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advocacy community education
CPA" and the planner/adviser as the
professional managing the client's
investments. However, a jury may see
the CPA as the trusted financial advis-
er who was responsible for overseeing
the client's entire financial picture,
including the activity of the other pro-
fessionals. A new engagement letter
would clarify for the client and the plan-
ner/adviser what the CPA would and
would not do (i.e., the limitations of the
CPA's responsibilities) and who would
be responsible for which tasks and
duties. Where a CPA has carefully
defined an engagement with one or
more engagement letters, the client will
have much more difficulty trying to hold
the CPA responsible for matters not
encompassed by those letters.
Avoiding Collection Problems
Communicate your billing and collec-
tion policies in your engagement letter

this is the best way to avoid having a
collection problem. A stop-work/disen-
gagement clause in the letter may
enable a CPA to stop work in the event
the client fails to pay in a timely man-
ner. The enforcement of this clause will
help prevent your firm from completing
too much work without receiving pay-
ment from the client.
Bill on a timely basis, and do not allow
fees to build up to the point where you
can no longer walk away from them.
When unpaid fees become too large,
they may compromise a CPA's inde-
pendence and increase the likelihood
of malpractice claims.
If the firm decides to disengage from
the client, make it official by delivering
a disengagement letter. State in the let-
ter that the relationship is terminated
as of a specific effective date, list pend-
ing due dates (including obvious ones),
describe the status of work in progress
and the disposition of client records,
and state the outstanding fees plus
payment terms.
Alternative Dispute Resolution
Include a mediation clause for all dis-
putes and a binding arbitration clause
for fee disputes only in your engage-
ment letter. Simple fee disputes are
better resolved through mediation and
arbitration than through litigation.
Mediation is a good first step for almost
all disputes, the exception being when
the cost of a mediator exceeds the
amount of fees in dispute. Binding arbi-
tration for fee disputes only is an
effective second step, again depending
on the amount of fees in dispute.
While binding arbitration is effective for
simple fee disputes, most other
engagement disputes tend to produce
complex, high-risk, high-dollar claims
that are better managed through medi-
ation and litigation than through arbitra-
tion. An effective legal defense can be
restricted and impaired by arbitration,
sometimes triggered by a general arbi-
tration clause in the engagement letter.
It's also a good practice to consult with
your risk adviser or attorney before
suing to collect fees. This enables an
expert to assist you in weighing the
risks and consequences of suing for
fees. Lawsuits and counter-suits
almost always result in the CPA spend-
ing far more in attorney fees and in lost
billable time than is warranted for the
fees owed to the CPA.
Again, the best way to avoid such
problems is to clearly communicate
policies, roles, responsibilities, servic-
es, and the limitations of the engage-
ment in your engagement letter.
Ron Parisi is executive vice president,
(, responsible for
executive oversight of the company's
underwriting and claims functions.
Many high-dollar claims result from the failure to
clarify the CPA's role and services to be performed.
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