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Becoming Succession Ready: Client Files

When preparing for your practice succession, one easily overlooked item is your client files. Quality client files will speak volumes about your practice. Any issues in your client files will increase scrutiny across the practice. The time to review and tidy up your client files is well before your practice succession starts. Ensure your client files are well organised and maintained.

I have seen retiring practitioners wanting to sell their practice, and their standards for maintaining client files have slipped over time. This is not the case for everyone, but I have witnessed this on too many occasions. Inevitably, the firm's successor will need to re-organise the client files and bring them up to an appropriate standard. Ultimately, a cost is associated with the re-organisational process, which will ultimately impact your financial settlement in some form. The other major imposition of poorly managed client files is the ability to locate required information efficiently. If client files are organised and systematised, and your successor understands your filing system, this can significantly enhance the transition process. In situations where client information and files cannot be easily found, these issues can and will impact the transition process and again lead to a less-than-optimal succession outcome.

A typical structure for high-quality client files includes the following sections: company information, financial statements, tax returns, working papers and supporting documentation, information related to the client's compliance with laws and regulations, such as license and permit applications, and audit reports, correspondence and communications between the accounting practice and the client, such as emails, letters, and meeting notes, reports, such as financial analysis reports, tax planning reports, and compliance reports. Having a complete set of work papers in the client file helps ensure that the accounting work performed is thorough and accurate and provides a clear record of the work performed for the client. This structure provides a comprehensive overview of the client's financial information and allows for easy access and organisation of the client's records. The system can be customised based on the specific needs of the client and the accounting practice. In an earlier blog, I discussed preparing Client Dossiers, which I recommend you implement across your top clients and include in your client files.

The storage of client information is critical to a professional firm. Some firms still maintain paper files, whilst the vast majority of practitioners have moved to some form of electronic storage in whole or in part. Some important aspects to consider in the protection and security of client information in paper format are:

  • Physical security: Store paper client files in a secure location, such as a locked file cabinet or room, and limit access to authorised personnel only.

  • Employee agreements: All employees must have signed employment agreements addressing everyday matters such as employment conditions, remuneration, leave entitlements, restraints, etc., and they must also contain confidentiality provisions that prohibit them from sharing client information without permission.

  • Secure transport: When transporting paper client files, use secure methods, such as locked briefcases or boxes, to prevent unauthorised access.

  • Disposal: Properly dispose of paper client files that are no longer needed, such as shredding them, to prevent unauthorised access to the information.

  • Access control: Keep a log of who has access to the paper client files and monitor access to ensure that only authorised personnel access the information.

  • Regular review: Review the paper client files regularly to ensure they are organised and secure and address any security concerns immediately.

By implementing these steps, you can help protect client information stored in paper client files and ensure that it remains confidential and secure. Additionally, consider implementing electronic security measures, such as encryption and firewalls and provide an additional layer of protection for sensitive client information.

Where you have electronic files and electronic storage of client information, the following measures will be essential to consider in the protection and security of client information:

  • Encryption: Use encryption to protect sensitive data stored in electronic client files.

  • Access control: Implement strict access controls to limit who can access electronic client files and monitor access logs to detect unauthorised access.

  • User authentication: Require user authentication, such as passwords, to access electronic client files.

  • Data backup: Regularly back up electronic client files to prevent data loss in the event of a system failure. Store backups securely, such as in a fireproof safe or off-site storage facility.

  • Firewalls and antivirus software: Implement firewalls and antivirus software to protect against cyber threats, such as hacking and malware, which are becoming critical issues for professional firms.

  • Mobile device security: If electronic client files are accessed on mobile devices, implement security measures such as password protection, remote wipe capabilities, and encryption to prevent data theft.

  • Regular security audits: Regularly conduct security audits to ensure that electronic client files are secure and potential vulnerabilities are addressed promptly.

By following these steps, you can help ensure that client information stored in electronic client files is protected and secure and minimise the risk of data breaches or unauthorised access. When you progress through your succession journey, a thorough due diligence process will review these measures, and inadequate security and data protection will be cause for concern.


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