Building and sustaining client relationships form the building blocks of any CPA firm, regardless of the modus operandi being converted to a digital platform in a world that witnessed a recent pandemic. The 3 pillars of relationship are Client service, respect, and trust for which CPA firms are held in high regard and often recommended to other professionals like attorneys, financial planners, insurance agents, valuation experts and even when a client seeks to fill an open position within its organization.
However, often CPA firms get held for negligence when a recommended professional, with which the CPA is associated, is found to be fraudulent or incompetent. In such cases, a CPA firm can be held accountable for client losses or a blow to the client relationship, since it was a party to the endorsement.
Referrals can be easily avoided in totality. However, in the visibility of providing efficient referrals to retain a client relationship, following are some vital parameters to be considered, where a negligent referral risk can be mitigated or avoided:
1. Exercising Due Diligence
Once the basic investigation of a professional’s background, training, experience, reputation, professional credentials, and/or licensing are done and validated by a CPA firm, such an employee will be good to be referred should all of his records come clean. Saying so, the CPA should be knowledgeable about the employee’s core strengths and field of work such as financial planners/attorneys or architects.
The research and background check can be appended by an internet search to study positive or negative reviews (if available from the hire’s previous employment or clients) and attaining a high-level understanding of the quality of their work.
2. Providing Multiple Choices
Firms can minimize risks by referring multiple candidates to the client to choose from. This ensures transparency in the eyes of the client by avoiding any personal bias at the CPA’s end to extend a particular referral.
3. Appending Written Disclaimers
Appending written disclaimers is a safety measure for the CPA as well as its clients so that any fact, if deviating from the disclaimer can be used as a breach of agreement. A disclaimer serves as the basis of the referral and clarifies its nature, limitations, scope and quality of work of the person referred. This prevents the CPA firm from any liability arising outside of the mentioned scope of the disclaimer and for any unpredictable behavior or work conduct of the hire; the hiring firm will be solely responsible.
4. Documenting the Referrals
Referrals are advised to be provided in writing to avoid any dispute in recollection of any terms and conditions, skill set or scope of work, at a later stage. The language used to document the same should be crisp and to the point. In context of the same, pre-populated referral sheets are a good option. However, the referred professional’s qualifications should continue to be reviewed from time to time to keep a check on his/her work conduct and work metrics.
Guidelines for professional referrals, including commissions and referral fees are laid out under the “Commissions and Referral Fees Rules” of the AICPA Code of Professional Conduct. The rule prohibits the receipt of commissions to clients where specific attest services are delivered.
It is noteworthy that if the CPA receives a permitted referral fee from the referred professional or a commission, it must be disclosed to the client in writing and the way it should work in future events should also be concluded.