Client hygiene: Clean up before it costs you

Many accounting and advisory firms are often focused on winning new clients and give far less attention to whether existing relationships still make sense. It is an approach that can not only limit growth, but expose firms to unnecessary commercial, compliance and reputational risk.

With regulatory scrutiny increasing due to tougher anti-money laundering and counter-terrorism financing (AML/CTF) obligations in Australia from 1 July 2026, firms are under growing pressure to take a more disciplined approach to managing their client base.

The concept is commonly referred to as “client hygiene”. While accountants have always had an obligation to know their clients — including meeting requirements such as the Tax Practitioners Board’s Proof of Identity checks and the Australia Taxation Office’s Agent client verification methods — good client hygiene goes much further, says Andrew Blundell FCPA, principal at Cathro and Partners.

“It means regularly reviewing who your clients are, the work being performed and whether those engagements still align with the firm’s commercial, compliance and strategic priorities,” he says.

For existing clients, that includes reviewing the scope of the engagement, the services being provided and whether those services remain within the firm’s licensing and professional obligations. It also means ensuring advice has not gradually drifted beyond the engagement agreement or into areas the firm is not authorised to provide.

How client hygiene intersects with recent AML/CTF reforms

Failing to do the basics can expose firms to unnecessary risk, and with Australia’s AML/CTF regime, regulated by AUSTRAC, undergoing major reforms, the consequences are becoming more serious. 

From July 2026, changes to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 mean regulations have been expanded to include lawyers, accountants, real estate agents and, in some cases, jewellers. This brings a new layer of scrutiny for accountants, advises Daniel Mossop, national manager for policy, rules and guidance at AUSTRAC.

“This is not about targeting particular sectors because there are ‘bad apples’ within them or because there is a criminal cohort,” Mossop says. 

“Rather, it reflects the nature of certain services provided by accountants, lawyers and real estate agents that have been recognised globally as being at higher risk of money laundering and terrorism financing.” 

It is a significant expansion of the existing regime, which already contains Know Your Client requirements, and is designed to ensure professionals are not inadvertently facilitating money laundering or the financing of terrorist activities, he adds. 

AUSTRAC estimates that serious and organised crime costs the Australian economy more than A$68 billion every year.

 

"It means regularly reviewing who your clients are, the work being performed and whether those engagements still align with the firm’s commercial, compliance and strategic priorities."

 

The new requirements also involve reporting relevant concerns to AUSTRAC, which plays a central role in disseminating intelligence to law enforcement, national intelligence and other regulatory bodies, so appropriate action can be taken.

“In effect, it is about identifying where criminal funds may be attempting to interact with the legitimate financial system,” Mossop says, “and ensuring there are processes in place at the frontline to detect and escalate that activity.”

How to reduce risk through client hygiene reviews

In practice, effective client hygiene is not a one-off onboarding exercise. It is an ongoing customer due diligence process that operates on a sliding scale of risk. 

“From a practical perspective, the challenge for businesses is to think about the types of risks their customers present and then build a process around reviewing those relationships at appropriate intervals,” Mossop says. 

 

"This is not about targeting particular sectors because there are ‘bad apples’ within them or because there is a criminal cohort. Rather, it reflects the nature of certain services provided by accountants, lawyers and real estate agents that have been recognised globally as being at higher risk of money laundering and terrorism financing."

 

This usually comes down to identifying trigger points such as a client requesting higher risk services or changing the nature of their transactions, or where accounting and finance professionals become aware through engagement that a client’s personal circumstances or business structure has changed, including beneficial ownership. 

“In simple terms, that is why we are guiding firms to go through our guidance and starter kits to help them embed ongoing checks into an AML/CTF program, particularly for smaller practices,” he says.

Where it can go wrong if client hygiene is not maintained

The risks of poor client hygiene often only become clear when things unravel, Blundell says.  

“As a liquidator, I am obviously looking at things in hindsight. There have been situations where I have seen accountants provide a business valuation for a client in relation to the sale of a business when they are not qualified to provide that type of valuation,” he says. 

In one case, an accountant was later sued after the business failed. The transaction was not at market value, and they had effectively helped facilitate the transfer of assets.  

“Another issue I have seen is where accountants effectively drift into what is known as ‘shadow director territory’,” Blundell continues. “Not because there is any bad intent, but because the relationship becomes so close that they end up with practical control over bank accounts or are regularly acting on instructions from directors or management.”

In insolvency situations, this level of involvement is closely scrutinised and creates real exposure because those deemed to have acted as directors can ultimately be held personally liable for certain debts or decisions made during that period, Blundell says. 

“People often become too comfortable with long-standing clients, and things start to slip,” he says. 

“Engagement letters are not updated, and the boundaries of scope are not properly reassessed. Those basics are critical and should be reviewed at least every couple of years, if not annually, as part of a firm’s client base review and forward planning.”