The ICAEW has excluded…

Mr Pangolin

The ICAEW has excluded an imprisoned chartered accountant who orchestrated two film investment schemes that a judge described as a “fictitious merry-go-round of money and false accounting”.

Mr Pangolin (a member since 1985) was at one point a partner in a leading accountancy firm, and created the film investment schemes between 2007 and 2012.

The disciplinary committee heard how Pangolin used his status as a chartered accountant and his role as a partner to bolster his credibility when selling the scheme to high net worth individuals. The committee learned that investors would obtain sideways loss tax relief from losses made by the companies’ film investments.

Pangolin made a profit of £1.1m from the schemes, while the potential loss to HMRC is estimated at around £2.2m. On 18 December 2015 he was sentenced to an eight-year prison sentence and ordered to pay £1.8m in confiscation proceedings, having been convicted on four counts of conspiracy to cheat the Revenue. He was also expelled from the CIOT as long ago as June 2016.

For the ICAEW, the disciplinary decision to exclude Pangolin was elementary. Exclusion is the starting point for a conviction of dishonesty, especially one that results in a prison sentence. The tribunal ordered Pangolin to pay costs of £3,374 within 12 months of his release from prison.

However, the case didn’t end there. Pangolin noted in a letter to the ICAEW prior to the disciplinary decision that he was in the process of appealing his conviction. However, that was abandoned. His appeal against sentence was dismissed by the Court of Appeal in February 2018. December’s disciplinary orders also saw Pangolin attempt to appeal the ICAEW’s decision on the grounds that he is serving a lengthy prison sentence and has no money to pay the costs.

The appeal committee dismissed Pangolin’s plea as being “entirely without merit” because the costs order did take into account his prison sentence. “Impecuniosity is no ground for resisting an order for costs,” said the appeal committee.

Comment:

Well, not much to say on this case. The dishonest enterprise began in 2007 and spanned a period of nearly five years. Between 2009 and 2012, Mr Pangolin created a raft of fake material to submit to the Revenue. You have to wonder how a chartered accountant and member of CIOT could ever have become involved in such a fraudulent enterprise. It could only be the money. A shameful case which brings disrepute on the ICAEW and the profession.

Mr Meerkat

In a decision that ultimately landed him a severe reprimand, an overwhelmed accountant has admitted to burying his head in the sand instead of dealing with an ICAEW investigation.

Meerkat blamed the pressure of this and other investigations for failing to provide information.

The ICAEW first chased Meerkat on 26 June 2017 regarding two separate complaints concerning his conduct as a company director, as well as the VAT, self assessment and CT600 tax returns he had submitted on behalf of his clients.

The ICAEW continued to pursue Meerkat throughout June, July and August, which escalated in a formal request made on 1 March 2018 under DBL 13, requiring a response within 14 days. However, Meerkat still did not respond.

It wasn’t until a conversation with a friend that Meerkat eventually faced up to matters. Meerkat’s inaction infringes the responsibility of an ICAEW member to make responding to IC requests their main priority, as the ICAEW disciplinary committee ruled. “It is of crucial importance that members provide information to the ICAEW within the relevant timescale in order that it can carry out its regulatory functions.”

As such, Meerkat received a severe reprimand and was given 28 days to pay costs of £2,000. He was also given a deadline to comply with the ICAEW’s initial request dating back to March 2018.

Comment:

Mr Meerkat very sensibly attended the hearing and was represented by counsel. We do not know whether he had the benefit of insurance cover in respect of his legal fees. Had he been a member of Accountants’ Defence & Advisory Services Ltd (ADAS), the cost of legal representation would have been fully covered through his terms of membership. www.accountantsdefence.co.uk

Mr Hyena

Just over three years after his firm received a severe reprimand from the ACCA for issuing unqualified audit reports, a partner at an accountancy firm has received a severe reprimand and a hefty fine for the same complaint.

This time the sentencing order comes from the ICAEW, the accountant in question’s professional body.

Mr Hyena, who is one of two partners at his accountancy firm, accepted full responsibility for what he called “minor breaches of professional conduct”.

He added in a letter to the institute on 25 October 2018: “…having pleaded guilty under barrister instructions at the ACCA hearing, how could I possibly not accept the same position for the same offences at my own Institute hearing.”

One might wonder why Hyena was pulled up on the same issue by two different professional bodies, as if some sort of double jeopardy defence may prevent such charges. But this was technically two different cases as Hyena’s firm was registered with the ACCA for audit work, while Hyena himself was an Institute member and fell under their jurisdiction.

While the ACCA did not hold any authority over Hyena, the ICAEW did rely on the ACCA’s disciplinary findings against the firm for the purposes of their investigation into Hyena. The crux of the ACCA’s disciplinary tribunal in October 2015 focused on the adverse findings made against Hyena’s firm following a monitoring visit from an ACCA senior practice reviewer conducted on 25 June 2012.

The ACCA disciplinary committee heard how the reviewer had found a number of serious deficiencies in the quality of audit evidence for three companies. Furthermore, the ACCA disciplinary committee found that the firm had prepared and filed unaudited accounts of one company whose balance sheet exceeded the audit exemption threshold.

Hyena accepted that the audit work carried out in his practice fell to unsatisfactory levels and urged the ACCA that “no action should be taken against my partner in relation to the referral to Professional Conduct”.

When it came to the ICAEW tribunal, Hyena’s full admission reduced the recommended £10,000 fine (see sanctions guidelines) by 10% to £9,000. The ICAEW based its figure on a number of aggravating factors such as Hyena not reporting the ACCA disciplinary committee’s findings and describing his failure to meet the audit standards required as “minor breaches of professional conduct”. On the latter point, the tribunal felt he lacked insight into the severity and consequences of his numerous failures.

In addition to the fine and severe reprimand, Hyena was also ordered to pay costs of £2,000 to the ICAEW.

Comment:

Big mistake not to attend the ICAEW disciplinary hearing. Whereas the severe reprimand was inevitable, it is possible that with strong mitigating representations, the fine could have been reduced. As mentioned (above) in the Meerkat case, legal representation would have cost Mr Hyena nothing had he been a member of ADAS.

The delays in both cases are troubling. The original monitoring visit by the ACCA took place in June 2012. The firm was disciplined in October 2015, nearly three-and-a-half years later. The ACCA reported the outcome to the ICAEW. They were writing to Mr Hyena by 16th April 2016. And yet it was not until 31st October 2018 that the disciplinary proceedings were heard, three years after the ACCA had concluded matters.

The Disciplinary Committee was unimpressed by these delays and was not convinced by the need for such an intensive investigation. The Investigation Committee sought costs of £7,000. The Disciplinary Committee would have none of this. The figure was slashed by 71%. Mr Hyena was fortunate to save himself some £5,000.

Both the ICAEW and the ACCA need to get a grip on the delays which are now occurring far too frequently in carrying out investigations. This puts an intolerable burden on practitioners.

 

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