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Risks of CPA Human Resource Consulting

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                                                                             By Suzanne M. Holl, CPA                                                                                                

Clients will sometimes turn to their CPA for assistance with certain finance-oriented human resources matters, such as helping to recruit a new CFO or “redesigning” the client’s accounting department. There are pitfalls with such scenarios, but they can be avoided with care.

First and foremost, CPAs who provide these consulting services must remain vigilant to not step into the role of management. Care must be given to ensure that there is no expectation gap with respect to the scope and limits of the human resources consulting services rendered. It is just as important to clearly establish the client’s responsibilities.

Consider the following scenario.

A CPA firm is engaged by a client to review financial statements, prepare tax returns, and assist the company with finding a new controller. The firm places classified ads, screens résumés, 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.

A month or so later, the client calls claiming the firm had over-billed for its services in the amount of $20,000. The firm checks its records and finds that the bill on its side is accurate, so the firm warns the client that some sort of error has occurred.

A few weeks after that, the new controller disappears with $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; the client, however, 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 a part of the engagement. When the firm points this out to the client, the client decides to pursue a settlement with a bank that didn’t catch the controller’s fraudulent activity.

Engagement letters are an excellent tool for defining client and CPA firm responsibilities, and it 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.

These letters should be as detailed as possible in defining the nature and extent of the services to be performed, as well as any services scoped out of the engagement. Address client expectations with an eye toward avoiding potential problems. Have a qualified risk adviser review your engagement letter.

Before accepting any engagement, ascertain whether your firm can do the job: determine what services are needed and whether or not they would be better performed by another professional (such as an attorney).

Most importantly, do not agree to take on any role that is traditionally the responsibility of company management. It is important that you don’t inadvertently impair your independence should you wish to perform attest services. Perception is everything, and the contention that you are able to remain impartial and objective while serving as a client’s CPA and trusted adviser is frequently 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. She can be reached at

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