In 1999, H&R Block, Inc. purchased the non-attest business and assets of the multi-state CPA firm McGladrey & Pullen. Combined with other business acquisitions of H&R Block, Inc., RSM McGladrey Inc. was established. This wholly owned subsidiary of H&R Block, Inc. provides accounting, tax, and business consulting services. McGladrey & Pullen LLP remained an independent full-service CPA firm that offers audit and attest services. As separate entities they have been working together through an administrative service agreement since the formation of RSM McGladrey Inc to provide services for both the accounting and auditing needs of their clients. That relationship is now coming to an end. On July 21, 2009 McGladrey & Pullen LLP issued formal notice to terminate the service agreement that has so closely tied the two firms together for 10 years.
Despite their status as independent legal entities, they have shared employees and space since the inception of RMS McGladrey Inc. But the business and regulatory landscape has changed since 1999, and what was originally a good business decision for both entities as well as their clients does not seem as beneficial in today’s economy. Dave Scudder, managing partner of McGladrey & Pullen LLP says that the change is about serving their clients better. “A lot of this change has to do with a business decision on the cost side,” said Scudder. “We can provide these services more efficiently and effectively within our firm. It’s a terrific time (due to the down economy) to be building infrastructure.”
A long transition period, roughly 7 months, will allow for a deliberate and seamless transition for the clients. It will also allow the two firms to create more clarity in their separate identities. With both shared space and shared employees, the relationship has created complexities and confusion at times for the marketplace and the clients. Restrictive independence rules have prevented them from serving some clients in some industries.
While RSM McGladrey Inc. and H&R Block, Inc were unavailable for comment, Russ Smyth, H&R Block, Inc CEO stated in an earlier release that while they would prefer to continue to work with McGladrey & Pullen LLP, they are prepared to make the necessary arrangements to replace them. They also intend to enforce all contractual non-compete provisions.
As a full-service CPA firm with more than an 80 year history, McGladrey & Pullen LLP is looking forward to refocusing their efforts on their middle market clients, investing in the future of the firm, and serving the needs of their clients. According to Scudder, “We have always been able to provide full service CPA services. I don’t envision the non-compete being an issue. The independence rules are very clear.”
Both firms are focused on making the transition easy for their clients and continuing to serve them during and after the termination.