Sweating the (Not-So) Small Stuff in Public Practice

From CPABC’s Ethics Department

Do you pay close attention when your client provides you with information—looking at the details, asking questions, noting the deadlines? Or do you quickly file the information away to review later, only to discover that you’re missing critical information? Do you delegate the work to an assistant or student? If so, do you supervise their work closely? When your client calls you, do you call back? Have you agreed to the terms of the engagement with your client? Do you make sure all work is completed on time?

Most CPAs in public practice do a good job of managing multiple priorities, and they do so for a diverse range of clients—from the client who uploads all her documents to the cloud, clearly labelling and categorizing everything, to the client who still uses shoeboxes and manila envelopes as his primary means of record-keeping. Having diverse clients means working on many files at the same time, which makes it all the more crucial for CPAs to stay organized and pay close attention to details. If they don’t, they’re all too likely to make large errors. 

The following fictionalized examples are based on actual complaints made to CPABC’s Investigation Committee. Names and circumstances have been changed to preserve anonymity, but the outcomes of these cases are real.

Case 1 – “Trevor”

Trevor started his firm in 1999, with a focus on compilations and T1 and T2 returns. He had several non-designated employees on staff, including a CPA student named Michael. Michael dealt directly with many of the firm’s clients as Trevor was often out of the office—a champion speedboat racer, he frequently travelled for competitions.

Everything went well for the first few years of Trevor and Michael’s professional relationship. In 2015, however, Michael made a series of egregious errors when working with Trevor’s client Sandra, a self-employed landscape consultant. First, when filing the T4 summary for Sandra’s 2014 business, Michael mistakenly reported $94,000 for the employee payroll instead of the correct figure of $46,000. He then compounded the mistake by filing the same incorrect information with WorkSafeBC and by calculating the WorkSafeBC remittances on this basis. He later had trouble reconciling Sandra’s records and ended up missing the T1 and T2 filing deadline. To make matters even worse, he told Sandra not to worry about missing the filing deadline because she had no taxes owing and would be getting a refund.

Shortly thereafter, Sandra received a notice of assessment from the CRA for the late filing of her 2012 and 2013 tax returns—returns she thought had been filed on time. The next day, she received another notice from the CRA, this one stating that the employee withholdings on her 2014 T4 summary were inadequate, and that she owed $16,300 in taxes, as well as substantial penalties and interest.

Alarmed, Sandra called Michael, who told her not to worry. He assured her that he would fix the T4 summary and explained that he’d just recently filed the 2012 and 2013 returns after realizing the oversight (in truth, he hadn’t forgotten the returns—he’d misfiled them). Michael apologized and promised to make amends, but Sandra subsequently received a bill from Trevor’s firm charging her $4,000 for Michael’s recent work.

Sandra called Trevor several times to complain but only got his voice mail. She left messages but never heard anything back. Trevor then made the situation exponentially worse by sending the bill to a collections agency after Sandra refused to pay. Adding insult to injury, the CRA referred her mistaken payroll debt to collections as well. It just so happened that she was in the process of negotiating for a mortgage when collections came calling. Outraged by Michael’s mistakes and Trevor’s failure to provide service, Sandra filed a complaint with CPABC’s Ethics department.

Trevor told the CPABC investigator that the mistakes were Michael’s fault—Michael had been responsible for doing the tax filings and bookkeeping for multiple clients and had gotten overwhelmed. He also pointed out that Michael had filed an amended T4 summary as soon as he’d discovered the payroll error. As it turned out, however, the amended summary in the client file was not dated, and there was no confirmation receipt from the CRA. When asked about these omissions, Michael said he hadn’t followed up with the CRA about the amendment himself, but had asked an assistant to call numerous times. The file contained no documentation of phone calls made to the CRA.

During the course of the investigation, Michael admitted that he’d slipped up with other clients as well. He revealed that he’d gotten so far behind in his work that he’d had to “triage” files—guessing which clients were more likely to owe sums to the CRA so that he could deal with them first. Michael said he’d tried to get help from Trevor, but that Trevor was hardly ever in the office. He noted that clients were constantly calling Trevor, but that Trevor rarely called them back—unless they indicated that they had more work for the practice (in other words, for Michael).

As soon as Michael obtained his CPA designation, he quit Trevor’s firm and left public practice altogether. This left Trevor as the sole designated accountant at his firm.

Case 2 – “Melanie”

Melanie launched her firm in 1995, with a 40% focus on personal tax and a 60% focus on compilation and related work for small business.

Richard became one of her clients in 2010. He has a physical disability, as do two of his four children, and much of the family income comes from disability payments received from several levels of government. It is critical that Richard’s returns be filed accurately and on time—failure to do so could jeopardize the family’s disability payments and Richard’s PharmaCare benefits, which pay for a number of costly prescriptions.

In 2014, Melanie asked Richard to prepare a “Personal Income Tax Checklist”—a form for personal information, income, and expenses, which clearly laid out his personal situation. However, after Richard submitted the completed form, Melanie made a number of significant errors in preparing his T1 return. She recorded that he had four disabled children, not two; she recorded that his rental income was $210,000 instead of $21,000; and she recorded that he had more than 10 dependants. As a result, the CRA rejected the return when Melanie attempted to file it electronically on April 30.

Melanie didn’t notice that the return had been rejected until a short while later. She then compounded the problem by hastily mailing a hard copy of the return to the CRA without first following up on the reasons for the rejection.

As a result of Melanie’s actions, Richard received a notice of assessment from the CRA, and his family lost their disability payments and PharmaCare benefits during the months it took for the errors to be corrected. Outraged, and now unable to afford the prescriptions he needed for his family, Richard complained to CPABC.

Melanie admitted to the CPABC investigator that she’d been too swamped on April 30 to notice that the CRA had rejected Richard’s filing. She agreed that the return contained several mistakes, but argued that Richard should have reviewed the return more carefully. The CPABC investigator examined Melanie’s working paper file and noted that there was no record of her having reviewed the return prior to filing, no evidence that she’d reviewed the CRA filing rejection, no log indicating when the return had been corrected (because it hadn’t), and no indication of when she’d mailed the filing to the CRA. Melanie did have evidence proving that she’d sent a package to the CRA on June 28, but the mailing slip did not indicate which returns were in the package.

The outcomes

In both cases, the Investigation Committee concluded that there were sufficient grounds to establish contravention of the CPABC Code of Professional Conduct (CPA Code). The committee found that Trevor and Melanie had each contravened multiple aspects of the CPA Code, including rule 201.1 (Maintenance of the good reputation of the profession), 202 (Integrity and due care), and 218 (Retention of documents and working papers). Both failed to exercise due care when dealing with their clients’ returns—Trevor, by failing to properly supervise Michael and by not responding to his client’s calls; and Melanie, by failing to notice the obvious mistakes on her client’s return and by not correcting these mistakes after the CRA rejected the e-file. The negligence and sloppiness demonstrated by both practitioners brought the profession into disrepute.

The committee recommended that Trevor and Melanie each accept a reprimand, pay fines of $4,000 and $5,000 respectively, and pay the expenses of the investigations. In Melanie’s case, the size of the fine was affected by the fact that she’d been disciplined by her legacy body for subpar work in the past. Both Trevor and Melanie were also required to take practice management courses as part of their continuing professional development.

Finally, the committee decided not to make a complaint against Michael. Although he was subject to the CPA Code at the time of the complaint (students must also adhere to the CPA Code), the committee considered Trevor’s supervision to have been so inadequate as to have made Trevor responsible for Michael’s mistakes.

Key takeaways

The “small stuff” matters! Clients expect CPAs to perform every service with thoroughness and professionalism. This means returning telephone calls, keeping a record of communications, reviewing routine filings, and promptly reviewing the work performed by staff. “Being swamped” is not an acceptable excuse for poor service—if a CPA practitioner cannot provide quality service to every client, they should not be offering that service at all.

Need help?

CPABC has professional standards advisors who are here to help. When navigating difficult situations, you can call them for confidential advice to ensure that you stay compliant with the CPA Code. Stella Leung, CPA, CA, can be reached at 604-488-2609, and Brigitte Ilk, CPA, CGA, can be reached at 604-629-8363. Both can also be reached at 1-800-663-2677 (toll-free in BC).

Another way to ensure that you stay onside is by referring to the CPA Code. You’ll find it on our website at bccpa.ca/member-practice-regulation/act-bylaws-code-of-professional-conduct/.

Comments or questions about this article?

Contact CPABC’s ethics department at ethics@bccpa.ca.