Over the past 20 years, audit reports and tax returns have largely become commodities – at least that seems to be the perception in the marketplace. As a result, a CPA’s ideas or intellectual wherewithal have become crucial to the success of an accounting practice. Consultation and planning are sweeping the profession, and the resulting services can enhance a firm’s bottom line. However, that bottom line is being threatened by a practice that I call intellectual theft. Too often, it is passively accepted in the CPA community.
Does the following sound familiar? A client1 wants ideas to mitigate its tax burden and bolster its bottom line. You study the financial statements, tax returns, and corporate organizational chart; you research the tax code and consider the business issues and industry. You then develop a tax-planning idea tailored to your client. You meet with the owner, CFO, or tax director to present your idea and explain the benefit, costs, and risks. The client asks for a proposal, and then you wait. You receive no replies to a series of e-mails and calls. After some time you run into your client’s lawyer, who happens to mention that he is a member of the implementation team on your idea. The client, it seems, ran with your idea and failed to compensate you for your work and ingenuity.
Isn’t this behavior unethical? If so, what recourses are available? In academia, such behavior is normally labeled plagiarism. The Merriam-Webster Dictionary defines plagiarism as “the practice of taking someone else’s work or ideas and passing them off as one’s own.” Synonyms include piracy, theft, and stealing. When this happens in academia, an investigation is conducted and some sort of tribunal decides if there was indeed an infraction. The offending student or professor is always censured, and often dismissed.
What happens in the accounting world? In my experience, nothing. The following two stories are true. I know because they happened to me.
Stole It and Failed Anyway
I once advised a client on structuring its affairs to minimize the now-defunct Pennsylvania Corporate Loans Tax. Crucial to the success of this idea was the implementation of a limited liability company. The client requested an engagement letter, which I sent out. I followed up with numerous phone calls, all of which went unanswered. To my surprise, the client called me two years later to complain that my idea didn’t work. Incredulously, I asked, “Did you implement my idea?” My client replied, “Yes. The limited partnership idea does not work.” I said, “That’s because it required a limited liability company.” One could hear a pin drop.
I was stunned. The tax director not only took my idea, which was novel and germane to that client’s facts, but then had the audacity to scold me when he failed to implement it correctly.
Fifteen years ago2 I met with a client who was contemplating selling the stock of a large subsidiary at a substantial gain. Facing a large federal and state tax liability, my client asked me if I had any ideas to help mitigate that liability. I informed him that the state tax portion could be mitigated through the formation of a special purpose entity. The CFO was delighted and asked for an engagement letter. What happened next is more shocking than fiction. Since the sale of stock was going to be a large transaction, the CFO needed to present my idea to the company’s board of directors. Sitting on its board was an attorney, who had been aware of the impending transaction and associated steep tax costs. After reviewing my engagement letter, the attorney stated that his law firm could do the work for a smaller fee. My client accepted his offer.
Did this lawyer steal my idea? Was there a conflict of interest? I believe so, but nothing was done.
Perhaps what is more troubling than the blatant lifting of ideas and plans without credit or compensation is the cavalier attitude among many fellow practitioners. They say, “Hey, it happens all the time. There’s nothing you can do about it.” Maybe, but perhaps there should be something done about it.
I decided to research whether anything has ever been done about this sort of poaching. Many one-time accepted practices, after all, are no longer considered above board. For instance, there is the area of gifts to and from suppliers. What was once a common and acceptable practice is now banned and reinforced by in-house ethics courses. I thought maybe there was some guidance buried with regard to intellectual theft in accounting.
The AICPA has numerous online resources and tools. While neatly organized and cataloged, none of these resources addressed intellectual theft. I then turned to the AICPA Code of Professional Conduct (CPC). With the thickness of a phonebook, it is intended to “provide guidance and rules to all members.”3 Part 2 of the CPC is devoted to “members in business,” and it addresses threats and safeguards of those threats to the integrity of the company’s financial statements and overall financial well-being.4 It also addresses ethical conflicts,5 but I found it too general and vague to be of use for this issue. It also addresses conflicts of interest, but, as it pertains to vendors, it only prohibits selection of vendors where the “member could benefit financially from the transaction.”6 Like in-house business ethics courses, it went on to address offering or accepting gifts or entertainment.7
The only section that addressed obligations to an external accountant was Section 2.130.030, which basically states that a member may “not knowingly misrepresent facts or knowingly fail to disclose material facts.” Finally, I got to Section 2.400, Acts Discreditable. This section covered such topics as discrimination and harassment, negligence, and confidential information, among others. Upon a PICPA inquiry to the AICPA, the Professional Ethics Division said that if a complaint were filed, it would likely be investigated under the “Acts Discreditable” section. While this is helpful, it does not specifically address intellectual theft.
I then turned to the Internet. I found some helpful articles from individuals in other professions, such as the advertising industry. In one, it advised readers to have clients sign a nondisclosure agreement.8 Nothing new there. Accounting firms have been doing this for years. In fact, fresh from being burned by the client in the first story presented here, I did just that with another client. They refused to sign it, and, moreover, didn’t ever work with me again. I’m not saying nondisclosure agreements don’t work; they just don’t seem to work well. If a client does sign and engages in intellectual theft, are you really going to sue them?
Finally, I found a common-sense article from 2013 in Forbes. It provided seven steps that can be used to prevent theft.9 First, avoid revealing too much. Just reveal the essentials, but not every detail to the extent that a client can run with the idea. Give them enough to need your services. Second, couple that with a nondisclosure agreement. The article then recommends patents and trademarks, which are controversial themselves and a topic for another article. The article also recommends researching the recipients. This is much easier today in the age of the Internet than it was for me 20 years ago. The sixth point was follow your instincts. It really boils down to relationships and how well you know your client. Finally, keep a documentation trail, just in case your client needs reminding of who provided the idea in the first place.
What was missing in my search – in case you haven’t noticed yet – was guidance and support from within our own profession. Why doesn’t the AICPA include intellectual theft (plagiarism) in the CPC section on acts discreditable? Sanctions could include some sort of censure. At the very least this new section’s existence could be a deterrent. It may not solve all issues, like the lawyer in my second story,10 but it is better than what we have now – which is nothing.
I am not suggesting that this applies to all possible infractions. It is possible that someone in the tax department hears an idea (they are pitched constantly) and forgets about it. Then, two years later, the idea is innocently recalled without the memory of who presented it. That happens, but slipups are not the focus of this article. Intellectual theft is deliberate and calculated. The offender knows exactly what he or she is doing (or not doing). Those individuals are the issue here. So, is it time for reform? I have some ideas, and perhaps you do too.
1 “Client” in this article is a catch-all that refers to clients and targets. It must be stated that in my experience the issue seldom involves good clients, but rather targets with whom a strong relationship does not exist.
2 These may be older stories, but they are the most extreme examples that I have witnessed. I continue to deal with this behavior.
3 AICPA Code of Professional Conduct, Part 2, Sec. 2.000.
4 AICPA Code of Professional Conduct, Part 2, Sec. 2.000.010.
5 AICPA Code of Professional Conduct, Part 2, Sec. 2.000.020.
6 AICPA Code of Professional Conduct, Part 2, Sec. 2.110.
7 “Reasonable” client lunches and dinners are still allowed.
8 “How to Deal with Clients Who Steal Your Ideas and Hire Another Agency to Implement Them,” www.digitalsynopsis.com.
9 Drew Hendricks, “7 Simple Ways You Can Protect Your Idea from Theft,” Nov. 18, 2013, www.forbes.com.
10 Lawyers have their own code of ethics under the American Bar Association.
Vito A. Cosmo Jr., CPA, CGMA, is a managing director, state and local taxes, with Grant Thornton LLP in Philadelphia. He can be reached at email@example.com.