- Who Should Own Your Accounting File? Xero’s Position Hard to Defend
- Why You Should Always Hold Your Own Software Subscription
A highly publicised pay dispute between a men’s shaving supplies company and a Sydney accounting firm has raised questions about the practice of accountants and bookkeepers owning cloud accounting files on behalf of clients.
Oscar de Vries claimed an accounting firm had unfairly charged him $20,000 to move his MYOB file to Xero, set up cloud-based inventory program Unleashed, on-charge subscriptions for both programs and carry out associated bookkeeping over several months at $100 per hour.
The firm allegedly refused to allow de Vries to transfer ownership of the Xero file to himself or another accounting firm until the dispute was resolved, although de Vries could continue to use the Xero file as usual.
“I’m effectively being held to ransom and they refuse to transfer the subscription into my name, so I’m stuck with bills I never signed up for. This could amount to restraint of trade, but I’ve so far been unable to get the issue resolved,” de Vries told the Sydney Morning Herald.
De Vries asked Xero to transfer the ownership to his company but Xero said it would only do so if it received a letter from the owner of the file.
A New Spin on an Old Game
The practice of holding back a client file in return for payment was not a new phenomenon brought about by cloud accounting software.
It was “very common” for accounting firms to hold MYOB data files until the bill was paid, a bookkeeper told Digital First, speaking on condition of anonymity. “Keeping the file back has always happened. If the owner doesn’t want to pay for the file then the accountant won’t hand over the MYOB file because the work is in the file,” the bookkeeper said.
However, business owners benefited immediately from work an accountant had performed on their cloud accounting program because they worked from and had access to the same company file. Accountants were instead using the ownership of the file as a bargaining chip rather than access to it, but this had nothing to do with the vendor, the bookkeeper added.
“When that happened (with desktop software) you didn’t go to MYOB and say, Can you make your partner give back the file? You can’t go back to Harvey Norman. But now you can go to a cloud software provider and ask them (for ownership),” the bookkeeper said.
Accounting software companies often encouraged their accounting partners to sell cloud software subscriptions as part of their accounting services. Xero in particular advised partners to include the cost of the subscription in their fees and market it as a bundled service. A company signing up to Xero might not know how much the software cost as part of the service.
The legality of ownership was often not explained to companies buying Xero subscriptions through partners, a bookkeeper claimed. “Companies are signing up and not knowing how much they’re paying for the file or who owns the file.”
Xero’s partner program gave accountants and bookkeepers larger rebates and free practice management software based on the number of Xero subscriptions the partner held.
Digital First asked MYOB, Intuit and Reckon whether they encouraged partners to hold subscriptions.
MYOB said that either party could hold the subscription, but it was preferable for the business owner to do so. “While it is possible for an accountant to register the account in their name, MYOB recommends the accountant and the client set up the account in the client’s name and (for the client to invite) the accountant and/or bookkeeper as an administrator of the account,” wrote James Scollay, MYOB’s general manager of the business division, in an email to Digital First.
MYOB’s partners received commissions on registered sales and upgrades but were not incentivised on the number of subscriptions they held.
An Intuit spokesperson said the partner or business owner could hold the billing relationship but that the business owner could change the subscription at any time by calling Intuit. If the business owner had been sold a subsidised subscription by the original partner, the subscription had to be transferred to another Intuit partner.
Reckon also required a business to be the sole owner of the data file. “The small business owner has a direct relationship with Reckon and owns their data files,” said a Reckon spokesperson.
Best Practice in the Cloud
Accountants contacted by Digital First weren’t in favour of using file ownership to negotiate pay disputes, and it appeared that the practice was becoming less viable for cloud accounting programs.
“Having files in the cloud does somehow make life a little difficult. We could refuse them access to the Xero file, but if they own the Xero subscription, they could take it and run and then legal action would need to be taken” for unpaid bills, said Margaret Holmes, chartered accountant at New Zealand’s Engine Room. The Engine Room required clients to pay upfront as a result, often on fixed-fee contracts. “If the SMB owner asked for a change in administration of the subscription, then accountants really can’t say no,” Holmes added.
“There’s the legal side and then there’s the pragmatic side. Obviously the move to the cloud has changed and put the power more into the hands of the business owner,” said Rachel White CFO of Azure Group. “Probably in the future, while legally accountants can withhold information, it’s going to be extraordinarily difficult.”
“Our understanding of the legal position is an adviser can only withhold data that they haven’t been paid for,” said Matthew Addison, executive director of the Institute of Certified Bookkeepers and an accountant. “Professionally and ethically neither accountants or bookkeepers should hold a data file from the business and pay disputes should be dealt with separately.
“It’s not right. It’s the same as withholding business records. If you were withholding paper records, the ethical obligation is to hand it over despite any dispute,” Addison added.
How to Avoid a Fee Dispute
A signed letter of engagement outlining the specific fees can avoid pay disputes, said a spokesperson from Crowe Horwath, a Xero Gold Partner. The cloud sphere gave the business owner more power and accountants would find it more difficult to legally withhold information to solve a pay dispute.
“A conversion should not be costing anywhere near the report. In this case, the issue is the delivery of professional services rather than ownership of subscription. It’s a dispute of engagement and has nothing to do with Xero,” said Chris Ridd, managing director of Xero Australia.
“To avoid these situations, having a clear term of engagement is very important.”
A fixed fee payment scheme was less likely to run into pay disputes because clients were quoted specifically before work started. A five to 10 minute conversation could spark an invoice two weeks later, but a fixed fee price payment usually included unlimited phone calls.
“We avoid fee disputes by having a fixed fee or by agreeing the fee before we start work, so it’s never a surprise to the client and we get them to pay before the work starts with a choice of payment terms,” said Holmes. “They can argue before the work starts so then fees can be reduced for clients to find other methods of service.”
Additional reporting by Amy Chen.