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Fee Collection – a malpractice risk

Counter suits arising from fee disputes are one of the most common sources of malpractice claims against CPAs. In fact, such suits are a great risk for many professionals.

Any steps taken to avoid a collection becoming a malpractice claim are essential. One of the key areas of attention should be a documented Collection Procedure.  Rita Keller of Keller Advisors, LLC the award-winning CPA firm management consultants suggested the following example of collection procedures for an accounting firm.

ABC & Company Collection Procedures

Payment of our invoices is due upon presentation to the client and our invoices will state same. As outlined in our billing procedures, the bill should be issued as soon as possible during or after the work is completed.

  1. If payment is not received within 30 days of the date of the invoice, a service charge will be added to the billing. A monthly statement will be sent to the client showing all outstanding invoices and service charges.
  2. Collection calls will begin on accounts that reach 45 days in age and continue on at least a 30-day interval until the account is collected. There is a separate set of expectations and steps for the calling process.
  3. When the account reaches 90 days in age, all work will be discontinued and the client will be notified that work has been stopped pending payment of their balance that exceeds 90 days. It is important that the entire organization observes the stop work procedure and communicate a consistent message to the client.
  4. At 120 days, the partner responsible for the account will be notified by the collection personnel that the account remains unpaid and that collection efforts have not been successful. The partner will have 30 days to collect the account.
  5. At 150 days, if the partner has not been successful, the managing partner will be notified by the collection department. The managing partner or his designee  will consult with the partner in charge of the client to determine the next steps. However at this point, the final disposition of the account and the firm’s future dealings, if any, with the client will be at the discretion of the managing partner. He/She will make the decision on whether to continue any relationship with the client and whether stronger collection action is warranted and appropriate.

CPAGold™ provides specimen collection letters which may be useful to you. Go here for details.

However, a recently development is a clause that may be included in engagement letters that has been tested in certain jurisdictions. Essentially this is a fee disputes section of the ADR clause. To paraphrase the this:

If mediation fails to resolve a dispute you further agree that any controversy, claim, or disagreement relating to our unpaid fees for professional services and costs rendered under this Agreement shall be submitted for binding arbitration to the American Arbitration Association, or like organization

It also contains another pertinent section:

Should you contend that any services were performed improperly or below the standard of care, you must raise that defense in the arbitration proceeding as an offset to, or reduction, or complete elimination of the fees that we contend you owe or forever waive the right to bring such claims. In the event that the arbitrator eliminates all of our fees and you still believe you have a cause of action not yet satisfied you may bring such action in a Court of Law for affirmative relief.

Furthermore, the clause goes on to state:

You may not assert such a claim as an affirmative defense in the arbitration proceeding and then again as a separate civil action for affirmative relief, if the arbitrator(s) determined that your recovery was limited to your fee balance. Should you bring an action in Court asserting a claim for improper services having not first brought a claim in arbitration in which the arbitrator found that the claim exceeded our contended fees, we shall in that instance only, be permitted to show the Court that this claim was made in the arbitration proceeding and therefore is a bar to prevent you from proceeding with the civil action.

No clause is a perfect defense against a malpractice claim but including this type of wording in an engagement letter may help to shield you from liability or limit the amount of the claim. Go here for a full copy of the clause.

Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel to see if this type of clause will work for you. Rickard Jorgensen is President & Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com

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