In a firm's ideal world, claims against it would not exist. Clients would be happy, employees would not make mistakes and lawyers would be untroubled by the distress calls of managing partners wondering how they are going to protect this year's profits from being eaten up by a mammoth claim.

Sadly, the ideal world does not exist, but there are ways in which you can try to move towards it, to limit your risk and thus your professional indemnity premiums. Want a clear claims history to show off to your insurer? Manage your risks effectively, and you could have just that.

When considering the key points of risk management, Joanna Page of law firm Allen & Overy, says that, well, 'you probably know all of them already.'

She reels off a few: choose your clients carefully (obviously), have a good engagement letter (something that is blindingly obvious to accountants more than most these days), train people well, double check everything and have a strong complaint handling process.

Do you need a risk manager to tell you those things? Will Glassey from solicitors Mayer, Brown, Rowe and Maw, thinks you do. 'A lot of it is common sense: making people stop and think about the possibility for claims.

'If you said to most professionals, "be careful not to send emails in a hurry late at night", they would say it's obvious, but getting people to focus on those points in regular risk management briefings is a good discipline,' he says.

That is a key principle of risk management; it may seem obvious, but you may also still have to drum it home.

Risky business

So what of the less obvious points? The ones that you might not have thought of but could still change.

One practice used by many top firms is committees to deal with difficult issues.

'A lot of firms have committees dealing with difficult issues. If you have an issue on how you interpret an accounting standard you probably have a committee that will have the in-house view so that you always have got the same view on difficult topics. If you end up in litigation you don't want to be confronted with divergent views,' says Rickard.

Glassey has some other tips. 'Laying the paper trail is important, documenting meetings and telephone discussions and making sure advice is recorded in writing wherever possible.

'Beware also the dangers of email. Beware the apparent informality of email. Everybody is reasonably familiar with that as an idea, but it is always worth reiterating, particularly where the firm's accountants are issued with mobile email kit.

'Diary management and deadlines are also important. Many of the claims that we see arise from simple administrative ' mistakes, or misunderstandings or miscommunication of deadlines. Maybe the accountant doesn't understand the commercial or regulatory deadline the client is working to, and one way to address that is to record back to the client what your understanding of their requirements is.'

Absent trouble

Problems can arise from management of holidays, correspondence going missing, or not being dealt with or not being understood properly during absences and holidays, he says.

One thing to avoid, says Rickard, is writing memos trying to justify yourself when a claim comes in. 'When you are notified of a claim, don't write a long memo saying what you have done. Don't put anything in writing. It can be used against you. But there's a tendency for people when questioned or attacked to justify themselves.'

Glassey says accountants should also be kept within their areas of expertise. Don't let an auditor give a piece of tax advice that a tax adviser should do, or vice versa. That may lead to problems.

Ultimately, implementing such processes will lead to a reduction in premiums. Perhaps not immediately, Rickard says. 'Insurers look purely at claims history, how many claims you have got and how you deal with those.'

So it may take a while to feed through, rather than just saying to the insurer Ð 'here are our processes, lower our premiums.'

And more than that, good risk management improves the service to the client, according to Glassey.

'Sound risk management practices are generally consistent with quality control. Things that firms need to do to avoid claims generally also help to improve quality for a client,' he says.

STEPS TO REDUCING RISK

1. Choosing your clients

On choosing your clients, Page says:

‘Look for clients who are good long-term clients, pay your bills and give you a proper instruction to do your job properly. It’s important that they don’t just want an opinion to be used as a guarantee for their own inadequacies.’

2. The engagement letter

Almost all advisers insist that probably the key point is the engagement letter.

Page says: ‘Accountants are generally very good at their engagement letters because they have been through the mill.

You have to have a slick process which identifies what the job is you have been asked to do, and puts a circle around it so it doesn’t morph into something else.’

Jo Rickard of law firm Shearman & Stirling agrees. ‘You are setting up exactly the ambit of the job you are taking on and the bits you are clearly not going to take. You are making it clear that in the time available the accountancy firm is being asked to look at A, B, and C and can’t be held responsible for anything outside that,’ he says.

Your letter of engagement may also formally limit your liability too. As most accountants will be aware, this is not yet possible where audits are concerned, but soon will be when the Companies Act becomes law next year. But for non-audit work, this could mean some kind of multiple of fees, or a proportionate principle, rather than just being held joint and severally liable for anything that went wrong. Where liability is concerned, there is frankly not very much you can get past accountants, the masters in that respect.

3. Training and recruitment

While dealing with risk through training and recruitment may be obvious, what may be less easy to pin down is how best to manage that.

Glassey says: ‘It’s important to make it a “top-to-bottom process” all professionals within the firm need to have risk management training, not just senior managers. You need regular updates and briefings to staff and briefings to new joiners.’

4. Double checking

‘Use the “Four Eyes” principle, that things are signed off by a second partner, and mechanisms used to double check quality of work,’ says Page. Simple mathematical errors, Glassey says, can be a fertile source for claims against firms.

5. Complaint handling procedures

Page argues: ‘Obviously all accountants will have complaint handling procedures to report internally and to deal with things. There’s a professional obligation to do that and it is an important way of managing risk.

Typically, something will have to be reported to the partner responsible on the matter and a complaint handling partner too. It’s tremendously important to get the problem solved early.

Having a culture of being open about problems is important. Complaints that get out of control are often the ones someone sits on. It festers.’

CHECKLIST

• Choose your clients carefully

• Write a good engagement letter

• Ensure holidays are well managed and all administrative systems work well.

Might a letter go missing?

• Keep professionals within their areas of expertise

• Have a good complaints handling procedure

• Train your staff regularly

• Have an open culture of reporting complaints