Conflicts of Interest for Legal Accountants

Welcome to Accountants Law Pod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Stephen Libhart.

Welcome back everyone. We have a pretty interesting topic today, almost timely for Lynda and I in some ways, but we do have an interesting topic today that Steve's going to actually lead us through. And it is regarding conflicts of interests and some of the areas in the accounting profession that we should take as precautions. So welcome back, my friends. How are you all this week, this last week? How have things been?

Go ahead, Lynda.

Busy week. It's the busy close your file week. So we went from the busy get the 1099s done to the busy close the file week. And yeah, we're not done. We're not done.

Yeah.

I mean, when she's speaking, she's speaking.

We'll be done by the time. Yeah, we'll be done by the time this lands. But right now we're in the thick of it, kind of. And of course, I got my grandkids visiting, so that just adds another layer to it. So it's busy.

Family.

Busy.

Good busy. Good busy. Yeah.

Yeah. It's always nice to have family.

Yeah. It's nice to have them down here. It's been such a cold winter. And I brought this up this morning in our team meeting. My littlest one, he's 6. He said, Gigi, what month is it here? I think he thinks he time traveled to, like, June from the airport in Rhode Island down to here. He's like, I said, it's the same month, Aiden. It's the same day. Nothing changed. And he goes, no, it's snowing at my house. I said, I know. I never really thought of it, but that's how he interpreted it in his little brain that he hopped on a plane and it became summer.

That's pretty cool. That's pretty fun for a kid to— the innocence of imagination. Yeah.

I mean, it makes sense too, right? Because he did leave snowy Rhode Island and landed in sunny Florida, and it's like 83 and beautiful. And he's like, wow, what month is it?

Yeah.

I try to explain to them it's summer all year round here and it gets really hot in the summer, which is why I end up in Rhode Island.

That's funny.

I went out to our friend ChatGPT this morning 'cause I was like, okay, there's a lot of ways that we can get involved in a conflict of interest. And it came up with some pretty interesting things. So I'm gonna just kind of go down the bullet points and if you guys wanna make notes and then we can jump into the different subjects. How's that sound?

That's a good idea. Okay.

So the first one that came up was financial interests and having an equity ownership in the firm.

Oh yeah.

Or profit sharing arrangements.

Okay.

Self-review threats, providing auditing and bookkeeping services, and then auditing, or providing bookkeeping services, accounting services, and then auditing them. That's a conflict. Preparing tax returns and providing tax planning advice. If you're just on the bookkeeper level/accountant level, you know, you have to be careful with tax advice.

Mm-hmm.

Client business relationships, serving on a client's board, or family and close relationships, or competing clients. And you know, we have, that really made me think about, I want to talk about that one. Advocacy threats, representing the client in legal or IRS matters, marketing the client's investment opportunities, that one didn't quite make sense to me, using insider information, leveraging their financial data for personal or external gain, and accepting gifts and incentives. So there's a whole laundry list there of really interesting things.

Yeah, but I think it's the AI thing though, like where it's learning about a couple things where you're like, which we talk about openly on this show is like AI, you have to vet.

You have to double check, yeah.

I mean, the gift thing is interesting, right? So if your client gives you a gift, which doesn't happen. I've been doing this for 26 years.

Well, so what about a client? I've had this happen with law firms where they'll, you know, they want to take us on their annual retreat and pay for everything. And, you know, it depends on, are you going to be presenting business things there? Is there, are there official meetings or is this just fun and they're going to be, you know, giving you a— think about that.

Yeah. Mm-hmm.

It's not happened to me, so I don't really know how I would handle that. I have such With Sarah and I have very— this is a business thing. So we don't, like, we don't personally get involved with our clients to that level. So I think that's why we've never been invited on any retreat. If any retreat, we do it ourselves.

So, you know, and I think because in this market, I worked in so many law firms as I grew up through this industry that I've made a lot of friends. And, you know, I do think from time to time you know, I know this or I know that. I see this, I see that in different people's books. And you have to be very, very confidential and very discreet.

Mm-hmm. And to get a talk in generalization. So like overall, this is what I see happen. Like I'll say to somebody, well, I can tell you that all our clients are doing really well. Everybody seems to have growth. If they're thinking they're not gonna have growth, you know, they might think that they're not gonna grow right away. If we're talking about what software to go into and if it has space for growth, And a lot of times I think we, we try to talk in a general term like, oh, almost all our clients always have growth with the law firms. We haven't really experienced the ups and downs. There is a few, but, um, I don't know. What do you think, Sarah?

I, you know, there was one, some, something that you said in this list that Lynda and I have been a part of that I wanted to kind of come back to, which is, I think we're The conversation— Lynda, you, you said it really well. We are pretty separate with our client base, right? And it was this one that came to us. There was some auditing that needed to happen, and there needed to be some rebalancing of the books, and there was another auditor. So there was tax, and this is where I wanted to come back to this piece, because I feel like in general we present a non-disclosure agreement, we see things through a lens. We speak about it as high level. I feel like we, you know, what we see fine-tuning over here might be an opportunity for another client over here, not in direct competition, of course, but just like little fine-tuning benefits of accounting practices or something like that. This one was interesting. It was definitely eye-opening, I think, to her and I, and we had to do a bunch of different things, but then yet another tax firm that had the right requirements had to come in and review that work and the tax work separate. And it was very fascinating. I mean, it was definitely in line with the— like, I didn't— there's obviously no praise in something like this, but you could kind of read through the less lists you got per year.

Mm-hmm.

Meant that you were doing a really good job, you know what I mean? Like things were tying out well, well enough. And I feel like in that situation, and why I wanted to come back to the bullet point number 2, I think it was, or 3, auditing, that was interesting to me because I'm curious about what that little piece said. That's how I felt when I heard that. And I don't know if you felt this way, Lynda, because we are in such a business relationship, we're very sensitive we'll have— we just happened to us on Friday. I think it was a client was like, can you show me? Well, no, I can't show you how to use the software.

Yes, somebody did ask. Talking about generally something and they're like, well, can you show me what it looks like on another client's file? Like, absolutely not. No. You know, Sarah, with the word audit, when I first started my business, I used into, you know, ProAdvisor was kind of how I built my business in the beginning. And they had like this template on the ProAdvisor page and I clicked off all the boxes. I wanted the most people coming to me on the ProAdvisor, and one of the boxes said that I did audit when I didn't do auditing. I was not an auditor, but it was like a bucketed thing. It was audit. It was some other things that I did, like payroll audit. It had it like a list, and I picked it. And then somebody wrote to the state of Florida and said, she's advertising as an auditor. Seriously?

It wasn't on my website.

It was on that ProAdvisor page.

Wow.

So they made me pick— untick that box. So, yeah. And, and so, and I'm not an auditor. I don't wanna be an auditor.

You never claimed to be one.

No.

And I don't think auditing's gonna be around a long time with, with AI. I think auditing's gonna be one of the first positions to go when we get to the level of the AI working properly. I think that that's such an area where you can actually make the AI work well for it. But it's funny that the word audit You just said it. We audit the books. We're correcting balances and making it correct. So we're looking through the books, seeing where it's unbalanced, and we're making corrections. Is that auditing?

Yeah.

Right. It's not an audit where you're in there, you're going to penalize somebody like a—

Not a paid auditor. Audit. Yeah. You're reviewing it, right?

You're not an auditor.

To your point.

Yeah.

Like in our client agreement, we specifically say we will not audit the books.

We have that too.

And we're not—

Right. And we don't give tax advice. So that's the other thing. So we also very clear of our role, and we will work with the tax professional. We are so clear on that with our clients. And but they're happy to know that we'll help them through it because we speak the same language as the tax people. But we're not going to give you tax advice. We don't follow the tax codes, although we do kind of follow to understand where things should be. We don't want to be putting things— we want the client to know that, oh, entertainment no longer, you know, that It's not an expense for meals only. You only get half of the meals, 50%. Now that full percentage that was there during the pandemic is now gone. And now you have half. You want to make sure they understand that. So we do have to follow and understand it. I mean, Sarah and I try to stay on top of that because things change. They're in flux.

But that's not auditing. That's our tax advice.

That's just tax.

It's not tax advice. It's just really like relaying what we learn by seeing tax returns land in our lap and what we see. Well, in our experience.

You know.

Yeah, but it's not taxable.

Anyone can go to the IRS site and read through, and I do that. I do go to that as my reference, my sort of source of reference, to ensure, um, just because it's advertised— not saying somebody would falsely advertise mileage rates, let's say— but I do go to the IRS site to ensure this is the mileage rate. I do go to the IRS site to look out the 1099 rules, the things that pertain to the pre-work that we do and support in relation to asking me questions on complex rules of IRS codes regarding assets and all sorts of things. That is ultimately not my responsibility. It goes into the right place for the moment. If it is something that's viewed upon or needs more discretionary, uh, details and reviews that a tax person needs to do, great. We are here to support that, to, to Lynda's point.

But also, Sarah, how many times we had conversations with clients that they'll say to us, oh, is that what the tax person meant? I'm so glad I talked to you about it because I just wasn't understanding what they were saying. Yeah. Because they talked in tax speak to them and it went over their head and we, we'll explain what we know and they're like, oh, it's, and they feel more comfortable talking to us because they talk to us all year long. And when they see the tax person, it's the scary moment. I've gotta get my stuff to you. You have to have that pressure. And then you're told what you owe the government, which is not an, that's also on the tax person, which is not a fun conversation.

You can spin it and say, well, you made money.

Me.

So you get to pay taxes. But, you know, it's better than not paying taxes. I've heard that a million times from tax people. But, you know, it's that relationship we have over the tax person who's busy. And the clients say to us all the time, I never feel like I'm having a conversation with them. And I said, well, the only time you're having a conversation with your tax person is on April 15th. And yeah, it's going to be a problem. You know, I don't want to blame the tax person. It's kind of on you.

If you're not proactively engaging. Yes.

Yeah.

We have so many amazing tax colleagues. We have so many people that are trying to support and reinvent, redo this sort of industry in the sense of like proactive. We have a lot of colleagues that do this well. When it comes to, it is a touchy subject though when it comes to this audit, obviously tax returns. Those are a couple key points, right, on your list, Steve? Yeah.

Mm-hmm.

The thing that—

Thumbs up.

Yeah, thumbs up, I know, right? I do feel like there was this thing about, What was the thing about investments?

Financial interest, equity ownership in the firm, or profit sharing arrangements.

Okay, that one has me a little bit. I'm thinking—

I'm making that up with the client, but I guess if you— what if you're a bookkeeper that works inside the firm and that's part of the deal that you get with working?

Oh, Lynda, wait a minute.

Or the personal injury firm.

Oh, where you're a client. You know exactly where I'm going with that.

Yeah.

Yeah. We've seen that. We've seen a personal injury firm hire the client that's no longer a client for their skill set. And obviously you'd— yeah. I mean, yeah.

Or do they call you and say, I'm going to loan money to this person while I'm waiting for the settlement to come in. What do you think I should do?

Lynda knows that problem.

Oh, that's a conversation.

But that can create a conflict of interest. You've got to be really careful in answering these questions.

Well, and okay, so this would cause me some pause. You're an inside accounting professional in a firm, and then you have a side hustle, but you don't disclose the side hustle, and that side hustle is bringing on mutual similar clients. That's a problem. Like, you— that's not okay. Um, and that could be of anybody in an accounting firm too. Like, you need to be very forthcoming about this type of thing, if it's in the same niche, I guess, is what I'm trying to go to.

Hence the NDA. As you've been outside, you should have the NDA in place. It's just good practice because you don't ever want to have that. You just want to always keep it separate. What you do is you look at it from like your mother always told you, you just don't ever talk about anybody behind their back. You know what I mean? You have to stay in your own lane and treat people like you want to be treated. And if If you follow that rule, you'll be golden because you just don't want— you don't want our stuff disclosed to people who aren't supposed to have it. And the same thing if you're looking at it from the client's perspective, they don't want anybody knowing their business. And it's just— it's a good business practice overall, right?

Yeah. Respect. I mean, down to— I mean, I will say to your point too, Lynda Artesani, even when we're screen sharing, I don't want to see other clients' names on your screen if you work for us. I want it to just be a brand new window with just that client's information. I don't want to see that kind of stuff. And that's a big thing that I, you know, I just— exposure, privacy, to your point. But so Steve, on your list, I tried to write as fast as you chatted here.

I try to keep up with Steve here.

Yeah, I'm trying. You had, what was the client business relation? What was that point?

So serving on their board of directors or a dual role of some sort, family or close relationships, if the accountant has a relative that has a key financial role at the firm.

Oh yeah.

Oh yeah. Or working for two clients in direct competition without disclosure. You kind of mentioned that a minute ago.

Yeah, yeah, that part there, okay. That was the part—

I know when I was working—

—that was interesting.

When I was working in smaller law firms and starting to teach at the Bar Association here in Colorado, I would get approached by other firms. And so I had, I went to my boss at the time and said, there's another firm who has approached me. And he said to me, what type of law are they in?

Exactly, what practice are they in?

And I would tell him and then he'd go, that's fine, that's fine. And then I would disclose to the other client, I'm working in this law firm part-time. And they all talk to each other anyway. So, but I felt so much safer disclosing all that information.

Yeah. Can we go back to the board thing? Because that's interesting, isn't it, Lynda?

Very.

Yeah. Because that would seem natural as a conflict if you are a spouse or work, like there's some relation to overseeing the advisement of that company. That's like insider moment to me. It's like you're giving advice to help your pocketbook, right? Like, okay, yeah, that's how I— I'm not seeing that, but I do—

It could come up with a large firm.

Yeah.

A very large firm that I could see where that might bubble up.

I do take pause when I hear, and we've seen this before, Lynda and myself, so I don't know if you have had this experience, Steve, where the person helping out is also an attorney, two different firms. The spouse is helping out the other firm, and it's like at some point you're kind of like, when do you guys run your own firms? I, I understand spousal support, get it, right? Like you help each other, but you could— you be creating your own conflict right there.

You could.

Why would you be doing— and my biggest question is, why are people trying to figure out things that is not within their profession. Why are you trying to be the accounting person at 3 AM trying to get your books done? For what purpose does that serve you?

It doesn't save you any money doing it that way. Actually, you're going to end up fixing it and then you're just— yeah, why do that? Why do that? People do. They think it's— I don't know.

I don't know. I don't get it. So, so yeah, I guess that's, that's interesting. I, I could see where— I didn't even think of it, Steve, but I could see that being a natural place, um, to have a conflict. So what are your other things on that list again? Because I did not write— I wrote 4.

Oh my goodness, let's see, um, trying to look here down, uh, insider information. Um, well, how about this one? Is it a con—

Could this be a conflict of interest? So you've got multiple partners and, you know, one partner is doing something that's not correct and you brought it to their attention. Yeah. Then they don't do anything about it. Now you have a responsibility to bring it to the other partners. Or do you not? Do you be quiet and just let it go because you try to attempt to do it with the partner and you don't get anywhere? Especially if it's something that's egregious, you really have to bring it to the other partners.

Do you? Well, or the firm who makes a mistake with the trust account and then doesn't want to own up to it. Yeah, you know, and to you in your scenario, that exposes all those other partners. Yeah. You know, because they're in that firm and some of them have an equity stake, some don't. So, I mean, you know, these, these— and we see these things on the accounting side, you know, we're usually the first to discover them.

So it could be a conflict of interest just with one partner that, you know, is one business owner that's doing something wrong. And you know it's wrong in the trust and you bring it to their attention, bring the code in, you know, bring them the Bar Association rule that they're breaking and see if it's an innocent problem. But deep down, you know it's not. And then, then, then where does that land you if it doesn't get corrected and you brought it to their attention? Do you disengage? Do you report them? I mean, that's a whole conflict.

That's a tough one. I had that situation. Also, what about for those in the accounting arena who are doing client billing for them, for the firm. And, okay, Lynda and Sarah, you're both attorneys, and all of a sudden we see Sarah padding the time on the bills.

Mm-hmm.

Yeah, what do you do?

Yeah.

Well, but also what I think of in the accounting, when you're tying it back to accountants, is one firm has an outsized firm is coming in and doing the billing, but it's benefiting yet another business that ultimately is related to them. How does that work?

Oh yeah.

That's not okay, right? Well, it's like, or someone, is it a conflict of interest depending on who's the beneficiary? Like who in the end is, who's receiving the benefit of this thing? And I think that's ultimately where you have to start kind of being careful about what you're saying and looking at and revealing. And for us, I just know we're just super protective. I see people, and this is fine, I see you boast about your clients on your website. Okay, that's great. I just am not that type of a per— I'll get a testimonial, but I'm not interested in displaying my—

I know, I'm so glad you brought that up. I've seen some law firms do that. They're like, we represent so-and-so, so-and-so. I'm like, "That just doesn't appeal to me at all." I don't get it.

It's not a badge of honor, the status of that. Now, okay, take it aside, film, artistry work, I get that. You have a whole plethora of different films you've worked on. It's basically your resume, it's your CV, right? You've got all this stuff that you've done. But that is different in the professional services way of doing business this way. That's how I see it. So I've never been— Yeah, it's so weird. I totally, I agree.

I don't need to tell people who my client base is. Yeah.

Especially in the accounting world.

Yeah.

You know.

I often wonder the people that do that, like, is that just to show how big they are? I don't understand. Is that— I don't get it.

You know, I was gonna say that when I mentioned, when I see that on law firm websites, it's usually the big firms have that.

But I'm thinking in the accounting firm space is where I'm speaking to, Steve. Not the law firm.

Yeah.

We've seen it.

Yeah. You know? Yeah.

Oh, well, do they go get some sort of— do they get some sort of permission to do that from these clients?

I'm pretty sure they must. I mean, you've got their logo. I'm saying from the accounting profession, it is not in my interest that I will never be that. I know Lynda and I are both in that boat. We just— that our— this is who we are. Private is behind the door, who we service. That is our clientele. Um, and we honor that. We respectfully honor that.

That's why whenever somebody says, can you send me a referral? I'm like, we have to ask, do you want to be bugged as a busy attorney? Would you want to be bothered to have to? And we have some people that have told us, yeah, I'll do that for you. Lynda and Sarah, no problem. We love you guys. I don't want to be bothering them. I know I'm bothered, right? When somebody bugs me at this time of the year, it's like it's even more, right? Because they're so busy. And I just, to me, all right, I send you a referral. The person says, we're great. I could send you Uncle Joe or something. He's going to tell you, oh, yeah, I work with them. They're really great. How much weight do you put into something like that? Because it could be anybody that you're talking to. I don't know. To me, that never really— how do you know who you're talking to on the phone is who you— you don't know these people. I don't know what value that is. But people, we get that on occasion. We go through, like, little spurts where all of a sudden it's like 3 people in a row will ask for a referral. And, you know, we'll bother our people that say that it's not a bother to do it with. But I always feel it's kind of a heavy ask. I don't like to bother my clients to do anything. It's bad enough I got to bother them for documents and things.

Well, and because they're in the legal arena too, you know, legal issues. If something goes wrong and they're not happy with the attorney, then they're going to come back to you and say, well, why did you refer them?

Yeah. Yeah. I personally, I love that she brought this up because I have felt so strongly about there's reputation. Um, there's good work that you do. I get that people advocate, and there's the whole thing about social media and you need your testimonials. Personally, I, I don't put a lot of weight behind those, I'll be honest with you. I mean, if you're a physical product, possibly, but then under that disclosure is, are you paid for that one?

Yeah.

All of that stuff. Like, if I'm going to do something, gonna be for me, not so much because 20 million people said this was the best thing for me. I'll probably—

I know, I know.

I'll go the other way.

I don't actually believe all those either, 'cause it's like a lot of times they might be getting a Starbucks card or something. It's like, yeah, okay. And it's, if you have to kind of read them, if you're even on Amazon, you're looking through the reviews, are these real or not? 'Cause you just don't know.

And if you're an app—

This weekend I spent, we just did a bathroom remodel at the house and I spent, I think 4 or 4 and a half hours this weekend shopping for something for the bathroom because of the reviews. I'd be like, well, this is so cool. And then I'd get down in the reviews and there'd be the bad ones. I'd be like, oh, I can't have that happen to me. I went down the rabbit hole with reviews. And, you know.

Yeah, no, I mean, I feel this way about apps that we use. We like your app. We will— this is what I enjoy. The other benefits that you're trying to sell me on, I already liked your app. Stop. Yeah, okay, I don't need the other, the other side, maybe like, you know what I mean? Like that kind of conversation. And so I find it interesting that, um, if I like your product, I'm rolling— I'm gonna also tell you what I think needs to improve, right?

Pretty transparent too. We promote the ones we like, and we do it because we like them.

We like them.

We don't get a kickback, we don't get anything. It's just We like this software. It's really good. Use it if you want to use it. It works well with lawyers.

And if it works for you, awesome. Okay, great. But yeah, so it's interesting in the conflict of interest in the accounting space specifically is really looking at like also if you recognize a name inside a case that right at the title, you're not digging in, your mouth needs to be quiet. That is not your place to say anything, do anything. That is your client. And if there's represented, you may need to bring up if there is a true conflict. Right? In the sense of like, not by, you know, like, what if it's immediate household? Okay, well then we got a problem. That's a problem, right? But you really need to honor the non-disclosure agreement that you have. This is private. And then honor the relationship that you have. This is your client. This is what you need to do. And I just really— I'm really kind of— I told us this really straight line. There's no blurred line in this for me.

Yeah, so black and white.

I'm gonna have— I'll have that song in my head all day now, Blurred Lines.

Blurred Lines.

Remember that?

You know what song keeps pulling up in my mind, and I don't know why this is, and this has been going on for months and I've just been pretty quiet about it, is the Willy Wonka, um, Pure Imagination song.

Oh.

Mm-hmm.

You can sing it better than me, honey. It's really—

I just love that song. It's really cute. It's very sweet. It's about imagination and you will see, you will find. And it's just been— I don't know. I was humming it the other day. So maybe, Tierra, you can hum it for us, but I won't do it justice.

Well, this is a good topic.

This was. Thank you. Definitely. Really— this was a really, uh, I think what we should do is do another one on the attorney side so we can talk about what we see at the Bar Association level. I know each— I'm saying the ABA one, but not, you know, each state will probably have their own interpretation further down. But, um, if we talk on the ABA side, that would be fun to do and just kind of talk through that. So thank you.

Very good.

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