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Managing Risk in Desperate Times 

By John A. Dodsworth, CPA

CAMICO Mutual Insurance Company ( is the nation's largest CPA-owned mutual insurance company and second largest provider of accountants professional liability insurance and risk management services. John A. Dodsworth, CPA, is CEO and a director of CAMICO. He was instrumental in establishing CAMICO and has been CEO since the company’s inception in 1986.

Economic downturns historically have been risky periods for CPAs, and the current downturn has its origins in areas that are high-risk even in good economic times. The problems in the financial, real estate and construction markets call for CPAs to be extra proactive and vigilant about managing their risks.


Now is the time to examine clientele to determine which of them will be affected by the downturn. Which clients are losing customers? Which are making less money? in breach of loan covenants? in danger of losing their credit or their investors?


Any mortgage-related investments are of course directly affected. But some clients may have subprime investment exposures that may be hidden in pension or similar funds. The current lack of credit availability will also cause difficulties for some clients. Good credit risks may have more trouble than usual getting credit, and not-so-good risks may find it next to impossible. Any business or entity that relies heavily on credit or outside investment advice can develop troubles in an instant.


Land development and construction companies are directly affected by decreases in real estate prices, and any investment with an underlying real estate or mortgage-based component will likely cause problems. Whenever real estate becomes less valuable and financing more difficult, the risks go up.


Identify Clients at Risk


The key is to identify risky clients sooner than later. Get to know their situations and make sure that they are getting good advice. Take an active role in helping them solve problems. It’s much easier to deal with trouble ahead of time than after the fact. The good news is that taking the initiative and helping a client through a difficult period can cement the client–CPA relationship.


Clients (as well as jury members) expect the CPA to “advise and warn.” When things go wrong, the CPA may be perceived as having failed to communicate or offer services that would have prevented the problem. A passive, hopeful approach does not work. And the expectation to advise and warn goes way up in an economic downturn, when the CPA is expected to be more on top of fraud, business failures, embezzlements, almost everything.


In desperate times some clients will rationalize desperate measures, thinking, “If we can just acquire this loan or raise those funds, we can get through this rough patch.” Sometimes desperate measures get by a CPA who has become complacent about exercising professional skepticism.


Another common but serious error for CPAs is to go along with the client on an issue such as the valuation of inventory or assets, which will satisfy the creditors or investors but also result in a significant material misstatement. Don’t take on your client’s problems and become a victim for the client. Loyalty to a client is not above the professional standards of integrity, independence and objectivity. It’s not worth losing your reputation and your own financial security as the result of a disastrous engagement.  



FREE REPORT: CAMICO's claims experience shows that when the economy goes down, claims tend to go up. Being prepared for an economic downturn will help protect your firm in the future. 

E-mail to request your free copy of the CAMICO report
"3 Steps to Help Prepare Your Firm for the Next Economic Downturn".


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       Coverage for the CAMICO program is provided by (i) CAMICO Mutual Insurance Company;
       (ii) Liberty Insurance Underwriters Inc., administered by CAMICO Insurance Services. 
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