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30 Years of Risk Management

CAMICO’s founding in the midst of a professional liability crisis in the mid-1980s came out of an innovative, problem-solving approach taken to address several difficulties then facing CPAs.

Many CPA firms had expanded into areas not traditionally associated with the profession: financial planning, business management and consulting, estate tax planning, and other fields that created new exposures to disputes and claims. Meanwhile, the insurance companies covering CPAs were engaged in a rate-cutting war as these new exposures were developing. The companies soon found themselves with insufficient funds to meet their new claims liabilities, causing them to withdraw from the market, stop covering CPAs, or impose exorbitant premium increases to address their shortfalls.

The CPAs involved in the issues at the time understood that if they stayed with the same traditional insurance approach, they would be inviting the crisis to repeat itself in the future. They also saw an opportunity to develop an innovative approach to CPA liability and risk management that would enable CPAs to put their heads together in solving problems on a long-term basis as they grew their practices.

The innovative approach became CAMICO—a CPA-directed and managed company that partners with CPA policyholders in managing the risk exposures that lead to disputes. From its inception in 1986, CAMICO has been developing loss prevention tools and techniques that help CPAs avoid and minimize risks.

CAMICO Comments, January 1987, the first policyholder newsletter. The lead article: “To Sue or Not to Sue”

Many CPA firms have avoided liability troubles because of CAMICO’s work over the past 30 years, and the success of CAMICO and its more than 8,200 member firms has created a unique bond between the company and its members—a bond that helps to sustain and propel the company and its members through many challenges, difficulties and hard economic times.

Here is an overview of some of the issues CAMICO has helped CPAs address and solve over the years:

The 30-Year Favorite: Suing for Fees

CAMICO’s first policyholder newsletter, CAMICO Comments, was published in January 1987, just seven months after CAMICO’s founding in June 1986. The lead article in that newsletter, “To Sue or Not to Sue,” addressed an issue that still causes trouble for many CPAs to this day: billing, collecting and suing for fees.

The recommendations from 1987 are still good advice today: A carefully drawn engagement letter should allocate, in limiting language, the CPA’s and the client’s responsibilities. The ideal letter should also include the firm’s fee arrangement, payment terms, and a stop-work provision.

The recommendations in 1987 included “a deposit arrangement, whereby the client’s check must be received as the CPA’s authorization to begin work. When the deposit is used up, it must be restored for work to resume.” Other key tips: do not allow fees to build up to the point where you believe you can no longer walk away from them, and enforce the stop-work provisions in your engagement letter.

CAMICO recognized this issue in 1987 as a practice management problem that could be proactively managed into a minor problem—one that did not require insurance. Today, CAMICO offers a five percent premium credit for policyholders who agree to exclude coverage for claims arising subsequent to suing to collect fees.

Policyholders who want the option to sue for fees must first consult with CAMICO before committing to a lawsuit. The consultation enables a CAMICO specialist to assist the policyholder in weighing the risks and consequences. Lawsuits and counter-suits almost always result in the CPA spending far more in attorney fees and in lost billable time than is warranted for the fees owed to the CPA. CAMICO believes that it is important for a policyholder to be aware of all of the potential costs and consequences.

Tax Reform Act of 1986

IMPACT 2, May 1987. The lead article: “Why Tax Reform Makes Use of Engagement Letters Essential”

This landmark federal legislation added complexities and penalty provisions to the Internal Revenue Code at a time when the Internal Revenue Service sought to place more of the responsibility for valid tax return information on tax preparers. Up until then, engagement letters had been used primarily for audit engagements, but the developments of 1986 led CAMICO to recommend that preparers use engagement letters for tax and other non-audit services in order to limit their responsibilities, define client responsibilities, and to establish effective billing and collection policies.

CAMICO thereby pioneered the use of engagement letters for non-audit work. Sample engagement letters were developed for a variety of engagements to help CPA reduce their risk exposures, and in 1988 CAMICO became the first insurance company to establish a stand-alone Loss Prevention department to help CPAs craft letters and proactively manage their risk exposures.

Today, an Engagement Letters Resource Center resides on the CAMICO Members-Only Site ( along with Resource Centers for Subpoena Services, Accounting and Auditing, Ethics, Tax, ID Theft/Data Security, Fraud, and Economic Downturn.

Savings and Loan Crisis

The Tax Reform Act of 1986 also limited deductions and correspondingly reduced the value of many real estate investments, halting the real estate boom of the early to mid-1980s.

The deregulation of the thrift industry had given some thrifts enough leeway to get themselves into trouble with high-risk ventures. There were so many savings-and-loan failures that the Federal Savings and Loan Insurance Corp. became insolvent in 1986, leading to its dismantling in 1989.

In 1987 CAMICO began encouraging CPAs to emphasize client acceptance procedures, urging firms to take a critical look at clients and the capabilities of the CPA firm’s personnel. This focus remains an integral part of the client screening procedures CAMICO recommends to this day and are embedded in three pivotal questions:

  1. Is the engagement a good fit for the firm’s expertise?
  2. Is the client the type of client the firm would like to represent?
  3. Is the client financially viable?

In 1989 CAMICO added a supplemental form, the “Financial Institution Supplement,” as part of its insurance application to help the company and its policyholders assess risk exposures from financial institution work.

By the 1990s the savings and loan crisis led to a recession triggered by sinking real estate values, but CAMICO policyholders were by then well educated in client acceptance and continuation procedures. By analyzing client histories, references, annual statements, records, related-party transactions, and personnel, CAMICO policyholders were generally well positioned to manage the risks posed by the recession.

Employment Practices Coverage

In 1994 a $7.1 million award against an employer in a sexual harassment case spurred intense interest in employment practices coverage. That same year CAMICO began offering policyholders Employment Practices Defense coverage for allegations of wrongful termination, discrimination and sexual harassment. As the company began to expand into other states besides California, beginning in 1995, the demand grew for more insurance protection, human resources advice, and legal services.

In 2007 CAMICO rolled out its Employment Practices Liability insurance program on a multi-state basis, offering expertise to policyholders faced with potential risk exposures as a result of employing staff members and contract workers. Advisory and review services included tools such as sample employee handbooks, employment law summaries, and human resources policies and procedures.

CAMICO continues to provide several resources available to firms that have an Employment Practices Liability insurance policy: HR consulting services and tools, unlimited telephone and email HR consulting services, online resources, employee handbooks, educational opportunities on HR topics, and HR management policies, procedures and forms. Articles on topics such as social media and employee accommodations are also provided to policyholders and accounting publications. (See article on “Social Media—the New Water Cooler” in this issue of IMPACT.)

Responding to Subpoenas

By 1997 many CPA firms were struggling with subpoenas seeking hundreds of documents, many of which were highly confidential. CAMICO assisted policyholders with appropriate responses to subpoenas and the legal process, providing advice and guidance on the issues involved.

CAMICO continued to offer subpoena and consultation services and in 2012 established the Subpoena Services Resource Center on its Members-Only Site. As needed, CAMICO assists policyholders with services such as:

  • interfacing with attorneys,
  • preparing for pre-trial and pre-grand jury testimony,
  • responding to requests and legal process,
  • counsel in connection with responses to criminal and grand jury subpoenas,
  • third-party requests for information, and
  • regulatory requests.

Comprehensive consultation and advisory assistance is also available to policyholders on a variety of sensitive client matters affecting the profession and practice management, including engagement and disengagement issues, conflicts of interest, and managing public expectations while adhering to professional standards.

More information can be found on the CAMICO Members-Only Site’s ( Subpoena Service Resources Center.

Enron, Andersen, Sarbanes-Oxley

The year 2001 saw the bankruptcy of Enron, leading to the conviction of Arthur Andersen in 2002 (later overturned) and the Sarbanes-Oxley Act—federal legislation aimed at reforming public company accounting and protecting investors.

CAMICO advised CPAs regarding the lessons learned from the Enron debacle. For example:

  • firms of any size face similar risks on a daily basis;
  • firms should guard against becoming too complacent and loyal, potentially jeopardizing their professional skepticism with long-standing clients;
  • firms should be diligent in their duties to third parties and the public; and
  • misplaced loyalties can cause judges and juries to come down hard on firms.

The Enron/Andersen collapse also highlighted the high standards set by the public for the accounting profession. Also known as claim standards or jury standards, they can be significantly higher than the profession’s standards for itself, especially in the areas of audits and fraud. CAMICO jury studies have shown that the majority of jurors expect CPAs “to police the financial reporting” of companies and “to uncover any and all irregularities, even if the accountant is not hired to conduct an audit.” The public expects CPAs to be objective, credible, knowledgeable, to “get it right,” and to advise and warn clients about fraud. Documentation of advice and warnings is essential to effective risk management.

More information, guidance and resources are available on the CAMICO Members-Only Site’s Fraud Resource Center.

Abusive Tax Shelters

In 2002 the Internal Revenue Service doubled the number of its criminal investigations of tax return preparers over 2001, developing a “counter-marketing” campaign against abusive tax shelters. In early 2003 the IRS provided amnesty from penalties and prosecution through the Offshore Voluntary Compliance Initiative, giving taxpayers a deadline of April 15, 2003, to disclose foreign bank or other accounts and transactions to avoid taxes.

Policyholders who reported early to CAMICO regarding questionable tax strategies provided detailed information about such strategies. CAMICO disseminated the information through IMPACT and provided several Loss Prevention steps to manage return preparer risks.

“Informed consent” letters are recommended for clarifying that the professional advises and informs the client, while the client makes the decision and consents to the risks and consequences before filing their return. More information regarding “informed consent” letters can be found under “Tax Letters” in the Members-Only Site’s Engagement Letters Resource Center.

The Great Recession

The year 2008 brought economic crises the likes of which had not been seen since the Great Depression. Many of the largest firms on Wall Street were burdened with billions of dollars of bad assets and toxic mortgage securities stemming from the subprime market. The federal government was able to help Fannie Mae, Freddie Mac, Bear Stearns and AIG but could not help Lehman Brothers, which, at $639 billion, became the largest bankruptcy in U.S. history. The stock market also crashed, and credit markets froze, cutting off loans to consumers, banks and businesses, many of which had to seek bankruptcy protection.

Economic conditions historically have a significant impact on CPA professional liability claims. In general, more and larger claims are filed during a downturn. The recession of 2008–09 was no exception.

Public standards for the CPA profession again became a factor. The public and clients expect CPAs to advise and warn clients of opportunities and risks. When something goes wrong with a business, some clients will perceive the CPA as having failed to advise and warn about whatever went wrong; e.g., “My CPA should have warned me that my business was vulnerable to a recession.” Also, looking at a situation in hindsight leads some clients, and their attorneys, to ask why the CPA did not send written warnings about potential losses.

CAMICO provided comprehensive guidance in IMPACT and via its advisory hotlines on the steps CPAs could take to address economic exposures. Some of the major steps include:

  • Identify and educate clients at high risk.
  • Educate staff members who interact with clients.
  • Heighten professional skepticism.
  • Increase scope, intensity, and fees for attest work.
  • Insist on current valuations.
  • Identify and understand investment risk.
  • Be attentive to disclosure of loan covenant violations.
  • Examine risk to third parties.
  • Risk-screen new and existing clients.
  • Document the firm’s understanding with the client in an engagement letter, and document all advice, warnings and decisions.

More information is available in the Economic Downturn Resource Center on the CAMICO Members-Only Site (

The Loss Prevention Manual, circa 1988
The Loss Prevention CD-ROM, circa 1997

Evolution of LP Resources

The list of CAMICO Loss Prevention innovations goes on, and CAMICO has been organizing resources in a variety of formats and media, as follows:

  • The red Loss Prevention Manual (circa 1988, see photo),
  • Loss Prevention diskettes (circa 1993),
  • Loss Prevention Fax-on-Demand (circa 1995),
  • Loss Prevention CD-ROM (circa 1997, see photo), and
  • the current CAMICO Members-Only Site, featuring:
    • the Knowledge Tree reference library, organized by scope of service and risk management topics;
    • eight Resource Centers on areas such as: Engagement Letters, Subpoena Services, Accounting and Auditing, Ethics, Tax, ID Theft/Data Security, Fraud, and Economic Downturn;
    • Education and Training opportunities;
    • A Cyber-Security resources site for CAMICO policyholders with CyberCPA coverage; and
    • HR Support for policyholders with Employment Practices Liability insurance.

After 30 years of developing CPA-focused risk management resources and services, CAMICO continues to lead the profession with its unique commitment to helping CPAs solve, avoid and minimize problems.

As always, CAMICO encourages policyholders to call 800.652.1772 / 650.378.6800 or email the Loss Prevention department at for more information.

For a complete history of CAMICO, click this link to the pdf, “In Partnership with CPAs: The Story of CAMICO.”

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