, visits this year were shorter and less expensive. Also, the average number of queries raised was lower as was the number resolved straight away.
Although the advent of the new rules is likely to result in some increase in time, I hope to see this trend continue, reducing both the time and monetary costs to all my clients. Of course, this does have some implications for my own income, so any referrals to other firms will be gratefully appreciated!
Problems with Administrations (especially pre-packs) – I am sorry to say that the trend from last year has continued. The only comfort I can offer is that my fellow compliance consultants are all reporting the same kind of troubles. The main issues are these:–
Poor internal documentation of planning and decision making in the pre-appointment period. The tone of the new SIP 16 has shifted again and you must now be able to justify the decision to do an ADM, especially a pre-pack and most especially a pre-pack with connected parties. Going forward, QAD will be looking very closely at the clarity and care taken in the decision making process, in line with both the new SIP1, SIP16 and Regulation 13.3.
- Procedural mistakes, especially around whether there is a prospect of a dividend, calculating the prescribed part and making the right election under paragraph 52. As a result, a number of IPs have had to redo the fee authorization process, because they didn’t get secured creditor approval.
- Failing to clearly set out what has been done pre-appointment and why. Both the old and the new SIP 16s place a great emphasis on justifying the costs and it is not enough to just enclose a SIP 9 style cost breakdown. Work on specific areas needs to be outlined, e.g. preparing and making the application, work on sales contracts, liaison with secured creditors, valuation and marketing work.
- However, clarity of reporting has actually, mostly improved. The main residual issues have arisen around over-reliance on templates – not deleting redundant comments or repeating information contained in previous reports.
- Finally, please remember that SIP 9 now applies to pre-appointment fee statements, as well. This means that some analysis and justification of time spent pre-appointment must be provided, especially where the time exceeds an initial estimate that you might have given to the Board.
Documentation of critical decisions (especially on investigations) – even before the changes to regulation 13.3, QAD had been pressing for better documentation of work in investigations. With the new regulations in place, they are likely to be much more demanding going forward, so the absence of strategy notes and the like will be criticized.
Investigation work (especially construction and use of deficiency accounts) – or some reason, between last year and this, I have seen a number of incorrect deficiency accounts, two of which came close to causing a serious outright loss. On all those occasions, the manager responsible for preparing the account clearly did not understand the purpose of explaining the deficiency.
Pre-appointment AML and other checks – there continue to be issues around completion of AML and other pre-appointment due-diligence. It seems that the problem largely stems from more junior staff not understanding what to do when a case is unusual or arrives from the courts.
SIP 3 and VA terms – not many of my clients have any continuing significant IVA work. While those that do regular IVA work seem to have absorbed the changes to SIP 3.1 and the new Consumer Credit requirements (cooling off periods, etc.) those that only do occasional VA work have had problems because of being out of practice.
File reviews, case management and progression – While the number of outright, serious failings in case progression has fallen (i.e. delays of over a year) I continue to see a lot of variable quality in setting and following up on tasks, particularly after the first 6 months has passed. With the new regulations, QAD will tend to be even hotter on this area than before.
One final note of encouragement; looking back over the ten years since I first started working as a reviewer at ICAEW, the standards of compliance have really improved. Except where there are new rules in force or they have become particularly complicated, as in ADMs, all of my clients deserve congratulations for the work they have all done. But it begs a question – are we now reaching a stage where a general review should be taken (risk based) on just how much compliance work is actually needed? The ICAEW rules actually do allow it, so why not? If you are keen to do such a review and want to discuss how, please call.