Discussion:CPA letter for client insurance company

So a new client of mine running a security guard company called me regarding his insurance company. Apparantly his insurance company charges him based on the payroll - number of employees & independent contractors. He has not filed his taxes for the last 4 years - which is why he came to me, he is actually a good friend of mine.

The insurance companies for this industry now want CPA letters regarding payroll information. The last thing I want to do is expose myself to any liability...so I told him to write me a letter stating how many employees and independent contractors he has, so I can CYA if he is lying to me.

I'd like to say I can't do it, but since he is a good friend, it would be hard to say no, bad situation.

Has anyone dealt with this before? (note it is not a comfort letter for a mortgage lender).

Any advise as to format?

Thanks

He is incredibly stupid, so it could be WC and he is not aware. Maybe he can sign an affidavit or something for them? As far as I know he doesn't run a payroll, but he could have independent contractors that I do not know about or that he doesn't tell me about.

I am going to call my malpractice insurance company and see if they have a form letter for this sort of thing - usually they are watered down to the point of uselessness, and I can argue to the ins. company that this is all my malpractice will let me write...

TRCPA has it right about small business owners doing anything to get what they want, what do they care if they put me in a bad situation? Pisses me off so damn much - so a CPA in practice can't have friends....!!!

You think a bare letter from your client will act as CYA? Really? The insurance company is not willing to accept your client's letter and assertions, but you are willing to accept them at face value without any testing?

I have been predicting for some time that this would spread from the mortgage letters to other areas. The CPA associatons will only solve this problem by concerted action.

The point is that these are attest functions. I don't even think most of these CPA's realize what is happening here. This is not tax work. There is a reason the insurance company, and the mortgages companies want these CPA letters. They want someone they can sue. The idea is that they want to say that they relied on the letter. And yet the CPA is going to turn around and with no testing of the truth of the matter, accept a CYA letter at face value from a client?

A CYA letter in this case is nothing more than a smaller version of a management representation letter, again mostly useless. It is for his liability insurance, I asked him today. They would accept a tax return but he has been delinquent in this matter for a number of years. You are again correct in that they ask for a CPA comfort letter to shift liability to someone else if they have to pay a fraudulent claim.

I will call this insurance company and find out exactly what is acceptable for his policy - I do not want to enter into privity with this outside party. If he engages in insurance fraud - even if I do not have any knowledge of it - I am liable to be sued. I can look through his bank statements and check mimeographs (who gets cancelled checks anymore) for recurring payments, but if he pays anyone else in cash, I would not find it.

I will also see if I can just find him another CPA to do this, it is too much risk for me.

If he is being honest, I cannot blame him for asking me, in that case he is just relaying information from the insurance company. If he is lying to me in order to get a lower premium, then he is committing insurance fraud, and involving me in it, in which case he is no friend.

Never do business with friends, this is what you end up getting into.

[Comfort Letters]

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TexCPA 15:04, 11 September 2009 (CDT)