Six Risk Management Mistakes CPA Firms Make

Managing CPA liability risk exposures is a complex process, and it’s easy to underestimate the potential for risk along the way.

The following six mistakes can be avoided by being aware and taking the right steps, says Tim Huggins, who is manager of underwriting operations of CAMICO.

  1. Not discussing questions about the insurance application with your underwriter or agent. Whether it’s for a new or renewal policy, the better the job you do with the application, the better your chances for avoiding mistakes and problems. Take time to review the questions and determine what information and data you will need for it. State information accurately. Applications are not opportunities to market or embellish your firm’s profile. Misstatements may result in a higher premium or even the rescission of a policy based on wrong information.
  2. Not having appropriate policy limits for your firm profile. Excessively high limits of insurance offered at bargain prices are red flags. High limits will often put a bigger bulls eye on your firm and potentially lengthen the claims process. However, you also need to carry enough limit to be able to protect yourself in the event of a bad claim, or to fight a frivolous claim. A specialized underwriter, agent or account executive can discuss your firm’s specific risk exposures, policy limits and coverage options.
  3. Admitting liability, assuming damages, voluntarily making any payments or incurring claims expenses. These are all actions a CPA firm must avoid without the prior written consent of the insurance company. Such actions will likely violate policy conditions, which may result in a denial of coverage. Policyholders should not take action without first receiving guidance from a risk adviser with the insurance company. Avoid agreements that include “hold harmless” or indemnification provisions that are one sided and not in the firm’s favor.
  4. Not reporting a potential claim as early as possible. The sooner claims and potential claims are reported, an insurer can more effectively achieve an early resolution. Early reporting will also help assure coverage for the potential claim. Some insurers encourage early reporting by reducing the deductible for any potential claim reported before a claim is made. Further, if it is determined that it is appropriate to retain legal counsel to assist with a pre-claim situation, some insurers will absorb the legal expenses, help policyholders achieve a resolution with the client, prepare a tax penalty abatement request, draft talking points for communicating the facts of the situation with the client, and provide subpoena and other services if the need arises. CPAs are often so busy they don’t recognize or acknowledge a potential claim as it is developing. This can be particularly devastating when the damages claimed are significant and are not covered because of late reporting.
  5. Not utilizing the insurance program’s advisory, loss prevention and risk management services. The best way to avoid a claim is to manage risks that lead to claims. Some basic risk management tools – such as client screening, engagement letters and follow-up documentation – are crucial in managing potentially major problems into minor problems. The more tools and resources an insurance program provides for policyholders, the better those policyholders will be at avoiding or minimizing problems and disputes. A good insurance program will also advise you on how to utilize its resources to help your firm improve its practices.
  6. “Dabbling” in high-risk work without doing enough to stay proficient at it. Claims data show high loss ratios for services that comprise less than 15% of a firm’s work. By the same token, loss ratios are low for services that comprise 65% or more of a firm’s work. Also, part of the client screening process includes making sure an engagement is a good fit for the firm’s expertise.

Indiana Becomes First State to Recognize New Learning Option for CPA Renewal

Indiana is now the first state in the nation to recognize competency-based education as a learning option for CPA license renewal.

The bill, effective July 1, was passed unanimously by the House and Senate and was signed into law by Gov. Eric Holcomb.

Although Indiana began requiring continuing education for CPAs in 1979, there has been no substantive change that recognizes the evolution of learning and available technology, including computers, according to the Indiana CPA Society (INCPAS). It started and remained an exclusively hours-based education model – until now.

This new competency-based education will ensure a certain level of the subject material is learned and at the pace that works best for each learner. In a 2016 survey of INCPAS members, 83% favored the additional learning option, up from 58% in 2012.

“This legislation will enable the Board of Accountancy to write rules that make learning personal and measure what matters,” says INCPAS president and CEO Gary Bolinger. “Further, it has the potential to expand beyond Indiana and even beyond CPAs by serving as an enhanced professional development model for other licensed practitioners.”

State Rep. Martin Carbaugh (R-Fort Wayne) introduced and supported the bill. “This legislation can improve the quality of learning and lessons during the renewal process, which is not only beneficial to professionals but also to their employers and clients,” Carbaugh says. “If it proves to be effective, it has the potential to carry over into other licensed professions in Indiana.”

The next steps include working with the Indiana Board of Accountancy to develop the reporting framework, create a learning plan template and promulgate a rule to implement the statute.

Labor, KPMG Resolve Discrimination Claim Filed by Asian Job Applicants

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs(OFCCP) and Big 4 firm KPMG have entered into a conciliation agreement to resolve allegations of hiring discrimination, the federal government announced.

The agreement with KPMG follows an OFCCP investigation that found from Oct. 1, 2011, to March 31, 2013, the auditing firm discriminated against 60 Asian applicants for associate audit positions at its office in Short Hills, N.J.

The agency determined that KPMG’s actions violated Executive Order 11246, which prohibits federal contractors from discriminating in employment based on race, color or national origin.

KPMG does not acknowledge any liability. It agreed to pay $420,000 in back pay, interest and benefits to the 60 Asian applicants for associate audit positions. The company will also provide associate audit job opportunities to six affected applicants as positions become available. In addition, KPMG will take steps to ensure its personnel practices, including record-keeping and internal auditing procedures, meet legal requirements.

“Together, the department and KPMG will ensure that this issue is resolved, and that the company has the measures in place to comply with federal hiring and employment law,” said OFCCP Acting Director Thomas Dowd.

The company has contracts valued at more than $14 million with federal agencies including the U.S. departments of Energy, and Housing and Urban Development, as well as NASA and the IRS.

French Company Accuses Andersen Tax of Forgery

The French firm that is using the iconic Andersen name accuses Andersen Tax of forgery and says it is suing the San Francisco-based firm, which has achieved a string of trademark victories and added 11 global locations over the last several months.

In a recent LinkedIn post, Stéphane Laffont-Réveilhac, who calls himself global MP of Arthur Andersen, says a suit was filed in France and that Andersen Tax used forged documents in its court proceedings, which resulted in legal settlements in the U.S., India and Brazil. Firms using the Andersen name in those countries were ordered to stop.

“Andersen Tax LLC directors has openly cheated and lied, to the detriment of the public, some judges, the Arthur Andersen’s alumni, their own employees and affiliated members,” Laffont-Réveilhac says in the statement. “Such conducts are offensive and inexcusable. That’s the opposite of our values.” Also, “We are continuing our relentless efforts to rebuild the network and defend its historical values.”

The response: “We have gone from the ridiculous to the absurd.” Mark Vorsatz, CEO and managing director at Andersen Tax, told Accounting Today. He says he is confident the courts will side with Andersen Tax.

Laffont-Réveilhac says he is filing a criminal summons against Andersen Tax, Vorsatz and is filling a complaint with the attorneys general in New York, India (Mumbai), Brazil (Sao Paulo) and the Netherlands Antilles (Willemstad, Curaçao).

A group of former Andersen partners established a firm called WTAS, which was renamed Andersen Tax after the partners acquired the rights to the Andersen brand in 2014 and expanded the firm abroad. Andersen Tax has filed suit against the French firm in several countries.

Whistleblower Behind Caterpillar Tax Headache Could Make $600 Million

Caterpillar, the world’s largest maker of bulldozers and other construction equipment, faces a $2 billion IRS bill and possible criminal charges, while the accountant who tipped off the feds may make a windfall, Bloomberg BusinessWeek reported.

Daniel Schlicksup, an accountant who had been with Caterpillar for 16 years, sent emails in 2008 to top executives with the subject line, “Ethics issues important to you, the board and Cat shareholders.” This occurred after a meeting in which he concluded that no one had passed his tax concerns on to the CEO. He had been telling his bosses that the company was engaged in an overseas tax arrangement that he figured had helped it illegally avoid more than $1 billion in taxes.

BusinessWeek reported, “He alluded to his concerns about the tax strategy and described, in emotional terms, a systematic effort to shut him down. ‘I am now an example to my colleagues, peers and others that they made the correct choice when they chose to not report ethical issues and ignore company policy,’ he wrote. Attached to the email was a 15-page memorandum describing how his superiors had retaliated against him for speaking out. The next morning he sent 137 pages of documents purporting to show how, with the help of its auditor, PricewaterhouseCoopers, Caterpillar had devised a way to shift billions in profit to Switzerland to avoid U.S. taxes.”

Since then, the IRS has demanded $2 billion in back taxes and penalties, a U.S. Senate committee has concluded Caterpillar avoided taxes on more than $8 billion in revenue, and federal agents searched the Peoria, Ill., headquarters and took away computers, documents and other evidence that could be related to false financial statements. Caterpillar executives could face jail time if criminal charges are brought.

The IRS typically pays whistleblowers 15% to 30% of what it collects. If Cat pays the full $2 billion, Schlicksup may receive $300 million to $600 million. But nothing is guaranteed. The IRS determines how much a whistleblower contributed to a case and, in turn, how much he or she is paid.

A company spokeswoman says, “Caterpillar believes its tax position is right. We are in the process of responding to the government’s concerns and hope to be in a position to bring this matter to resolution within a reasonable time frame.”

Read the full story here.

Andersen Tax Achieves Another Legal Victory in Trademark Dispute

Andersen Tax has achieved another legal victory in its effort to protect the trademark rights in its iconic brand name, Andersen, in jurisdictions around the world, the firm announced.

In a settlement agreement this week, the Brazilian firm, MP Cont Sociedade Simples Ltda., agreed never to use the terms “Andersen,” “Arthur Andersen,” or any mark incorporating the term “Andersen” (or any confusingly similar term) to promote its services anywhere in the world. The agreement resolves legal action that Andersen Tax filed before the Brazilian intellectual property authorities and other related disputes.

It is another legal blow to a French firm, Arthur Andersen & Co., formerly named Quatre Juillet Maison Blanche, which illegally used the trademark Arthur Andersen to recruit and promote the Brazilian firm as part of an international accountancy, tax and business consultancy network, Andersen Tax announced.

“In blatant disregard for the law, the French infringers began promoting the Andersen brand for offices throughout Brazil, apparently without conducting any due diligence investigation on Brazilian trademark rights,” says a statement by Oscar L. Alcantara, managing director and associate counsel at Andersen Tax. “Had they done so, they would have seen that Andersen Tax has had its filings in the intellectual property offices of Brazil for several years now.”

It is the third legal setback for the French entity. In early April, the U.S. District Court for the Northern District of California entered an injunction prohibiting the French network’s U.S. affiliate, MoHala Enterprises, doing business as Sundial Consulting, from using the terms “Andersen” or “Arthur Andersen” in the United States. Later that month, the High Court of Judicature in Bombay, India, imposed a permanent injunction against an Indian firm, International Business Associates (IBA), from using the terms “Andersen,” “Arthur Andersen,” and confusingly similar trademarks to promote its professional services consultancy.

The Indian court also handed down a preliminary injunction against the French entity, Arthur Andersen & Co., temporarily prohibiting it from promoting its consultancy services in India. IBA had aligned itself with the French firm as an affiliate member of its network in India.

“We have now successfully enforced our rights to the Andersen name and precluded the French firm from violating our legal rights on three different continents,” says Mark Vorsatz, CEO and Managing Director at Andersen Tax.

He continues in a statement, “I feel sorry for those individuals or groups who have been misled and may have paid fees to the French firm for the use of a name which we own.”

The French entity, Arthur Andersen & Co., misrepresented its global presence on its website, Andersen Tax says. In addition to listing a Houston, Texas, address that did not exist, the site lists four locations in the U.S. where Arthur Andersen & Co. has no office, no firm and no representation. It is similar in Brazil and India where the French website lists seven locations where they have no office, firm or representation. In Dubai, Andersen Tax was informed that the French network was not authorized to use the name of the local firm they listed on their website.

“I think that this group has been exposed for what they are. We will continue to aggressively pursue actions against this group and enforce our legal rights,” Vorsatz says. “For all of the partners and employees of Andersen Tax, and for all of those who had worked at Arthur Andersen, we have every commitment to prosecute our rights against this attempt to take advantage of the Andersen brand.”

PwC Gets Hit With $6.5 Million Fine in UK

PwC’s firm in the United Kingdom was fined a record £5 million ($6.5 million) by the U.K.’s Financial Reporting Council for the way it checked the books of collapsed social housing maintenance company Connaugh, Reuters reported.

The Financial Reporting Council (FRC) also fined Stephen Harrison, a retired PwC audit partner, 150,000 pounds ($193,000) for misconduct in relation to the 2009 audit of listed Connaught, which went into administration in the following year.

The watchdog said in a statement that following an FRC investigation and a 12-day hearing, an independent tribunal found audit misconduct in relation to mobilization costs, long-term contracts and intangible assets.

“PwC were also ordered to pay the (FRC) Executive Counsel’s costs and to make an interim payment on account of 1.5 million pounds,” the FRC said.

PwC said in a statement, “Since 2010 when the case began, we’ve worked hard to improve our procedures and processes. Audit quality is of paramount importance to PwC and the FRC’s annual audit quality assessments have shown a trend of improvement in our work over several years.”

Connaught, which maintained affordable housing for British residents, needed to appoint administrators in September 2010 after it failed to secure financing from lenders. In June, U.K. housing authorities suddenly announced they were delaying several housing upgrade projects in response to the government’s planned budget cuts.

The watchdog is seeking to raise its profile and crack down harder on misconduct after a series of accounting scandals prompted some lawmakers to question its effectiveness, Reuters reported.

Earlier this year it asked the government for more powers.

The FRC’s largest fine had been a 4-million-pound penalty imposed on another Big 4 accounting firm, Deloitte, last year in relation to an audit of Aero Inventory.

Andersen Tax Wins Permanent Injunction Against India-Based International Business Associates

The High Court of Judicature in Bombay, India, has ruled against two international firms for illegally infringing on the trademark rights of Andersen Tax, which owns the brand name Andersen in India and other jurisdictions around the world, Andersen Tax announced

The court ruled in favor of Andersen Tax on April 28 and imposed a permanent injunction restricting International Business Associates (IBA) from using the terms Andersen, Arthur Andersen and confusingly similar trademarks to promote its professional services consultancy.

Furthermore, the court handed down a preliminary injunction against a French firm known as Arthur Andersen & Co. (formerly known as Quatre Juillet Maison Blanche), temporarily prohibiting it from using the trademarks Andersen and Arthur Andersen to promote consultancy services in India. IBA had aligned itself with the French firm as an affiliate member of its network in India.

In April, the U.S. District Court for the Northern District of California entered a consent-injunction prohibiting U.S-affiliate MoHala Enterprises, doing business as Sundial Consulting, from using the terms Andersen or Arthur Andersen in the United States.

“Andersen Tax will enforce its legal rights vigorously around the world to protect its ownership of the Andersen name,” Mark Vorstaz, Andersen Tax CEO, says in a statement.

Andersen Tax, which owns multiple trademark filings incorporating the name Andersen for tax and legal services in 95 countries, filed suit against International Business Associates in April 2017, the firm announced.

Senators Question KPMG’s Role in Wells Fargo Scandal

U.S. senators are asking the PCAOB to look into KPMG’s role in the Wells Fargo scandal after they discovered the firm knew the company had fake accounts on the books, Compliance Week reported.

Massachusetts Democrats, Sens. Elizabeth Warren and Edward Markey conducted their own inquiry into the scandal and found that both KMPG and the Wells Fargo board of directors were aware of the false accounts, but the Big 4 firm didn’t flag it because it wasn’t considered relevant to its audit of the financial statements.

In a letter to the PCAOB, they say:

  • KPMG “became aware of and analyzed in detail” the production of false accounts at Wells Fargo,
  • the Wells Fargo board knew of the activity, and KPMG knew the board knew, and
  • KPMG concluded the improper sales practices did not implicate the effectiveness of internal controls over financial reporting.

Warren, Markey and two other senators wrote to the firm in October to ask how Wells Fargo could have been given clean audit opinions from 2011 to 2015 “while failing to notice fraud and mismanagement affecting millions of customer accounts perpetrated by thousands of bank employees that led to billions in lost market capitalization,” Compliance Week reported. The senators say KPMG responded the next month by saying it new of the false accounts, but found the misconduct “did not implicate any key control over financial reporting and the amounts reportedly involved did not significantly impact the bank’s financial statements.”

According to the senators’ account of KPMG’s response, the firm says it knew of false account activity as early as 2013 and interviewed numerous company officials, outside counsel and regulators, reviewed reports and concluded that the firm was “satisfied that the appropriate members of management were fully informed with respect to such conduct.”

“KPMG did not publicly report the widespread fraud, despite now acknowledging that its auditors were aware of it prior to the 2016 settlement,” the senators wrote. “Do PCAOB rules or guidance indicate whether auditors have a responsibility to publicly report or otherwise act on their knowledge of illegal or inappropriate activity by their clients?”

A PCAOB spokesman said the board looks forward to reviewing and responding to the letter. A KPMG spokesman said the firm takes seriously its role as independent auditor and is confident its audits were planned and performed in accordance with professional standards. “Beyond that, our response letter stands on its own, and we have nothing further to add,” the firm said.

Settlement Reached in Andersen Tax Trademark Dispute in California

Andersen Tax has settled a lawsuit with MoHala Enterprises, a Monterey, Calif., limited liability company, which was accused of six counts of state and federal trademark infringement, counterfeiting and unfair competition.

The suit, filed March 13 in U.S. District Court in San Francisco, said MoHala worked in concert with French businessman Stéphane Laffont-Réveilhac, who identified himself as global MP of Arthur Andersen in a March 1 LinkedIn post and contended that the firm had been “reconstituted.” Also named in the suit are Veronique Martinez and Arthur Andersen & Co., a French company that is similar to an LLC in the U.S.

According to the settlement, MoHala was part of a network of individuals and entities recruited by Laffont-Réveilhac and Martinez to become affiliates of Arthur Andersen & Co.

Andersen Tax announced Wednesday in a release that the specific terms are confidential, but “MoHala Enterprises d/b/a Sundial Consulting has agreed never to use the terms ‘Andersen’ or ‘Arthur Andersen’ to promote its professional services consultancy, and has withdrawn its membership as an affiliate of the French society calling itself ‘Arthur Andersen & Co.’ Sundial Consulting will also be dissolving Arthur Andersen LLP, a California limited liability partnership it previously formed for purposes of serving as the U.S. member and affiliate of this French society.”

In attempting to reach MoHala’s attorneys, IPA reached out to Oscar Alcantara, Andersen Tax managing director and associate counsel, who says in an email, “Our adversary has not designated counsel in the U.S. case.”

Andersen Tax says it owns multiple trademark registrations incorporating the name Andersen for tax and business consultation services around the world.

Mark Vorsatz, Andersen Tax CEO, told IPA last month that Laffont-Réveilhac met with an Andersen Tax managing director in 2015 and proposed a “sale of defendants’ brand portfolio” in exchange for “an extraordinarily large sum of money.”

“We have no interest in paying them anything for anything,” Vorsatz said at the time, adding that Andersen Tax owns the trademark in over 90 counties, including the U.S. and the European Union. Laffont-Réveilhac has twice been denied use of the trademark in court and Andersen Tax is intent on using all legal avenues to end the matter, Vorsatz said.

Laffont-Réveilhac has continued to post on LinkedIn, most recently outlining “Arthur Andersen’s European Strategy.” He wrote April 12 that “we strive for a rapid increase in power, while taking all the time necessary for a rigourous selection of our future affiliated members for a network of first quality.”

See entire post here.