Everyday ethics: How to address possible financial fraud

As told to Susan Muldowney

Question: “I am a registered tax agent. At a professional networking event with other tax and public practitioners, I overheard a colleague — a high-profile, registered tax practitioner — who appeared mildly intoxicated, boasting that they have been ’dipping into trust fund accounts’ to ‘cover cash flow issues’ in their practice. 

“They added that they always replace the funds before clients notice and joked that ’no one audits trust accounts anyway’.

I know that under current legislation, registered tax practitioners are legally obligated to report significant breaches of the Code of Professional Conduct (the Code) to the Tax Practitioners Board. I am aware that failing to report may expose myself and my firm to penalties. 

However, reporting this incident could irreparably damage my personal and professional relationship with the practitioner and their firm and potentially be seen as defamation if the allegation cannot be proven. Should I hold off reporting, at least until I have conclusive evidence of wrongdoing?”

Answer: This question raises three distinct issues: the potential misuse of client funds, the ethical obligations of registered tax practitioners and the broader culture of the organisation involved.

From an ethical perspective, the conduct you have described, if true, would represent a serious breach of professional standards. The apparent misuse of trust account funds raises clear concerns about integrity, professional competence and due care, which are among the fundamental principles set out in APES 110 Code of Ethics for Professional Accountants. 

Professional behaviour is also clearly in question here. The fact that the practitioner allegedly joked about the conduct at a professional event, while appearing intoxicated, only heightens those concerns.

However, while your obligation to act should be taken seriously, so too should your obligation to ensure that you act fairly and responsibly. Hearing a troubling comment at a networking event is not the same as establishing that misconduct has occurred.

Before making a formal report, it is important to undertake some careful self-reflection. Ask yourself whether there is any possibility that you misheard the conversation, misunderstood the context or have been influenced by any personal bias or prior experience with the individual. Professional ethics require us to challenge our own assumptions as much as we challenge the conduct of others.

This does not mean conducting your own investigation. It is not your role to gather conclusive evidence or determine guilt. Rather, your responsibility is to satisfy yourself that your concerns are genuine and sufficiently serious to warrant escalation.

Specifically, under the Code, you need to have “reasonable grounds to believe that another registered tax agent has breached the Code of Professional Conduct”. 

If you remain concerned, the next step should be to follow the appropriate internal processes. Most firms have established channels for raising ethical concerns, such as a compliance function, risk team, human resources department or audit committee. 

These processes exist precisely because individuals should not be expected to investigate or adjudicate serious allegations on their own.

Using internal channels also helps distinguish between a serious ethical breach and an ill-judged boast. 

Unfortunately, some individuals, particularly senior or high-profile practitioners, may exaggerate or make inappropriate comments in professional settings without any substance behind them. Internal processes should be capable of determining whether the matter reflects actual misconduct or simply poor judgement.

You should also consider seeking confidential guidance before taking further action. 

If internal processes confirm serious concerns, or if you believe the matter is being minimised or concealed, then escalating the matter externally may become necessary. As highlighted earlier, your question raises both individual and organisational culture issues. 

If culture is playing a role in this kind of serious ethical breach, reporting to the relevant regulator, in this case the Tax Practitioners Board, would not be an act of disloyalty or defamation — it would be fulfilling your professional obligations. 

The responsibility for investigating and determining whether a breach has occurred rests with the regulator, not with you. 

Your concerns about the potential impact on your personal or professional relationship with the practitioner are reasonable, as reporting concerns about a colleague is usually uncomfortable and may have consequences. However, your professional obligations outweigh this.

The key point is not to ignore the issue, but not to rush to judgement either. Follow the appropriate processes, act with professional care and remember that your role is to raise legitimate concerns responsibly — not to prove the case yourself.

 

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