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Client Onboarding Vital to Managing Risk
Client onboarding, as many CPAs understand it, is the process of clearly communicating with new clients about the firm’s services and expectations for the relationship. When it comes to certain vital requirements and proper compliance with governmental requests, the client onboarding effort is a risk management must.
By John F. Raspante, CPA, CDFA
Client onboarding, as many CPAs understand it, is the process of clearly communicating with new clients about the firm’s services and expectations for the relationship. When it comes to understanding required registration requirements, obtaining tax IDs, outlining various tax elections, and explaining other requirements that ensure proper compliance with governmental requests, the client onboarding effort is a risk management must.
For example, potential state tax withholding and firm registration issues related to ecommerce and the U.S. Supreme Court Wayfair decision has added exposure risk, and CPAs must constantly be aware of their clients’ nexus issues in other states. Client onboarding can help clarify these issues.
Here are a few (but clearly not all) services CPAs can offer as part of their client onboarding:
- Obtaining a federal tax ID by filing Form SS-4
- Obtaining an employer’s registration number with the Department of Labor
- Sales tax certificates of authority
- Registering to do business in the appropriate state(s)
- Securing workers compensation insurance
- Obtaining W-4s and I-9s from the staff
- S elections
- Choice of entity
- C corp Section 1244 stock election
- Incorporating/forming an LLC, etc.
- Stock issuance
- Business plans
- Familiarization with franchise agreements
I have seen several professional liability claims due to misunderstandings of the CPAs responsibility as opposed to other professionals working for the client, including missed elections and failure to register.
Who Is Responsible?
Too many times, it is not clear (or it is assumed) that the client’s attorney will obtain the tax ID, register for sales tax, etc. Recently, we had a claim where several years went by with the implied understanding that the client was current with annual report filings; in fact, they were delinquent. A sale of the business was delayed to a point where the buyer eventually backed out of the sale. The CPA was blamed, and in a deposition swore that he felt this was the responsibility of the attorney.
Missed Elections
Several recent claims involved successful federal S elections, but failed state elections. Again, there was confusion over who would make the election. The assumption, again, was the attorney. Other missed elections have involved cash vs. accrual elections, inventory valuations methods, and prefiling arrangements with taxing authorities.
Failure to Register
One of the ramifications of not registering in a certain state or city is the monetary penalties that may be assessed. In addition, the statute-of-limitations for tax audits generally doesn’t begin for companies who aren’t registered. CPAs must be vigilant regarding this tedious, but vital, service.
Client onboarding is important to the success of any client. The minefields, however, are plentiful for those who fail to address important onboarding services.
John F. Raspante, CPA, CDFA, is director of risk management at McGowan Pro in the New York metropolitan area. He can be reached at jraspante@mcgowanprofessional.com.
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