September 2001

Client Screening

Many CPAs avoid professional liability claims by taking time to inquire about potential new clients before engaging. Not only should CPAs screen new clients, but they should also review current clients periodically to identify those who could become an unwanted risk to the practice. Equally as important is the CPA’s willingness to heed the warning signs that the screening process yields. CPAs sometimes ignore the “writing on the wall” and later regret their inaction after a claim has consumed hundreds of billable hours.

Know Your Firm

Before implementing a client screening procedure, it is wise to evaluate your firm’s expertise. Ask yourself and your partners what types of services your firm most competently performs. Know your strengths and your weaknesses.

Some CPAs make an annual habit of redefining and reacquainting themselves with the scope of their own practice, even writing out a clear statement of what they can and cannot do. If they have clients who don’t fit into that scope, they disengage and refer the clients elsewhere. Establish a policy that evaluates the types of engagements that could be a risk to your firm because of a lack of technical expertise. If you do not have the special skills to perform the work required in an engagement you’ve accepted, your exposure to liability is high.

Once you’ve established the type of work you perform best, ask yourself what type of clients you want. If you’re a new firm, you have the opportunity to select the clients of your choice. If you’ve been practicing for some time, there’s nothing to stop you from changing your clientele. Spend some time thinking about the question, “What kind of clients would I really like to have?” When you have the answer, explore ways to cultivate that kind of business.

Know Your Client

Client screening should be conducted regardless of the nature of the services you are being asked to perform, preferably during the period between the client’s first contact with your office and the preparation and signing of the engagement letter (the “pre-engagement” period). Much of the information you’ll need can be obtained at the client interview and verified later through other interviews. The more information you get, the better you’ll be able to assess the risk of the engagement or the client.

In a CPA partnership or professional corporation, it is common practice for another partner or a client committee to review the client-screening information and to pass judgment on the acceptability of a new client.

Disengaging Clients

Some CPAs rank their clients according to how cooperative, knowledgeable, reasonable, difficult and/or time consuming they are. Engagements can also be ranked by the complexity of the work. Difficult clients with complex work pose the highest risk to the CPA firm. After ranking your clients, consider writing to the 10 percent deemed most difficult and informing them that you will no longer be able to provide services to them. Include in the letter any information such as upcoming deadlines that can help the client avoid bad results like tax penalties.

To reduce the risk of liability, disengagement is best handled after completing a job for a client so that the client cannot contend it was left vulnerable to bad results. Note that clients sometimes demand to be kept on as clients, promising to get their tax information in earlier or correct any other perceived problems.

Client-screening procedures for current clients can be performed on a regular, perhaps annual, basis. By heeding the warning signs that develop from the process, CPAs can save large amounts of time that may have otherwise been spent handling stressful litigation, and save the firm’s reputation.