You may be wondering what had prompted such a hard-nosed conversation? In fact, I would like to know as well! To give you an idea of how intrusive it was, it appears that, before our meeting, the agency’s US based legal team had delved into our website and gone through it with a fine toothcomb.
The agency’s concern was whether we, as a ‘boutique’ firm of contract compliance auditors could be truly independent and whether they could trust us with their salary data. After all, through their eyes, because we were small, we would welcome any work that came our way, whether or not it compromised our independence.
We have even turned down bread and butter agency financial audit work because the client insisted that the agency pay us.
We have done, and will continue to, regardless of our size, turn down work that could compromise our integrity and independence. Over the past 12 months we have turned down salary benchmarking work worth over £100k because it is not what we do AND could compromise our independence. We have even turned down bread and butter agency financial audit work because the client insisted that the agency pay us. This would have made the agency our client in the eyes of the ICAEW and absolutely not independent – there was a clear conflict of interest.
Our integrity and reputation is the most valuable thing we have. It is, at the end of the day, what pays the bills and allows me to put food on the table for my family. I will not compromise that for love nor money.
We have to be allowed to do our audit work
Whilst it is essential that the audit clause in a contract with an agency provides the right for us to see all the numbers we have to see, this doesn’t always mean that an agency will allow us to see all the numbers.
As part of our conversation, the FD (and he was not the first to do this) told us that because we were not a Big 4 firm (PwC, KPMG, Deloitte and Ernst & Young), we were not allowed to see their salary data (despite it being written in the contract that such data was accessible and Financial Progression meeting the necessary criteria as a certified public accounting firm – the US term for a firm of Chartered Accountants).
Apparently because the Big 4 are regulated by a professional body, this means that they can be trusted with confidential data. Hang on a minute, we are also regulated by the same professional body and subject to exactly the same professional standards, ethical guidelines and quality assurance checks as they are. Additionally in 2014 the European Commission declared ‘Big 4 only’ clauses in commercial contracts for statutory audit work ‘null and void’. It is surely only a matter of time before the competition authorities extend this to commercial audits as well.
it turned out that the agency had been badly burned in the past by so called ‘independent’ contract compliance auditors…having access to salary information and then making it available for use…in fee benchmarking exercises.
On digging a bit deeper into the agency’s motivations, it turned out that it had been badly burned in the past by so called ‘independent’ contract compliance auditors (technically firms of consultants, though run by qualified accountants) having access to salary information and then making it available for use (without permission) in fee benchmarking exercises.
Luckily, because we had been put in this situation before, I was able to set out how we conduct ourselves and point out the flaws in the FD’s argument which, eventually, he accepted.
The group’s Madison Avenue legal team, however, did not and our mutual client was forced to accept that the salary checking part of the audit work would be done by one of the Big 4 firms, albeit paid for by the agency, which would then report its findings at a summary level to me. The meeting that subsequently took place with the audit partner from the Big 4 firm and the same FD only further served to highlight the flaws in that arrangement! Suffice to say, we finished all of our work and delivered the last of the reports to the client some time ago. Nothing has yet been heard from the Big 4 firm!
the agency FD and his colleagues, after we had completed our audit work, commented on how thorough we were compared to other auditors they had had through the door
Furthermore the agency FD and his colleagues, after we had completed our audit work, commented on how thorough we were compared to other auditors they had had through the door and how we provided “a completely different level of expertise compared to the Big 4”! He also accepted that, because of the way we had conducted ourselves, the agency was wrong to have taken the approach that it did.
We may only be a small, but perfectly formed, firm of auditors, but we will make sure, regardless of how much pressure is put on us, that we do the job our clients have asked us to do.
Such tough conversations with agency FDs are, luckily, few and far between. We don’t work on an adversarial basis and actively seek to preserve relationships between the agency and our (mutual) client. However, our priority always is to give our clients as much transparency over their financial affairs with their agencies as the contract allows. That transparency means we have to be truly independent, which is why we will never carry out any salary or agency rate benchmarking work or provide confidential data to others without written permission.