www.naplia.com
Copyright 2012
RRiisskk MMaannaaggeemmeenntt
John Raspante, CPA
NAPLIA
www.naplia.com
Important Disclaimers
• The content of this presentation and these slides is intended solely for
general...
www.naplia.com
Objectives of Risk Management
• Gain Control:
– Over risks in practice environment
– Not to eliminate t...
www.naplia.com
Copyright 2012
TThhee RRiisskk EEnnvviirroonnmmeenntt
www.naplia.com
Percentage of Total Claims
(By Service)
Copyright 2012 Copyright 2012
www.naplia.com
Percentage of Total Dollar Losses
(By Service)
Copyright 2012 Copyright 2012
www.naplia.com
Percentage of Tax Claims
(By Type of Client)
Copyright 2012 Copyright 2012
www.naplia.com
Percentage of Audit Claims
(By Source of Claim)
Copyright 2012 Copyright 2012
www.naplia.com
Fraud detection
Detection of Occupational Fraud
34.2%
25.4%
20.2%
19.2%
12.0%
3.8%
0% 5% 10% 15% 2...
www.naplia.com
Copyright 2012
DDeeffeennddiinngg CCllaaiimmss::
TThhee BBaassiiccss
www.naplia.com
Statutes of Limitation
( Varies By State )
• Malpractice limitation period
• Discovery rule
• Action
...
www.naplia.com
Principal Exposures
• Exposure to clients:
– Civil suits for damages
– Complaints to State Board
• Exp...
www.naplia.com
Copyright 2012
EExxppoossuurree ttoo CClliieennttss
www.naplia.com
Theories of Liability
• Negligence
– Errors
– Omissions
• Violation of professional ethics
– Conflict...
www.naplia.com
Negligence
(Elements of Claims)
• Client must prove:
– Liability—Existence of negligence
• Duty—Standa...
www.naplia.com
Standard of Care—Duty
• Reasonableness standard
• What would the reasonably prudent accountant have
don...
www.naplia.com
A&A Services—Negligence
(Most Common Complaint)
• Failure to detect:
– Actual embezzlement
– Risk of e...
www.naplia.com
Who Commits Fraud
60
50
40
30
20
10
0
Percent
Position in the Organization
Employees Management ...
www.naplia.com
Who Commits Fraud
900
800
700
600
500
400
300
200
100
0
Median Loss by Position
Employees Mana...
www.naplia.com
Types of Occupational Fraud
Category Description Examples % of
cases
Median
Loss
Asset
Misappropriat...
www.naplia.com
Employee Fraud
(Motive)
• High personal debts
• Unusual financial losses
• Inadequate income
• Lives ...
www.naplia.com
Employee Fraud
(Opportunity)
• Experienced employee
– Knowledge of business/systems
– Trusted by manag...
www.naplia.com
Managing Risk—During Engagement
(“Failure-to-Detect” Claims)
• At the client-selection stage
– Clients ...
www.naplia.com
Defending the Claim
(Failure-to-Detect Embezzlement)
• Limited scope of engagement
• Reasonableness:
–...
www.naplia.com
Case Study--Embezzlement
ABC
Moving
ABC
Moving
ABC
Moving
ABC
Moving
ABC
Moving
Bookkeeper
Opp...
EExxppoossuurree ttoo TThhiirrdd PPaarrttiieess
www.naplia.com
Copyright 2012
www.naplia.com
Theories of Liability
• Negligent misrepresentation
– Errors
– Omissions
• Violation of professional e...
www.naplia.com
Negligent Misrepresentation (Elements
of Claims)
• Third party must prove that you:
– Made false statem...
www.naplia.com
Standard of Care
• Reasonableness:
– After exercising reasonable prudence
– Would another accountant
–...
www.naplia.com
Negligent Misrepresentation
(Most Common Complaint)
• Failure to detect:
– Errors
– Fraud
– Illegal a...
www.naplia.com
Managing Risk—During Engagement
(Failure-to-Detect Claims)
• At the client-selection stage
– Clients wi...
www.naplia.com
Case Study
(Confrontation and Communication)
Accountant
Partner #1 was taking
money out of the
partne...
www.naplia.com
Who Commits Fraud?
60
50
40
30
20
10
0
Percent
Position in the Organization
Employees Management...
www.naplia.com
Who Commits Fraud?
900
800
700
600
500
400
300
200
100
0
Median Loss by Position
Employees Man...
www.naplia.com
Management Fraud
(Motives)
• Unfavorable economic conditions
• Heavy investments or losses
• Insuffici...
www.naplia.com
Management Fraud
(Opportunity)
• Related party transactions
• Ineffective or no internal audit staff
•...
www.naplia.com
Defending the Claim
(Negligent Misrepresentation)
• Limited scope of engagement
• Compliance with profe...
www.naplia.com
Standing to Bring Claim
(Three Doctrines)
• Privity
– Most restrictive to third parties
– Need agreeme...
www.naplia.com
Lenders’ Requests for Assurance
(Example Response—Part One)
• Firm has client’s consent
• Firm prepared...
www.naplia.com
Lenders’ Requests for Assurance
(Example Response—Part Two)
• Response doesn’t establish relationship wi...
www.naplia.com
Copyright 2012
CClliieenntt RRiisskk AAsssseessssmmeenntt
www.naplia.com
Client-Risk Assessment
• First Line of defense
– Whether to accept prospect or continue with client
• N...
www.naplia.com
Client-Risk Assessment
(Continued)
• Risk assessment committee
– Centralized approval
• New prospects ...
www.naplia.com
Copyright 2012
EEnnggaaggeemmeenntt LLeetttteerrss
www.naplia.com
Engagement Letters
• Second line of defense
• Comprehensive contract
– Not just a fee agreement
• Purp...
www.naplia.com
Case Study
(Dangers of Differing Expectations)
Busy Lawyer Real Estate Clients Office Manager
Accountan...
www.naplia.com
Engagement Letter Policies
• Develop standardized templates for firm-wide use
• Obtain for all services ...
www.naplia.com
Engagement Letter Contingencies
• Suspension/disengagement
– As consequences
– Scope limitation, non-co...
www.naplia.com
Engagement Letters
(Provisions Bearing on Independence)
• Indemnity
• Mediation
• Liquidated damages
...
www.naplia.com
Disengagement Letters
• Send immediately
• Keep it brief and unambiguous
• Address it carefully
– Who ...
www.naplia.com
Copyright 2012
FFiilleess && CCoonnffiiddeennttiiaalliittyy
www.naplia.com
File Retention—Content of Files
• Client records
– Originals
– Copies
• Work papers
• Work product
–...
www.naplia.com
File Retention—Ownership
• File contents are firm’s property
• Except:
– Original client records
– Wor...
www.naplia.com
File Retention—Outline of Policy
• Scan original client records—return to client
• Purge review notes wh...
www.naplia.com
AICPA Rule of Confidentiality
• No disclosure without client consent
• Four exceptions:
– Professional ...
GGoovveerrnnmmeenntt IInnvveessttiiggaattiioonnss
www.naplia.com
Copyright 2012
www.naplia.com
IRC §7216
(And Revised Regulations)
• Applies to tax return information
• Disclosure and use
• Prior w...
www.naplia.com
No Consent Needed
(Select categories of disclosure/use)
• To make disclosure to:
– IRS
– Others within...
www.naplia.com
Requirements for All Consents
• Names of preparer and taxpayer
• Intended purpose of disclosure
• Speci...
www.naplia.com
1040-Series Returns
(Rev. Proc 2008-35)
• Separate written document
• Paper consent
• Electronic conse...
www.naplia.com
Consequences
(Violation of IRC §7216/Regulations)
• Criminal:
– Fine—Not more than $1,000
– Imprisonme...
www.naplia.com
Security of Data
• Reasonableness standard
• Safeguards:
– Servers/desktops
– Laptops
– Web-based sto...
www.naplia.com
Copyright 2012
CCllaaiimmss && IInncciiddeennttss
www.naplia.com
Claim/Incident Reporting
• Reportable Claim—two components:
– Allegation of error/omission
– Demand for...
www.naplia.com
Copyright 2012
TThhaannkk yyoouu
John F. Raspante,CPA
732-216-7552 JohnR@naplia.com
Stephen Vono
508-...
of 65

NAPLIA Risk Management Presentation 2014

North American Professional Liability Insurance Agency, LLC - NAPLIA risk management program presentation. 2014
Published on: Mar 3, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - NAPLIA Risk Management Presentation 2014

  • 1. www.naplia.com Copyright 2012 RRiisskk MMaannaaggeemmeenntt John Raspante, CPA NAPLIA
  • 2. www.naplia.com Important Disclaimers • The content of this presentation and these slides is intended solely for general educational purposes, to give accounting/tax professionals a broad outline of the laws, legal concepts, and professional standards discussed herein. • It is not intended for the purpose of providing specific legal, accounting, or other professional advice to any particular recipient for use in the recipient’s practice or in advising the recipient’s clients, or with respect to any particular jurisdiction. • The author /presenter of said content (1) makes no representations, warranties, or guarantees as to its technical accuracy or compliance with any law (federal, state, or local) or professional standard; and, (2) assumes no responsibility to any recipient of the content to correct or update it for any reason, including changes in any law or professional standard. • Recipients should not rely on the content of this presentation and these slides. Rather, before taking any action in connection with the laws, legal concepts, and professional standards discussed herein, recipients should consult the actual text of those provisions, and obtain specific legal and/or accounting advice. • No warranties as to merchantability or fitness for a particular purpose are expressed or implied. Application and use of the laws, legal concepts, and professional standards discussed herein, and these slides, is solely the responsibility of the reader. Copyright 2012 Copyright 2012
  • 3. www.naplia.com Objectives of Risk Management • Gain Control: – Over risks in practice environment – Not to eliminate those risks • Claims: – Prevent them – Make them more defensible Copyright 2012 Copyright 2012
  • 4. www.naplia.com Copyright 2012 TThhee RRiisskk EEnnvviirroonnmmeenntt
  • 5. www.naplia.com Percentage of Total Claims (By Service) Copyright 2012 Copyright 2012
  • 6. www.naplia.com Percentage of Total Dollar Losses (By Service) Copyright 2012 Copyright 2012
  • 7. www.naplia.com Percentage of Tax Claims (By Type of Client) Copyright 2012 Copyright 2012
  • 8. www.naplia.com Percentage of Audit Claims (By Source of Claim) Copyright 2012 Copyright 2012
  • 9. www.naplia.com Fraud detection Detection of Occupational Fraud 34.2% 25.4% 20.2% 19.2% 12.0% 3.8% 0% 5% 10% 15% 20% 25% 30% 35% Tip Accident Internal Audit Internal Controls External Audit Police Detection Method Percent of cases *The sum of percentages in this chart exceeds 100% because in some cases respondents identified more than one detection method. Copyright 2012 Copyright 2012
  • 10. www.naplia.com Copyright 2012 DDeeffeennddiinngg CCllaaiimmss:: TThhee BBaassiiccss
  • 11. www.naplia.com Statutes of Limitation ( Varies By State ) • Malpractice limitation period • Discovery rule • Action • Reliance • Injury Copyright 2012 Copyright 2012
  • 12. www.naplia.com Principal Exposures • Exposure to clients: – Civil suits for damages – Complaints to State Board • Exposure to third parties: – Civil suits for reliance damages – Government investigations Copyright 2012 Copyright 2012
  • 13. www.naplia.com Copyright 2012 EExxppoossuurree ttoo CClliieennttss
  • 14. www.naplia.com Theories of Liability • Negligence – Errors – Omissions • Violation of professional ethics – Conflict of interest – Breach of confidentiality – Withholding client documents • Breach of contract – Fee dispute – Failure to render agreed services • Violation of consumer protection statute – Breach of fiduciary duty – Fraud – Other egregious behavior Copyright 2012 Copyright 2012
  • 15. www.naplia.com Negligence (Elements of Claims) • Client must prove: – Liability—Existence of negligence • Duty—Standard of care • Breach of duty – Damages • Actual harm suffered by client – Causation • Sufficient connection between negligence and harm • Failure to prove any one element will defeat claim Copyright 2012 Copyright 2012
  • 16. www.naplia.com Standard of Care—Duty • Reasonableness standard • What would the reasonably prudent accountant have done under similar circumstances? • Objective standard—Expert testimony needed • Compliance with professional standards does not insulate the firm from liability Copyright 2012 Copyright 2012
  • 17. www.naplia.com A&A Services—Negligence (Most Common Complaint) • Failure to detect: – Actual embezzlement – Risk of embezzlement: • Control environment: – Significant deficiencies – Material weaknesses • Range of engagements: – From audit to write-up services – Management advisory services • Resulting in loss to client Copyright 2012 Copyright 2012
  • 18. www.naplia.com Who Commits Fraud 60 50 40 30 20 10 0 Percent Position in the Organization Employees Management Owners Copyright 2012 Copyright 2012
  • 19. www.naplia.com Who Commits Fraud 900 800 700 600 500 400 300 200 100 0 Median Loss by Position Employees Management Owners Copyright 2012 Copyright 2012
  • 20. www.naplia.com Types of Occupational Fraud Category Description Examples % of cases Median Loss Asset Misappropriation Theft or misuse of organizations assets -Fraudulent invoicing -Payroll fraud -Skimming revenues 91.5% $150,000 Corruption Influence in business transaction or obtain unauthorized benefit -Accepting or paying bribe -Undisclosed conflict of interest 30.8% $538,000 Fraudulent Statements Falsification of financial statements -fictitious sales -recording expenses in wrong period 10.6% $2,000,000 *The sum of percentages in this chart exceeds 100% because several cases involved schemes that fell into more than one category. ACFE 2006 Report to the Nation on Occupational Fraud & Abuse www.acfe.org Copyright 2012 Copyright 2012
  • 21. www.naplia.com Employee Fraud (Motive) • High personal debts • Unusual financial losses • Inadequate income • Lives beyond means • Extensive investment speculation • Excessive gambling • Substance abuse • Extra-marital involvement • Job frustration/resentment of superiors Copyright 2012 Copyright 2012
  • 22. www.naplia.com Employee Fraud (Opportunity) • Experienced employee – Knowledge of business/systems – Trusted by management • Lack of segregation of duties – Multiple inconsistent tasks – Broad computer system access • Uninterrupted service – Annual vacations not required • Weak management oversight – Understaffed at management level – Lack of management continuity/Excessive turnover – Overburdened/Crisis-mode environment Copyright 2012 Copyright 2012
  • 23. www.naplia.com Managing Risk—During Engagement (“Failure-to-Detect” Claims) • At the client-selection stage – Clients with healthy organizations – Document—Engagement letter • At the planning stage – Be observant, inquisitive – Focus on internal controls – Document—Forms, checklists, memos • During performance stage – Be thorough, objective, skeptical – Confront clients when needed – Document—Work papers, correspondence • At conclusion – Document—Management letters Copyright 2012 Copyright 2012
  • 24. www.naplia.com Defending the Claim (Failure-to-Detect Embezzlement) • Limited scope of engagement • Reasonableness: – Compliance with professional standards Copyright 2012 Copyright 2012
  • 25. www.naplia.com Case Study--Embezzlement ABC Moving ABC Moving ABC Moving ABC Moving ABC Moving Bookkeeper Opportunity $3 Million Copyright 2012 Copyright 2012
  • 26. EExxppoossuurree ttoo TThhiirrdd PPaarrttiieess www.naplia.com Copyright 2012
  • 27. www.naplia.com Theories of Liability • Negligent misrepresentation – Errors – Omissions • Violation of professional ethics – Conflict of interest • Violation of statutes/regulations – Fraud Copyright 2012 Copyright 2012
  • 28. www.naplia.com Negligent Misrepresentation (Elements of Claims) • Third party must prove that you: – Made false statement of fact – Had no reasonable basis to believe it to be true – Intended to induce third party to rely on it • Third party must prove that it: – Believed statement and reasonable relied on it – Suffered harm flowing from that reliance • Failure to prove any one element will defeat the claim • Third party must also have standing to bring claim Copyright 2012 Copyright 2012
  • 29. www.naplia.com Standard of Care • Reasonableness: – After exercising reasonable prudence – Would another accountant – Under similar circumstances – Believe statement to be true? • Objective standard – Expert testimony usually required Copyright 2012 Copyright 2012
  • 30. www.naplia.com Negligent Misrepresentation (Most Common Complaint) • Failure to detect: – Errors – Fraud – Illegal acts – Internal control issues: • Significant deficiencies • Material weaknesses • Resulting in material misstatements Copyright 2012 Copyright 2012
  • 31. www.naplia.com Managing Risk—During Engagement (Failure-to-Detect Claims) • At the client-selection stage – Clients with integrity – Firm has sufficient expertise – Document—Engagement letter • At the planning stage – Be thorough, objective, skeptical – Document—Forms, checklists, memos • During performance stage – Be thorough, objective, skeptical – Confront clients when needed – Document—Work papers, correspondence • At conclusion – Additional layer of review – Document—Management letters Copyright 2012 Copyright 2012
  • 32. www.naplia.com Case Study (Confrontation and Communication) Accountant Partner #1 was taking money out of the partnership without the knowledge of the other partners. Partnership Tax Return 3 Partners Copyright 2012 Copyright 2012
  • 33. www.naplia.com Who Commits Fraud? 60 50 40 30 20 10 0 Percent Position in the Organization Employees Management Owners Copyright 2012 Copyright 2012
  • 34. www.naplia.com Who Commits Fraud? 900 800 700 600 500 400 300 200 100 0 Median Loss by Position Employees Management Owners Copyright 2012 Copyright 2012
  • 35. www.naplia.com Management Fraud (Motives) • Unfavorable economic conditions • Heavy investments or losses • Insufficient working capital • High debt/credit problems • Unusually heavy competition • Profit “squeeze” • Need to cover up a bad situation Copyright 2012 Copyright 2012
  • 36. www.naplia.com Management Fraud (Opportunity) • Related party transactions • Ineffective or no internal audit staff • Frequent changes in auditors • Use of several auditors simultaneously • Reluctance to provide requested data • Last minute provision of data • Numerous adjusting entries Copyright 2012 Copyright 2012
  • 37. www.naplia.com Defending the Claim (Negligent Misrepresentation) • Limited scope of engagement • Compliance with professional standards • Proportionate responsibility – Demonstrating plaintiff’s fault • Unreasonable reliance • Lack of due diligence • No causation – Plaintiff’s harm caused by other factors • Plaintiff’s lack of standing Copyright 2012 Copyright 2012
  • 38. www.naplia.com Standing to Bring Claim (Three Doctrines) • Privity – Most restrictive to third parties – Need agreement/close contact with accountant – Old majority—No longer • Restatement – Middle ground – Plaintiff—member of class expected to rely – Majority rule—Trend is in this direction • Foreseeability – Least restrictive to third parties – Plaintiff must only be foreseeable user of work product – Minority rule—Once very popular – Only MS and WI appear to still follow this doctrine Copyright 2012 Copyright 2012
  • 39. www.naplia.com Lenders’ Requests for Assurance (Example Response—Part One) • Firm has client’s consent • Firm prepared client’s returns for specified tax years • Returns included ___________ • Firm’s services based on documents and information provided by client • Firm did not audit, review, or otherwise verify documents or information • Firm expresses no opinion and gives no form of assurance Copyright 2012 Copyright 2012
  • 40. www.naplia.com Lenders’ Requests for Assurance (Example Response—Part Two) • Response doesn’t establish relationship with lender • Lender should not rely on response • Lender should perform due diligence • Lender solely responsible for use of response • Firm has no continuing obligation to correct/supplement response • Lender acknowledges terms Copyright 2012 Copyright 2012
  • 41. www.naplia.com Copyright 2012 CClliieenntt RRiisskk AAsssseessssmmeenntt
  • 42. www.naplia.com Client-Risk Assessment • First Line of defense – Whether to accept prospect or continue with client • New-client acceptance forms – Prepare for all prospective clients – Prepare before decision is made • Predecessor accountants – Contact before decision is made • Background checks – Outside investigator – On-line investigation Copyright 2012 Copyright 2012
  • 43. www.naplia.com Client-Risk Assessment (Continued) • Risk assessment committee – Centralized approval • New prospects • Further services for existing clients – Monitoring of high-risk engagements – Disengagement: • Decisions • Letters • Must be willing to reject prospects and terminate existing clients Copyright 2012 Copyright 2012
  • 44. www.naplia.com Copyright 2012 EEnnggaaggeemmeenntt LLeetttteerrss
  • 45. www.naplia.com Engagement Letters • Second line of defense • Comprehensive contract – Not just a fee agreement • Purposes: – Define scope of engagement – Mutual responsibilities – Provide for contingencies – Prevent differing expectations Copyright 2012 Copyright 2012
  • 46. www.naplia.com Case Study (Dangers of Differing Expectations) Busy Lawyer Real Estate Clients Office Manager Accountant Operating Account Escrow Account Copyright 2012 Copyright 2012
  • 47. www.naplia.com Engagement Letter Policies • Develop standardized templates for firm-wide use • Obtain for all services • Don’t commence services without signature – Negative assurance OK for 1040s • Be willing to negotiate with client over provisions – Will make letter more enforceable • Carefully identify client – Consider need for multiple letters – Multiple entities – Entities and individuals • When performing multiple services for client: – Include comprehensive language for each service – Consider using multiple letters Copyright 2012 Copyright 2012
  • 48. www.naplia.com Engagement Letter Contingencies • Suspension/disengagement – As consequences – Scope limitation, non-cooperation, non-payment, etc. • Claims – Mediation – Venue/choice of law – Statute of limitations – Liquidated damages • Document issues – Ownership of files – Firm’s procedure for granting access to its files – Retention policy • Subpoenas – Compensation for time/out-of-pocket expenses • Communications – Contact person for business client – Communicating with joint clients Copyright 2012 Copyright 2012
  • 49. www.naplia.com Engagement Letters (Provisions Bearing on Independence) • Indemnity • Mediation • Liquidated damages • Statute of limitations Copyright 2012 Copyright 2012
  • 50. www.naplia.com Disengagement Letters • Send immediately • Keep it brief and unambiguous • Address it carefully – Who is the client? – Need for multiple letters? • Components: – When is disengagement effective? – What services are involved? – Why is disengagement necessary? – Caution client of impending deadlines – Documents to be returned to client – Cooperation with successor – Fees outstanding must still be paid Copyright 2012 Copyright 2012
  • 51. www.naplia.com Copyright 2012 FFiilleess && CCoonnffiiddeennttiiaalliittyy
  • 52. www.naplia.com File Retention—Content of Files • Client records – Originals – Copies • Work papers • Work product – Attest reports – Tax returns – Consulting reports – Research materials • Other – Correspondence – Email – Review notes Copyright 2012 Copyright 2012
  • 53. www.naplia.com File Retention—Ownership • File contents are firm’s property • Except: – Original client records – Work product that client has paid for • Must honor reasonable client request for: – Original client records – Work product – Work papers that are deemed client records • May make/retain copies of client records Copyright 2012 Copyright 2012
  • 54. www.naplia.com File Retention—Outline of Policy • Scan original client records—return to client • Purge review notes when cleared • Set policy for emails with clients/third parties • Save important emails when sent/received • Purge general emails after 90 or 120 days • Scan/retain originals of key signed documents – Engagement letters – Management representation letters – Lawyers’ letters • Destroy/purge files after 7 years • Exceptions: – Permanent files – Files governed by special provision – Files related to: • Claims/potential claims against firm • Board action against firm • Client involved in litigation/investigation Copyright 2012 Copyright 2012
  • 55. www.naplia.com AICPA Rule of Confidentiality • No disclosure without client consent • Four exceptions: – Professional reporting requirements – Subpoena, summons, statute, regulation – Peer review – AICPA or state investigation or proceeding (AICPA Code of Professional Conduct Rule 301) Copyright 2012 Copyright 2012
  • 56. GGoovveerrnnmmeenntt IInnvveessttiiggaattiioonnss www.naplia.com Copyright 2012
  • 57. www.naplia.com IRC §7216 (And Revised Regulations) • Applies to tax return information • Disclosure and use • Prior written consent of taxpayer required • Unless expressly excepted • Form of consent: – Very strict for 1040-series returns – More flexibility for other returns • Criminal and civil consequences for violation Copyright 2012 Copyright 2012
  • 58. www.naplia.com No Consent Needed (Select categories of disclosure/use) • To make disclosure to: – IRS – Others within preparer’s firm – Other preparers, auxiliary service providers, contractors – Related taxpayers—absent conflict or objection – Comply with court order or certain subpoenas – Preparer’s lawyer – Treasury Department—in investigation of preparer – Officer of court – Taxpayer’s fiduciary – Peer reviewer • To use for purposes of: – Assisting taxpayer with other tax/accounting needs – Offering tax information to taxpayer – Offering additional tax return preparation services – Reporting commission of crime (See 26 CFR 301.7216-2) Copyright 2012 Copyright 2012
  • 59. www.naplia.com Requirements for All Consents • Names of preparer and taxpayer • Intended purpose of disclosure • Specific recipient (s) of tax return information • Particular use authorized • Soliciting client (other products/services) – Identify each specific type of product/service • Specific information to be disclosed/used • Signed and dated by taxpayer (See 26 CFR 301.7216-3) Copyright 2012 Copyright 2012
  • 60. www.naplia.com 1040-Series Returns (Rev. Proc 2008-35) • Separate written document • Paper consent • Electronic consent • Mandatory statements in the consent • Affirmative consent • Signature • Incomplete consents • Multiple disclosures/uses within single consent • Disclosure of entire return • Adequate data protection safeguard Copyright 2012 Copyright 2012
  • 61. www.naplia.com Consequences (Violation of IRC §7216/Regulations) • Criminal: – Fine—Not more than $1,000 – Imprisonment—Not more than 1 year – Or both • Civil: – Separate statute—IRC §6713(a) – $250 per disclosure and/or use – Not to exceed $10,000 in any calendar year Copyright 2012 Copyright 2012
  • 62. www.naplia.com Security of Data • Reasonableness standard • Safeguards: – Servers/desktops – Laptops – Web-based storage/transmissions • Response to breach – Reporting to police – Reporting to professional liability insurer – Notifying client(s) – Notifying state? • Red flag rules – Do they apply to accounting professionals? Copyright 2012 Copyright 2012
  • 63. www.naplia.com Copyright 2012 CCllaaiimmss && IInncciiddeennttss
  • 64. www.naplia.com Claim/Incident Reporting • Reportable Claim—two components: – Allegation of error/omission – Demand for compensation/indemnity • Reportable Incident: – No claim yet asserted – You are aware of either: • Error and likely harm to client/third party • Client/third party’s belief that you made harmful error Copyright 2012 Copyright 2012
  • 65. www.naplia.com Copyright 2012 TThhaannkk yyoouu John F. Raspante,CPA 732-216-7552 JohnR@naplia.com Stephen Vono 508-656-1330; stevev@naplia.com

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