with multinational offices, or small
ones dealing with outside service
providers,” he said. The Sec. 7216
rules limit tax preparers’ use and
disclosure of information obtained
during the return preparation, and
provide both criminal and civil
penalties for unauthorized disclo-
sure. “We’re not sure to what extent
there will be criminal prosecutions,”
Picardi said. “It’s important to re-
member that professional liability
policies don’t typically cover crimi-
nal behavior. They wouldn’t provide
a defense except to the extent an ac-
tion might spawn a civil claim.”
Picardi, who defends accountant
malpractice cases and provides risk
management services to a number
of accountant programs, noted that
there might be coverage questions.
“We don’t really know, because
those cases haven’t come in yet,”
he said. “But I would imagine that
if there are disseminations that lead
to identity theft that can be traced to
wrongful disclosure by an accoun-
tant, both civil claims and criminal
prosecutions might result.”
“Data security laws operate both
at the state and the federal level,”
Picardi said. “Basically they require
accountants to adopt whatever the
state of the art is for data security
measures for a firm of a given size.
For a big firm, the standard will
naturally be higher.”
FROM PAGE 6
has been handed down in the ABA’s
suit, which was filed first.
There also have been an increas-
ing number of claims brought
against accountants due to em-
bezzlements, according to Kim-
berly Stone-Vilim, CPA, underwrit-
ing manager at Insight Insurance
Services. “When this happens, the
client will likely blame the accoun-
tant, no matter what services the
firm performed,” she said. “One of
the best defenses in these cases is
a well-worded engagement letter
that clearly points out the services
the firm was hired to perform.” AT
“I’VE GOT AN UNEASY FEELING ABOUT THIS CLIENT SITUATION” Based on an actual conversation between a Senior Partner at a CPA firm and a CAMICO Risk Management Specialist.
CPA: So, my staff member recently noticed some irregularities
in the trial balance provided by my client’s bookkeeper. When I
brought this to my client’s attention, he reacted very negatively
– asking how we could have missed this before, implying it was
somehow our fault. I didn’t know what to say – I’m sure we’ve
met professional standards and our workpapers should support
that. What can I do?
CAMICO: This surprises many CPAs, but after 24 years of
providing professional liability insurance, CAMICO has found
that following professional standards alone may unfortunately
not be enough to avoid a claim.
CPA: Really!? I thought following the rules would keep me safe.
RED FLAGS, EMBEZZLEMENT
The Federal Trade Commission’s
Red Flags Rule has been postponed
a number of times, he noted, and
was most recently extended to Dec.
31, 2010. The rule requires creditors and financial institutions to
address the risk of identity theft, by
developing and implementing written identity theft prevention programs to help identify, detect and
respond to “red flags” that could
indicate identity theft.
“The AICPA, as well as the American Bar Association and the American Medical Association, have filed
actions against the F TC to prevent it
from enforcing the Red Flags Rules
against their members,” he said. In
April, a court ruled that the FTC
should delay enforcing the rules
on accountants in public practice
until at least 90 days after a ruling
CAMICO: That would seem logical, but in addition to meeting
professional standards, juries expect CPAs to look out for
irregularities and advise and warn clients of risks. So, if something
looks unusual, investigate it, document it and communicate it.
Do you have an engagement letter for this client?
CPA: Yes, the on-call CAMICO Risk Management Specialist
helped us tailor the wording to clearly spell out what services we
were providing and what was not included — it says our firm is
not responsible for detecting fraud and other irregularities — and
the client signed it.
CAMICO: Great! With the client acknowledging the terms of
your services, you have an excellent first line of defense. Now
let’s focus on your next steps, so you can help your client with
their issue without putting yourself at further risk.
CPA: Thank you. It’s good to be able to talk with an expert about
this – it gives me real peace of mind.
PROVIDING PROFESSIONAL LIABILITY INSURANCE TO CPAS FOR NEARLY A QUARTER CENTURY
ENDORSED BY SEVENTEEN STATE CPA SOCIETIES
CALL 800.652.1772 OR EMAIL INQUIRY@CAMICO.COM