By Suzanne M. Holl, CPA
Clients will sometimes ask their CPA to assist them with human resources-related matters. A common scenario involves the CPA assisting in the recruitment of a new CFO, or assisting the client to “redesign an accounting department.”
The debate over how much assistance a CPA should provide a client in this area has been around a long time. It is essential that CPAs rendering these types of consulting services remain sensitive to not stepping into the shoes of management. Care must be given to ensuring that there is no “client expectation gap” with respect to the scope and limits of the human resources consulting services that the CPA is rendering. It is also important to define any client responsibilities that exist.
Consider the following scenario:
The CPA firm is engaged by a client company to review financial statements, prepare tax returns, and assist the company in finding a new controller. The firm places classified ads, screens resumes, and interviews candidates. Qualified candidates are then sent to the client for further interviews. The client then hires one of the candidates without informing the firm of the hiring.
A month or so later, the client calls to tell the firm that the firm had over-billed for its services in the amount of $20,000. The firm checks its records and finds that its bill is accurate. The client somehow has an inaccurate bill, and the firm warns the client that some sort of error has occurred.A few weeks after that, the new controller disappears with about $100,000. The client asks the firm what kind of background check was performed on the new controller. The firm explains that no background checks had been requested, offered or performed, but the client continues to assert that the CPA should have performed a background check.
The client hired the controller without giving the firm a chance to do a background check, and in any event it didn’t make sense to do a background check on every candidate sent to the client for an interview. Further, the engagement letter specified that background checks were not to be a part of the engagement, and when the firm pointed that out to the client, the client decided to pursue a settlement with a bank that didn’t catch the controller’s fraudulent activity.
Loss Prevention Tips
As the preceding scenario illustrates, the engagement letter can be a powerful first line of defense in a dispute. Use an engagement letter for every engagement. Juries expect CPAs to document all significant communications, decisions and observations, and the understanding between the CPA and the client should always be documented in an engagement letter. A legal defense is almost always more successful when based on documentation rather than memory.
Define your engagement specifically. Engagements in the area of human resources consulting services and/or staffing agreements are often vaguely defined. Discuss your client’s expectations with an eye toward avoiding potential problems in the future. Have a qualified risk adviser review your engagement letter.
Ascertain whether or not your firm can do the job. Determine what services are needed and whether or not they might be better met by another professional, such as an employment practices attorney.
Do not step into the shoes of management. Remember: perception is everything. The contention that you are able to remain impartial and objective while serving as a client’s CPA and business partner is usually not believed by a jury. Should something go wrong and you end up in court, it is highly likely that a jury will perceive you as not having been impartial and objective.
Suzanne M. Holl, CPA, is senior vice president of loss prevention services at CAMICO (www.camico.com). With more than 18 years of experience, she draws on her Big Four public accounting and private industry background to provide CAMICO policyholders with information on a wide variety of loss prevention and accounting issues.