CAMICO’s Loss Prevention and Claims department experts answer some of the most frequently asked questions in this excerpt from CAMICO’s IMPACT.
CAMICO’s policyholder risk management newsletter, IMPACT, recently received an APEX Grand Award for one of its articles on the “Top 10 Loss Prevention and Claims Questions.” In honor of that recognition we’re posting two of the questions and responses here on The Savvy CPA.
Every day, CAMICO’s team of loss prevention and claims experts deal exclusively with the concerns and issues facing CPAs. They take on a variety of questions, helping policyholder firms navigate through tricky situations. In this special Q&A feature, CAMICO would like to share with you, two of the questions our experts hear most often from policyholders.
Q: What should I do about my client who is not paying me for past work and won’t answer my calls?
A: This is a question facing nearly every CPA firm in America, regardless of firm size, during the past few years. We hear about it almost daily on the Loss Prevention hotline. Clients, of course, still want professional services but for a variety of reasons cannot pay for them.
As a firm, you can take three basic steps:
Jeff Hohman, CPA, M.S./Tax. Loss Prevention Specialist
Identify your risky clients (e.g., new ones, slow-payers) and consider putting them on a cash-on-delivery plan until they prove they will consistently pay on a timely basis. Be sure to update the engagement letter to reflect any changes in payment terms.
Consider the use of retainers before the work has started, especially for new clients and traditionally slow-paying ones.
Include a stop-work clause in your signed engagement letters — a powerful tool when used and enforced, since the client has agreed prior to beginning the services that if they do not pay you, then the firm can stop the services without incurring any liability to the client for doing so.
CAMICO has risk management tools for all three of these steps (and many more).These tools are beneficial and effective if you utilize and enforce them. We advise that your firm create a written policy and procedures document for your fees and collections. The policy should include education of staff so that the policy and procedures are consistently followed by all employees and partners.
Q: Someone in my client’s office has informed me of suspicious events that suggest the possibility of fraud, and she has asked me for advice. How should I respond?
A: This is an all-too-frequent Loss Prevention hotline inquiry. First, we remind the caller that although the detection and prevention of fraud are ultimately the client’s responsibilities, public expectations and jury standards may place some of the burden and responsibility on the CPA.
Jury standards are often higher than professional standards, as juries assess situations with the benefit of hindsight. CPAs are expected to “get it right,” which means that juries often have the expectation that CPAs will: 1) uncover fraud regardless of the services being rendered, and 2) advise and inform clients of all matters of “risk” and how to avoid these “risks.”
Duncan Will, CPA/ABV/CFF, CFE. Loss Prevention Accounting & Auditing Specialist
As we walk the caller through the specific facts of their situation, we discuss any “defensive documentation” that exists between the firm and the client. This documentation may help to clarify the client’s knowledge of their responsibilities as it relates to the detection and prevention of fraud, as well as the limitations of the services the CPA has performed for them. For example, has the client acknowledged these responsibilities in a signed engagement letter? Has the CPA sent the client internal control warning letters in the past?
Once the CPA has been blessed with the knowledge that “suspicious events” may have occurred, they should respond promptly without alarming the client or alerting the alleged fraudster. If the suspicions are confirmed, we encourage the policyholder to suggest the client consult their legal counsel and request that counsel coordinate an investigation into the fraud allegations.
Investigations led by counsel preserve available legal privileges. We also recommend CPAs encourage their clients to take steps to preserve and protect assets, records and electronic files, but avoid making statements that could later be alleged to have been libelous.
We further recommend CPAs think twice before leading or even participating in fraud investigations. It is often best if another qualified professional is engaged to conduct the investigation so as to avoid impairing the CPA’s independence and objectivity. Can you be objective when evaluating potential fraud that you didn’t discover when performing your previous services?
Even when independence or objectivity would not be impaired, we often encourage CPAs to pass on leading the investigation. Other professionals may have greater competence in conducting investigations. Engaging others will also avoid the possibility that the CPA’s own work papers will be used as evidence in a professional liability case alleging deficiencies in the CPA’s work that permitted the fraud to persist, or compromised the investigation.
Have any general claim or loss prevention questions you would like to get answered? Ask them in the comments section below and our loss prevention and claims experts may answer them in a new series of blog posts on The Savvy CPA.
If you’re a CAMICO policyholder, head over to the CAMICO Member Site for the complete version of this article, together with access to archived IMPACT articles and risk management resources. As a policyholder, you can also call the CAMICO Hotlines to speak with experts about your specific risk management questions and concerns.