Festive frolics or regulatory wrongs in accountancy firms?

With the festive season fast approaching, many of us will be looking forward to indulging in mince pies, mulled wine and perhaps attending the office Christmas party. This time of the year always provides a variety of opportunities to socialise with colleagues and let hair down…

Or does it?

Whilst the vast majority of us do not need reminding, there is always the risk of someone taking things too far, especially where the drinks are flowing.  Inappropriate behaviour can range from clumsy misguided comments to far more egregious examples of sexual misconduct in the workplace (even if the misconduct is not strictly at an in-office event). We would all do well to remember that upholding the reputation of the profession is a permanent state of affairs – it’s not an obligation that can be “switched off” just because it’s Christmas.

ICAEW CODE OF ETHICS

This year more than ever behavioural misconduct is high on the ICAEW’s agenda; its new Code of Ethics will be published in early 2025. Specifically, the ICAEW is introducing an expanded professional behaviour provision in R.1151.A2 of the Code, with the intention of putting how we behave towards colleagues, clients and contractors – both inside or outside of the office – front and centre. The new R.1151.A2 provides that a professional accountant, in their professional life, should treat others fairly, with respect and dignity and must not bully, harass, victimise or unfairly discriminate against others.

However, that doesn’t mean that conduct in an ICAEW member’s personal life isn’t caught by the wider professional behaviour definition in the Code. Where personal life behaviour is considered to be wholly discreditable to the profession, that may still be deemed to be a breach of the principle of professional behaviour.

Duty to report potential misconduct

It is, of course, not only those on the receiving end of inappropriate conduct who may escalate an issue. All members and member firms of the ICAEW have a duty to report potential misconduct to the ICAEW for investigation, as per 6.1 of the ICAEW’s Disciplinary Byelaws. This is an important obligation and should be taken seriously as failure to make a disclosure when required to do so can lead to disciplinary action being brought against a member as an individual, or a member firm. The question of when that duty crystallises, and what steps a firm should be taking prior to making a report, is always matter of judgment, depending on the facts of a complaint.

To put this into context, imagine you are the Managing Partner at an accountancy firm. It’s the morning after the office Christmas party and you receive an allegation about one of your employees engaging in poor conduct – sexual or otherwise. What do you do first? Do you launch straight into an internal investigation (and if so, where do you start?) or do you make a report to the ICAEW and pass it over to the regulator to deal with? It’s a thorny issue and one that leaves the firm open to legal action if it gets it wrong.

Following are some best practice steps that firms should consider in order to make the right call.  

FIRST STEPS IN AN INVESTIGATION

The first thing to consider is what is the nature of the complaint. If it could be criminal misconduct, that will be a crucial factor in determining next steps. The alleged victim will need to be contacted and offered support and the alleged perpetrator may need to be suspended, depending on the circumstances. Although it might be tempting to immediately try to get to the bottom of what has happened, firms must be careful. If a potential crime has been committed the firm should be careful to not take any steps that could be seen to “trample over the crime scene” and to not prejudice any future law enforcement investigation.   

Depending on the nature of the complaint, a firm may wish to consider whether an early report, even on a high-level basis, is made to the ICAEW, as in certain circumstances the ICAEW will want to consider whether the alleged perpetrator should be suspended from membership (on an interim basis) whilst the investigation (criminal or otherwise) takes place.  This is a rare step but one which the ICAEW would consider taking if the circumstances dictate it, for example, if the alleged act is extremely serious.

Where it is obvious the complaint is not a criminal matter, it is likely that the firm will wish to take early steps to investigate. Unless the issue occurs in a large firm where investigators and decision makers can be truly independent of those involved in the incident(s), it may be more appropriate to outsource the investigation externally. Instructing a law firm to investigate and report on its findings  brings the additional benefits of independence, efficiency and, importantly, the ability to obtain privileged advice.

Investigations vary in size and scope, depending on the factual circumstances.  However, these elements are typically important:

1. Establishing a core group to commission and guide the investigation who can benefit from privileged communications if external legal advice is sought.
2. Preserving the evidence, which can include hard copy and electronically held material  (for example if messages have passed between the alleged victim and alleged perpetrator on work devices).
3. Establishing Terms of Reference that set out (inter alia) the allegations being investigated, the scope of the review, likely witnesses to be interviewed, the approach to confidentiality, and the timetable. The Terms of Reference may need to be updated periodically as the investigation develops.
4. Assessing how personal data will be processed and ensuring any processing is compliant with data protection law.
5. Using a Decision Log – this will allow a firm to review  why a particular decision was made – this can be particularly useful if challenged months or even years later.
6. Carefully assessing the findings and next steps, including from an employment or regulatory perspective.
7. Continually reviewing whether the duty to report misconduct to the ICAEW has crystallised.

The ICAEW’s guidance on the Duty to Report Misconduct (June 2023) provides that a firm can await making a report until the end of an investigation, and only if there is evidence which would support a report. However, this should be reviewed regularly as there may come a point where there is a reasonable belief that misconduct has been committed, and thus the duty to disclose may crystallise.  The format of the report may also differ depending upon the circumstances, so this should be considered carefully in every case, particularly where sensitive personal data may be involved. 

The firm should consider how it is going to communicate the outcome of an investigation to its members if it becomes necessary and/or appropriate to do so; in certain situations, it is advisable to have a PR/comms plan in place.

Navigating how to deal with a complaint in relation to behavioural issues in the accountancy world can be complicated and often presents novel problems.  Balancing the rights of the alleged victim and alleged perpetrator, whilst seeking to conduct a robust investigation, can be difficult and risky from a legal perspective. It is not unusual for an investigation to engage regulatory, employment, criminal, reputation and privacy issues, which is why it is important to plan the investigation carefully from the outset, but also be nimble when new issues arise.

Whilst most Christmas socials and parties will pass without incident, there is an increasing risk that festive frolics could lead to regulatory wrongs. Firms having an investigations protocol in place is a good start to be ahead of the game in navigating a way forward if a complaint is received.

We have produced a series of podcasts giving detailed guidance about how to run an effective internal investigation.  If you would like to receive these or additional blogs and guides about how to conduct an internal investigation within accountancy firms, please contact Julie directly who will be happy to assist.

This article was first published by Accountancy Daily on 6 December 2024.