What to Do When Clients Don’t Tell You Everythingby
There are, I am certain, times when you feel your client is holding something back and depending on the seriousness, it could get them (and you) into big trouble. So how do you have this conversation and what are your options?
I’m Their CPA What Are My Risks?
Most people aren’t cut out to be master criminals, they get found out sooner or later and will cheerfully throw you under the bus to save their own skins. You’ve heard the expression: “What did you know and when did you know it?”
However, it is virtually impossible to prove what you did not know at a given point in the past. Meanwhile, your client may add fuel to the fire by protesting ignorance. “My CPA never told me this was wrong.”
What Do We Know?
First, you need to understand the scope of the problem. A client might not be making estimated tax payments on time. In that case, the risk might only be penalty charges. Clients committing fraud, paying bribes to secure contracts, signing someone else’s name to documents or keeping two sets of books are in another category entirely.
My Secrets Are Safe With My Accountant
Clients may be under the impression you are bound by confidentiality and group you into the same professional class as physicians and lawyers. “Federal law does not recognize a general accountant-client privilege. Even if certain states do, there’s often a crime/fraud exception.” Clients need to understand you aren’t bound by the seal of the confessional.
My Client is a Large Company. What Should I Do?
There’s an accepted industry procedure for taking action. In general, accountants who see evidence of fraud should first take it up through the client’s company chain of command, all the way to the audit committee of the board. Under certain circumstances they can choose to override client confidentiality because CPAs have a “primary responsibility to honor the public trust and act in its best interests.”
If you work for a larger firm, it’s likely they have a Compliance Officer. The financial services industry has a saying: “Have a problem? Get a partner.” Bring them into the picture.
Having a Conversation with Your Client
You have a client, whereby it’s a local business or a situation where you prepare and submit someone’s tax returns. Let’s suppose your client is being cagey, which leads you to suspect they aren’t telling you something important:
- Talking in generalities, bring up your concerns. Use publicized examples of people who have done something similar.
- Explain the penalties involved for not following the rules. Let them know what’s at stake.
- Although you act in their best interests, you are not a miracle worker. You cannot negotiate problems away after the fact.
- If a friend did the same thing and “Not gotten caught” that’s no defense if they are caught.
- A Federal employee once explained to me: “When you sign this document, you are attesting that everything above your signature is true.”
- As their accountant, you are professionally bound to act ethically. This means you can only go so far. You must stay within the law.
- “Follow the money.” There is always a paper trail. They will get caught.
- Publicity often follows, once information is in the public record. Consider your family.
If they still are resistant to taking action:
You are creating your own paper trail by sending the client formal notification voicing your concerns about information they are withholding.
Simply put: “YOYO”. If something goes wrong, “You’re On Your Own.”
What Are the Accountant’s Options?
If the problem is serious and the client is unwilling to take responsibility, consider four courses of action:
- Quit – You end your relationship as the client’s accountant.
- Flag it – If you have concerns when filing a tax return, accountants often use the “Uncertain tax position schedule.”
- Whistleblower – You bring the wrongdoing to the attention of the authorities. This comes with its own risks.
- Carry On – You are now complicit. You might be named as a co-defendant.
You are a professional and can’t assume the client won’t get caught. You have responsibilities to warn clients of the consequences of their actions and if they won’t change and the problem is serious, you may need to take the next step.
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.