In this episode of Risky Records, we look at the role of client communication in risk management for accounting professionals. Our guest, Joe Jones, Vice President of Risk Management Services at Travelers Insurance, offers valuable insights into how thorough documentation and clear communication with clients can significantly reduce the risk of claims. Joe shares his journey from architecture to law, highlighting how his diverse background informs his current role in helping accountants navigate their professional risks.
Read on for the key takeaways from our discussion.
Key Elements of a CPA Risk Management Strategy
Many firms overlook the basics of their professional liability policies, leaving themselves vulnerable. Here’s a rundown of essential tools and strategies every CPA firm should have in their risk management toolbox:
- Client intake forms: A thorough vetting process is crucial for every new client engagement. This means understanding the client’s needs and financial background, as well as identifying any potential red flags that could pose risks to the firm.
- Engagement letters: Engagement letters are pivotal in defining the scope of work and managing client expectations. They should clearly outline which services will and won’t be provided, thus setting boundaries to prevent scope creep.
- Ongoing communication: Regular check-ins and updates help maintain clear expectations and can prevent misunderstandings leading to claims. Clear and consistent communication documentation is essential to support the firm’s position in disputes.
- Notes and documentation: Detailed notes throughout the engagement process help manage client expectations and provide a record if issues arise. Document any changes to the scope of work or special instructions from the client.
Also read: Technology Risk Management for Accounting Firms and CPAs
Understanding Your Professional Liability Policy
Many accountants do not read their policies thoroughly or understand the extent of their coverage. Not understanding your professional liability policy can lead to significant vulnerabilities because policies can differ significantly. Familiarity with these nuances helps avoid actions that may inadvertently void your coverage.
Regular reviews with your broker are essential; schedule annual reviews to stay aware of any changes in your policy or shifts in the risk landscape that might require updates to your coverage.
Also, take the time to educate your team to ensure key members of your firm understand the policy and its implications, ensuring everyone is aligned and aware of the steps to take to avoid compromising coverage. Everyone must stay updated on regulatory changes and informed about new requirements impacting coverage or risk profiles.
Also read: What is Agile Accounting? An Introduction to Agile Finance Practices
Tools for Effective CPA Risk Management
CPA risk management is not just about having an insurance policy; it’s about actively managing risks and preparing for potential issues. This proactive approach helps firms avoid costly claims and maintain a strong reputation in the industry. Understanding what is covered, what is excluded, and what actions could impact your coverage is critical to managing your risk effectively.
Joe outlined four tools and practices firms can use to be proactive rather than reactive in CPA risk management.
1. Clear client agreements: Use standardized client intake forms and engagement letters to set expectations. Ensure these documents are detailed and updated regularly to reflect any changes in the scope of work.
2. Regular policy reviews: Keep your professional liability insurance up to date by reviewing it annually with your broker. Check for any new exclusions, changes in coverage limits, or updates to regulatory requirements.
3. Employee training: Conduct regular training sessions on risk management practices and policy understanding. This can prevent misunderstandings and mistakes that could lead to claims.
4. Risk management software: Consider using software tools designed for CPA firms to track engagement terms, manage documentation, and ensure compliance with firm policies and regulatory standards.
Trust the Process
CPA risk management is an ongoing process that requires regular attention and updates. Firms can protect and prepare themselves by using the right tools and taking a proactive approach.
Consider implementing the strategies discussed in this episode to enhance your firm’s risk management practices. And remember, a well-structured CPA risk management plan is critical to safeguarding your firm’s future.
McGowan PRO’s Professional Liability Insurance policies are unmatched in their flexibility, striving to provide you with the comprehensive coverage you need at a great price.
If you still have questions, why not reach out to McGowan PRO’s team of experts? Contact us now or reach out to me directly.