With more than 60% of CAMICO’s claims originating from tax-related matters, addressing and managing the risk stress points associated with problematic tax clients can significantly improve a firm’s risk profile. There is no better time than now, before the final phase of tax season, to take proactive steps to better position your firm to ensure you are maintaining the right overall firm/client fit.

The first step is to prioritize performing the “right services” for the “right clients.” Evaluate your client list and consider disengaging clients that do not meet the right firm/client fit threshold — ideally after they have paid their bills.

Some questions to consider as you look to identify and mitigate client scenarios that may pose higher risk to the firm:

1. Is the client still a “good fit”?
Although not meant to be all-inclusive, common red flags include:

• Difficult or uncooperative behavior (e.g., withholding critical information, argumentative and/or disrespectful to firm members)
• Deteriorating client relationship (e.g., not taking your advice, being non-responsive, and/or acting in a way that suggests compromised integrity)
• Constantly questioning your value (e.g., allegations that your fees are too high, or others could do it cheaper, and/or insinuating that the work should be “easy” thus your fee should be less)
• Changes in client business and/or client management
• Potential conflicts of interest

Trying to uncover the source of the problem could be beneficial, but whatever you do, don’t ignore the above warning signs.

2. Is the engagement a “good fit” for the firm’s expertise?
It is important to recognize, embrace and maintain your competencies. If clients seek your help with transactions and/or activities outside your comfort zone or skillset, you will be better served suggesting they seek the advice and counsel of professionals with expertise in those areas.

In CAMICO’s experience, firms who don’t “stay in their lane” and choose to dabble outside their comfort zone have a much higher risk of having a claim. Learning the art of saying “NO” to clients is an important, but often overlooked, risk mitigation tool.

3. Are you taking the right steps to manage (and document) client expectations?
Good written documentation habits are critical to successfully managing client expectations, but extra diligence should be given to documentation when dealing with potentially problematic clients. Jurors (members of the public) generally consider CPAs to be experts in documentation, and falling short of that expectation may be viewed as negligent and perceived as falling below the standard of care.

Below are important situations requiring documentation to help mitigate the risk of client expectation gaps:

• Change in engagement scope (may require a new engagement letter)
• Negative information (e.g., tax return is already late, client’s failure to provide timely information, client is facing an audit)
• Client agreement to take significant action
• Communications regarding past-due invoices
• Conversations regarding significant transactions, extensions, or estimated tax payments
• High-risk scenarios that may require informed consent, waiver of potential conflict, and/or client representation of key facts and circumstances

Contact CAMICO or Your Risk Advisor

If the above assessment identifies client scenarios that you deem may pose risk to the firm and/or clients that are no longer a good fit for the firm, contact CAMICO or your risk advisor to help you assess the next steps. For example, if disengagement is deemed appropriate, skillfully handled transitions can be mutually beneficial to firms and clients.

In addition, CAMICO encourages early reporting by reducing the deductible by 50%, up to $50,000, for any potential claim that is reported before a claim is made. Further, if CAMICO determines that it is appropriate to retain counsel to assist with a potential claim, the related expenses preceding a claim will be absorbed by CAMICO and will not impact policy limits or be charged to the deductible.

CAMICO policyholders with questions regarding this article or other risk management topics should contact the Loss Prevention department at lp@camico.com, or call our advice hotline at 1.800.652.1772 and ask to speak with a Loss Prevention Specialist.