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10-point checklist for when that crisis call comes

Business

 When businesses gets into trouble, their accountant is often the first one they ring.

By Trevor Withane 11 minute read

At the onset of a crisis, the first contact a business makes will often be a call to its accountant. The advice given can determine the outcome of events. So, when you receive a call from a client telling you that money is missing from the company’s bank account or a dawn-raid has occurred, what advice do you give to steady the ship?

In urgent situations, the default might be to apply our natural (rational) instincts. Take, for example, a call which comes in from a CFO who tells you that he suspects Joe Blow has diverted $500,000 from the company using fake invoices, and asks you what to do.

Naturally, one might understandably suggest that the CFO (perhaps with HR) confronts Mr Blow with the allegation as soon as possible. However, confronting Mr Blow without first having suspended document deletion policies, ensured the documents on a company’s server are retained, conducted a forensic analysis and sought a freezing order, could result in “tipping-off” and the consequential destruction of evidence and dissipation of the misappropriated funds.  

While not exhaustive, accountants, wearing their business advisory hats, should encourage their clients to develop a crisis management plan before crisis strikes. Here are some of the things that businesses should have in their plan, and which accountants will want to consider if they get the first phone call following an incident.

  1. Respond early and quickly

Speed is vital. The greater the window between the onset of a crisis and the response to it, the greater the opportunity for uncertainty. A fast reaction will increase the likelihood of, for example, tracing any missing funds and will assist in the successful deployment of freezing orders. Speed is also essential to maintain control over the flow of information; this is key in preventing implicated individuals from being tipped-off or unnecessarily broadcasting sensitive or damaging material.

  1. Select a core team

A successful response will involve a multi-disciplinary approach and you should assemble a core team that reflects this, capable of acting confidentially and deftly. A core team should consist of accountants, IT personnel, public relations specialists, human resources, and external and internal legal counsel.

Having expertise from across the board will offer a critical advantage in discovering and compiling information; controlling the release and reception of that information; complying with legal obligations; and responding effectively without undue exposure to risk.

  1. Consider any reporting obligations

Managing the flow of information provides more than a merely strategic advantage in dealing with a crisis; it is critical in order to effectively respond to the various reporting obligations imposed and to avoid further exposure to litigious risk and fines. The disclosure of information at the opportune time, to bodies such as the ACCC, can also act to reduce looming penalties.

  1. Cease creation of discoverable material

The urgency of dealing with a crisis can blind employees to the risk of an excessive creation of discoverable material. An increased production of careless or ambiguous documents allows the narrative of a crisis to become more malleable to the interests of litigious parties and regulators. Legal privilege can be an important tool in combatting this exposure, but it is worth noting that privilege will not always attach to conversations with in-house counsel, so it is worthwhile considering the involvement of external lawyers.

  1. Preserve documents

Conversely, it is imperative that pre-existing documents be preserved as the destruction of evidence can constitute a criminal offence. It is worth considering putting a hold on any destruction policies that are in place, which can also protect against potential criminal implications arising through the destruction of evidence. Well-preserved documents can also be useful in illuminating the facts at hand, to exculpate a business from any wrongdoing and in facilitating the building of a strategy to avoid similar crises in the future.

  1. Deal with implicated employees

Dealing with implicated employees can be fraught with challenges but careful management of the situation can help further internal investigations without tipping-off the suspected individuals. Businesses often respond to crises with over-zealousness, interrogating and terminating suspected individuals. But this can often frustrate the investigative work of the company, fomenting a hostile and uncooperative environment. Accountants can lead a more thoughtful and effective strategy, encouraging restraint and allowing for cooperative investigative interviews.

  1. Employ an external communication strategy

Where public image and shareholder confidence are instrumental in determining the success or failure of a crisis, the involvement of a PR specialist in your core team is essential. Any PR strategy should run in tandem with a legal team to ensure that communication remains within lawful boundaries.

  1. Deal with customers and suppliers

The impact of a crisis can have far reaching consequences so it is important to consider whether contracts have been breached, crafting a strategy to protect commercial relationships.

  1. Tipping-off

It is also key that a company does not tip-off implicated parties. Not only can tipping-off frustrate the location of assets and conclusion of investigations, it can constitute a criminal offence.

  1. Insurance

Different insurance policies will contain reporting obligations of varying strictness, so it is important for the business to establish what the relevant requirements of its policy are before the onset of a crisis.

Uncertainty lies at the very core of every crisis but, with a well thought out strategy, an awareness of risk exposure and the involvement of a multi-disciplined team, accountants can navigate businesses through turmoil and back to calmer waters.

Trevor Withane is a partner at Ironbridge Legal.

 

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