Today's Technology for Tomorrow's Firm.
Issue link: https://cpapracticeadvisor.epubxp.com/i/432767
December 2014 • www.CPAPracticeAdvisor.com 17 FEATURE 1 Data Protection W hile most people think of a pr ivac y data breach as being the result of a hacker atack a high percentage of c l a i m s a r e t h e r e s u l t o f r o g u e employees, IT failures and lost or stolen mobile devices such as laptops. W hile large CPA frms are aware of the danger and increasingly fnd they are required by clients to pro- v i d e d a t a p r o t e c t i o n c o v e r a g e , small-to-mid-sized frms still tend to think they are immune and fail to realize the devastating cost involved if client fles are compromised. "Breach notif ication is now the s i n g l e b i g g e s t e x p o s u r e ," s a i d Christopher Brammer, v ice presi- dent at Aon A fnity's Professional Firms Division. "If you're preparing ta xes all over the countr y, do you k now the breach notifcation laws for a l l 5 0 s t ate s? Do you h ave a breach response team in place and are you ready to engage them? Tat's a component of a good network risk policy. If not, you' ll be hiring one last minute and will pay a premium to comply with the law." 2 Mergers P r i o r t o 2 0 0 8 , l a r g e r e g i o n a l C PA f i r m s w e r e a c c u s t o m e d t o double - d ig it g row t h . W hen the recession hit and business slowed, merger and acquisition activity increased dra- matically. W hen two frms merge, it's one of the single highest expo- sure events that a frm will face. "Tere are a number of issues that firms may not consider until it's too late," said Alvin Fennell, vice president of underwriting at Aon A fnity's Pro- fessional Firms Division. "You need to do e x t e n s i v e due d i l i ge nc e w he n looking at the frm you're acquiring. You need to ask the hard questions. W hat is their claim history and peer rev iew histor y? A re you buy ing any 'land mines about to explode?'" With the aging of the profession, a related, emerging issue of merger and acquisition is succession planning. W hether it's a frst-generation frm transitioning to the next generation or they're acquired by a larger frm, engaging your insurance broker early in the process is a critica l step to mitigating potential exposures. 3 Fraud E m p l o y e e t h e f t c a n o c c u r a t a n y f i r m , including CPA frms, but it ca n be doubly cata- strophic when it occurs at one of the CPA frm's clients. "Te exposure to the accounting frm is; you're my auditor, why didn't you catch it?" said Brammer. "It's not the accountant's charge to detect fraud; however, they consistently have the fnger pointed at them as the person to blame. It continues to be among the most severe losses we see." Firms may be a target when they are small, but have increased expo- sure as they grow. "Has the CPA frm taken a hard look at their quality controls?" said B r a m m e r . "A r e t h e y e n g a g i n g anyone to take a look at their risk management? Has their approach to risk grown with their organic frm growth? Ofen times it is a claim that triggers a risk assessment." 4 Engagement Documentation A n engagement letter outlining the scope of accounting ser vices to be provided, signed by t he cl ient, rev iewed a nd updated every year, is a CPA frm's frst line of defense against professional lia- bility claims. " T here was a ti me when CPA s didn't use engagement leters," said Bra m mer. " T hose d ay s a re long gone. Now a n engagement let ter might be fve pages long. Will that prevent a client from suing you? No. But it is the single best tool at the d isposa l of you r defense cou nsel when there is a claim." W here frms may get into trouble is with 'engagement creep.' Te frm m ay h ave s t a r te d out prepa r i ng taxes, but is then requested to con- duc t a n aud it or prov ide wea lt h management advice. Before long the CPA is a client's advisor on a multi- tude of services, all of which need to be documented. A ne w i s s u e t h a t m a y e s c a p e doc u mentat ion is t he A f fordable C a re A c t . A s C PA s a re h i red to prov ide ta x adv ice rega rd i ng t he ACA, if a CPA is working outside of the scope of their ex per tise, they should refer the client to a specialist or document where their responsi- bility begins and ends. 5 Wealth Transfer With the baby boomer generation approaching ret i rement age, CPA s are increasingly hired to assist clients in transfer- ring their estates. Professional lia- bility issues can arise when a CPA is called in to act as a fnancial advisor, trustee or executor for the client— not the benefciary. "Te benefciaries may each have their ow n attorney," said Fennell. "The f irst thing on their mind is: there's a million dollars, could there have been more? Tat million dol- lars could have been $1.2 million if this and that had happened. Tat's $200,000 and we want it. Now the benefciaries are suing the CPA." Documentation and involving the right parties, such as an atorney, is the C PA's k e y to defen se . W hen t he experts begin reviewing the documen- tation, they w il l get a sense of the quality of the CPA's work. Good docu- mentation can set the tone of a media- tion and eliminate nuisance claims. The Top 5 Professional Liability Issues CPAs Need to Watch in 2015 By Kenneth J. Mackunis O ne way to help avoid a professional liability claim is to be aware of the evolving exposures within the profes- sion. Te following is a list of fve top areas of concern for CPAs in 2015. Kenneth J. Mackunis ( ken.mackunis@ aon.com ) is an executive vice president at Aon Afnity, the endorsed provider of the American Institute of Certifed Public Accountants (AICPA) Profes- sional Liability Insurance Program since 1967. For more information call 215.773.4653 or visit cpai.com .