Top Loss Prevention and Claims Trends for CPA Firms
January 17, 2025
CAMICO's Loss Prevention and Claims Departments work with CPA policyholder firms every day on difficult risk management issues. The following Q&A covers some of the questions and trends that our specialists hear about most frequently from our policyholders.
Q: What does CAMICO recommend when a client passes away and there is a new point of contact for the engagement?
A: We recently had a situation where an accountant prepared tax returns and did bookkeeping for the matriarch of a family for many years. Upon her passing, the client’s daughter became the point of contact. The daughter said she was going to engage a new CPA to prepare taxes and was going to take over the bookkeeping duties herself. The policyholder did not confirm the conversation in writing and did nothing further. A couple years later, the daughter was surprised to find that the tax returns had not been prepared and filed. A claim was brought against the CPA for the penalties that were imposed by the IRS.
An engagement with a client is fundamentally a relationship. As with all relationships, there should be an understanding between the parties as to what they should expect. Many times, people make assumptions about what the other person will do or not do. These assumptions are often different than what the other person expects will happen in the relationship. An engagement letter is the best way to develop an understanding with the client about what they should expect from the accountant and what the accountant expects of them. There may be conversations between the parties about what they expect to happen, but perceptions may differ, and memories will fade. When an accountant uses a well-drafted engagement letter or disengagement letter, both parties know exactly what to expect of the other. If the client were to later make an unwarranted assertion about the relationship, the accountant can refer to the letter to justify his or her action or inaction. This is especially important in the confusion surrounding the death of a client. Engagement letters also enhance the accountant’s professionalism and make it easier for their actions to be defended in any later dispute.
- Mark Rooks, Claims Specialist
Engagement letter templates can be found in the Engagement Leu.er Resource Center. located on CAMlCO's Members-Only Site (https://member.camico.com/portal/Policyholder-Login).
Q: Do CPAs often get brought into family disputes related to inheritance?
A: When dealing with family disputes, especially when it comes to money, emotions will run high, and these matters can become very contentious with CPAs getting pulled in and stuck in the middle. While these situations may be unavoidable, there are steps that can be taken for policyholders to protect themselves from exposure.
Documentation and communication are key. Everything pertaining to the CPA's work should be memorialized in writing, and the CPA should ensure that both they and the client understand the decisions and actions that will be taken. If a CPA advises a client to take a specific course of action, written proof of the advice should be preserved.
Engagement letters can also be a vital tool in protecting the CPA's interests. The letter should spell out precisely the work that will be performed for the client and should be updated as the engagement changes. Finally, if the appearance of a conflict arises, the CPA should consider whether disengagement is the appropriate action. If the CPA decides to disengage, the disengagement should be clear (and in writing), and a copy should be preserved.
-Jill Cavenaile, Claims Executive
CAMICO is the ASCPA's preferred provider of professional liability insurance. Interested in a no-obligation insurance quote, or review of your current professional liability insurance? Contact Harris Hauptman, CAMICO senior account executive, at (800) 642-1772. Ext. 6727 or hhauptman@camico.com.