Six Warning Signs for Small to Mid-Sized CPA Firms
- Clients who don't pay. Mr. Raspante says that when CPAs call to discuss a new lawsuit, they often say, "The client was always slow to pay. I should have gotten rid of him years ago." Clients who end up owing too much money may think asserting malpractice will help them avoid or reduce the receivable.
- Uncooperative clients. The lack of cooperation is not just an annoyance; it can lead to the kinds of conflicts that escalate into big problems. For example, poor bookkeeping can lead to the late filing of tax returns causing the client to incur interest or penalties, which they in turn are likely to blame on the CPA instead of their own staff.
- Fraud, embezzlements and other dishonest acts. Although the discovery of these acts is not covered by the CPA's normal scope of services, clients may sometimes assert that the CPA should have caught them anyway.
- Subpoenas. There is often a maze of legal pitfalls associated with subpoenas. An Internal Revenue Service (IRS) auditor may show up at a CPA's door asking questions, even though CPAs are prohibited from divulging confidential information.
- IRS audits and gray tax positions. If a tax authority audits your clients and takes an adverse position on a tax return decision that you or your firm approved, you could be in for trouble, especially if the client starts grumbling that this is all your fault.
- Divorce or partnership disputes. If your clients are in a dispute, chances are you could be dragged into it via "conflict of interest" charges. Mr. Raspante advises that partnerships and marriages require equal treatment of each partner by the CPA, regardless of ownership percentages or who is paying the fees.
The full article is available in the May 2002 issue of "The Trusted Professional," the newsletter of the New York State Society of CPAs. For more risk management tools, visit Camico's Web site .