In a time when different spins on the same facts are commonplace, some clients might think the determining factor is “What can I get away with?”
Another reason they might think this way is because they feel in addition to being their accountant, you are their “get out of jail free” card. However, that’s not your job.
So, what should you do when you think a client might be keeping important information to themselves?
Here are seven strategies you might consider:
Ask: What is it you aren’t telling me? This is the direct approach, and hopefully, they fess up. “What are you talking about?” or “Don’t ask, don’t tell” are causes for alarm. Withholding important information isn’t an oversight, it’s deception.
Tell them: Here’s what signing your name means. You explain, when they sign and submit a document like a tax return, they are attesting that everything above their signature is true and accurate. Even if filing is done electronically, the rule still holds.
Let them know ignorance is not an acceptable excuse. The government expects people to understand how taxes work or to hire someone to figure it out for them. “Honestly, I had no idea having a bank account in the Cayman Islands and not reporting it was against the law.” That’s right up there with “Officer, I had no idea I was doing 75 in a 40 mph zone.” Either way, you are liable for the penalties.
Look out for questionable documentation. As an accountant, it’s perfectly fine for you to question a client’s paperwork if you think something raises a red flag. “Are you sure a death certificate issued by the Pacific island nation of Palau will be accepted as proof your wife is really dead?” If the insurance company is doubtful, you can bet the Feds will be, too. As I recall, decades ago, the WSJ reported on a company that would sell you groups of blank restaurant receipts from anonymously named places. It was for people who had legitimate business entertaining deductions, but somehow lost the original receipts. Unfortunately for them, this still crossed a legal line.
Pay attention to unexplained cash. Money laundering has gotten lots of banks into trouble. They take extraordinary measures to conduct due diligence. A client who handles large amounts of cash and keeps it in safety deposit boxes because “they don’t trust banks” is looking for trouble. If they don’t trust banks, why is a vault within a bank OK?
Remind them of the financial cost. Why do many people use accountants? It’s simple: Because their greatest fear is being audited. The idea of an intermediary who represents you in front of the IRS is incredibly attractive, but it’s also expensive. Furthermore, it’s not included in the fees they already paid; it’s going to be much larger.
Explain the limits of client confidentiality. We’ve seen it on TV. Lawyers cannot be compelled to talk about what clients told them, the same way doctors keep medical information confidential. People assume accountants work like this as well, but this isn’t completely true. Yes, client information is confidential, but that rule doesn’t hold if the accountant knows or strongly suspects their client is doing something illegal. Under these circumstances, they may be required to tell the proper authorities or be treated as a co-conspirator. Put another way: If you are doing something illegal, you’re on your own.
Many people decide on courses of action after considering risks and rewards. They also often believe what they want. Part of your role is setting them straight and letting them know the risks involved in keeping vital information from you or breaking the law.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.