Subcontracting work that you aren’t equipped to handle internally is a great way to access specialist skills as and when needed. It’s also a good alternative to employing a new member of staff, which is something that smaller practices may be less inclined to do in the wake of Covid-19.
‘You can supplement your team with a subcontractor when a larger project comes along rather than burden your overheads with a full-time employee,’ says Chris Biggs, managing director of accounting and advisory firm Theta Financial Reporting. However, he adds that using subcontractors brings about significant and unique risks that need to be closely managed.
Vetting is essential
Biggs points out that unless you are just referring your client to another professional (and the client performs the vetting, confirms their capability and suitability, and engages them separately), then they are part of your team and carry your brand.
‘I therefore highly recommend only using subcontractors whom you personally know or are recommended to you by someone you absolutely trust,’ he says. ‘Apart from the client-delivery aspect and ensuring quality, your firm’s brand and reputation is at risk, and this has to be protected at all costs. I’d rather turn down work than take any reputational risk.’
But taking someone else’s word for it isn’t enough; you still need to screen them properly. ‘Taking on a subcontractor requires the same due diligence as taking on a new employee, so check them out, ask around and take up references,’ says Della Hudson, practice owner and author of The Numbers Business: how to grow a successful cloud accountancy practice.
Hudson adds that if the subcontractor is a member of a professional institute, they are bound by the rules of that institute’s professional ethics, which should give you some further reassurance.
‘You should also make it an explicit requirement in the engagement letter that they have the necessary experience, professional qualifications and valid licences to perform the role,’ says Biggs.
He also emphasises that an engagement letter with a subcontractor is a must. This should cover all the usual areas: roles and responsibilities of both parties, requirement for appropriate professional indemnity insurance, duty of care, data protection and GDPR, ownership of intellectual property, non-solicitation of clients, confidentiality, non-disclosure and anti-money laundering.
Research the risks
Money laundering is actually one of the biggest risks when using subcontractors, says Mark Halstead, partner at financial risk and business intelligence firm Red Flag Alert. ‘Accountants are liable for any mistakes or malpractice of subcontractors in terms of money laundering,’ he says.
To manage this risk, Halstead recommends that practitioners focus on three key areas. ‘Firstly, check whether the subcontractor has been trained in anti-money laundering and that they know how to complete a suspicious activity report.
‘Secondly, consider their financial health to make sure everything’s above board. You can do this by using independent software like Red Flag Alert and by looking at the subcontractor’s books and past work. If they’re unwilling to share such information and are not open to such checks, you should steer clear.’
Thirdly, Halstead says, look at any connections the subcontractor may have to the work you are asking them to undertake. ‘Ask them to declare any personal connection or conflict of interest,’ he says. Also, ask them to review and agree to your practice’s anti-bribery policy. You should do some research on social media, too, to double-check any declarations they make.’
Put it in writing
To avoid disputes further down the line, agree fees and payment terms in advance. ‘Like many expert suppliers, we are happy to have an initial phone call free of charge,’ says Ben Harwood, head of asset recovery at surveyors and property consultants Naismiths, who works with accountants and insolvency practitioners acting for companies in the construction sector.
‘This offers both sides a chance to understand what work will be involved and how it’s to be invoiced for – whether as a project fee or on an hourly rate basis.’
Client comes first
Harwood points out that the accountant and the subcontractor must share the same goal: helping the client.
‘In my experience, that goal is most achievable when we’re called in early, before the problems have become insurmountable, and when the accountants are transparent and willing to work collaboratively and pragmatically with us,’ he says.
Stay alert
Finally, how do you ensure that the subcontractor carries out the work as agreed and to a suitable standard?
‘The subcontractors are, in effect, part of your team and so need to be supervised as such,’ Biggs says.
Hudson adds: ‘You may not need to supervise all their work, but you should certainly check all their outputs as the responsibility, and the practising certificate, is in your name. You can relax this as you work with them more, just as you would with an employee, but the buck still stops with you.’
