When a professional liability claim is asserted against an accounting firm, several different firm stakeholders are involved in investigating, mitigating, and managing the matter throughout the claim’s lifecycle. Stakeholders include the individual whose work is in question, the managing partner ultimately responsible for calling the shots, the engagement team members, the general counsel or chief risk officer and the originator of the business.
Each stakeholder brings different knowledge, interests, time and emotions to the evaluation and handling of the claim. Marshalling firm resources to effectively manage the interplay of these stakeholders is key to achieving effective and efficient claim management results.
What are some of the organizational challenges accounting firms face in managing a professional liability claim?
Three common challenges appear when accounting firms manage a claim:
- Organization of the response team
- Recognizing and harmonizing the team’s varying incentives
- Coordinating internal and external communications
There are many interested parties within the firm, and a lot of different ways to organize them to handle the claim most efficiently and effectively.
In a smaller firm, where there’s more overlap between the professional and management staff, the managing partner often carries the responsibility of handling claims. The engagement partner may also appear to be an obvious choice but a partner whose work is challenged may struggle to stay objective. Larger firms typically utilize a risk management partner or general counsel to organize the response team.
“It’s important for the managing partner to support the team’s efforts so other members of the firm know the importance of cooperating with the response team.”
Joe Kingma
Different members of the response team have different incentives or priorities. Demanding workloads and business pressures can make it difficult to give the claim the attention it needs. Personal interests may factor into claim management, sometimes to the firm’s detriment. Furthermore, if a matter starts to develop into a claim during compensation season, there may be motivation at the partner level to defer attention until a new year. This can cost precious time and exaggerate the risk.
Finally, the reputations of the firm and its professionals can suffer from a claim which generates adverse publicity. Various firm staff and team members may receive inquiries from clients or the media. Preparing for these inquiries is critical. Failure to do so may increase reputational damage or impact the defense negatively. It is important to ensure staff feel informed and supported and know their role in the response to inquiries.
One team member, usually the general counsel, should handle all communications with the firm’s errors and omissions carrier, outside counsel, and the media.
Which individual firm stakeholders become involved in the handling of claims?
Managing partners can play a big role in claims handling, especially for smaller firms. They are generally most involved in helping organize the response team and strategy.
Larger firms, with a defined risk management partner or general counsel, have individuals that can give more attention than the managing partner.
Larger claims may get the firm’s Board involved. The Board may have a member who is responsible for risk management. It is crucial to engage the Board on larger claims to make sure all strategic leadership is included in mission critical decision making.
The account team plays an important role as well. The engagement partner is often the one who first became aware that a claim might develop. This partner will likely have visibility into exactly what happened, and just as important, how it happened. Junior accountants staffed on the engagement are important team members who know a lot of details about the crucial issue.
“If you get everybody engaged appropriately, handling is more efficient, there is less heat on the managing partner or the general counsel, and everyone has a chance to be heard. It also makes it easier to give outside counsel instructions without a lot of contradictions or miscommunication. It is important to gain insight and opinions from all the stakeholders, but the firm must speak with one voice to the outside world.”
Joe Kingma
What are the biggest challenges team members face when handling a claim?
For managing partners, the biggest challenge is time. They cannot always address matters as they come up or fully investigate an issue before making a decision. It can be challenging if their area of expertise differs from the area where the claim originates. The managing partner must also balance the firm’s competing interests which impacts claims handling.
For general counsels or risk management partners, the primary issue may be engaging political power within the firm. While the general counsel may have more available bandwidth than the managing partner, the general counsel doesn’t always carry the same weight within the firm when it comes to ensuring cooperation. It’s important for managing partners to support the team and cooperate with and empower the general counsel or risk management partner.
As you might expect, the engagement partner has conflicting interests. The knock-on effect that claims payments have on compensation sometimes has a material effect on how soon these issues get reported. Reputation outside the firm is also a concern for engagement partners. Engagement team loyalty may also impact claims reporting.
“Conflicting opinions on claims handling can arise between engagement partners and general counsel, which may ultimately have to be resolved by the managing partner or even the Board.”
Joe Kingma
Staff-level accountants may have apprehensions about “coming clean,” out of fear of being accused of making a mistake or offending the engagement partner. Firm management must make it clear to all firm employees that full disclosure will best protect staff as well as the firm.
If staff doesn’t share all the important facts around a claim defense, the defense may be greatly impaired. Tone at the top is critical here.
Board members may also have competing concerns and varying areas of expertise.
How can these challenges be successfully managed?
Establishing a claims policy with a clear process that can be executed quickly when a claim is asserted is critical. If everyone from the Board down to the junior staff person knows their role you avoid mistakes that might be damaging and make efficient use of time.
“Developing a claims policy in advance is vitally important to both efficient and effective claims handling.”
Joe Kingma
External counsel should provide succinct, comprehensive summaries to the managing partner or risk management partner. Then, informed decisions can be made without partners spending an unsustainable amount of time shouldering the burden of investigation. A large, indigestible report from counsel can slow down the claims management process and add uncertainty during an already challenging period.
On occasion it is advantageous to bring the Board together to discuss strategies. It is important for the managing partner and general counsel to have clear lines of communication with other decision makers and come to a consensus without creating acrimony.
It is usually helpful to insulate the engagement partner, or those partners who were involved in the work that led to the claim, from the day-to-day process while keeping them apprised of important developments, and providing comfort that the matter is being handled appropriately. These involved accountants may be deposed someday.
The firm’s long-term financial health requires that all partners quickly provide detailed reporting of potential issues to the individual responsible for risk management at the firm. Preferably, any written reporting should be addressed to the firm’s lawyer. Outside counsel should develop a collaborative relationship with all the individuals involved with a claim.
“The right tone at the top comforts the involved partners and staff. They should feel they are in a supportive environment where the firm won’t shoot the wounded. All of us make mistakes but that is hard for professionals to accept when confronted with accusations. It is helpful when engagement staff and partners understand that no one is held to a standard of perfection and that the firm has defenses to almost every claim.”
Joe Kingma
Sometimes the accused are afraid, and it is imperative to find a way to keep their fear from hindering the analysis and defense. An outside witness coach may become useful in helping witnesses manage their concerns and present appropriately in deposition or at trial.
Engaging a public relations professional who specializes in crisis management can help the firm understand how the claim might play out in the court of public opinion and structure public communications accordingly.
The firm must communicate with many external stakeholders: claimants, defense counsel, insurance brokers and carriers. Who at the firm is best equipped to handle communications with those parties?
It’s important to include lines of communication within the incident response plan. Identify who at the firm is responsible for liaising with each external party.
Most often it’s the general counsel that would keep external counsel apprised of developments, as well as providing status reports to the firm’s insurers and insurance brokers. If one person has responsibility for all those communications that really aids the process.
Determining when the Board should be notified of a matter, and who will communicate to them, is another important consideration. Testing the plan as part of a tabletop exercise for firm management can be a helpful way to improve processes and ensure each party understands their responsibilities at a crucial juncture for the firm.
What three key takeaways would you share with firm leaders who are looking to optimize their internal claim management process?
- Be sure to have a claims policy in place that is communicated to all staff and covers the period from when a problem arises all the way through resolution.
- Encourage and support open communication with the general counsel. Mistakes are human and claims are a common part of public accounting. It’s important that those leading the firm’s risk management emit a supportive tone, so people will communicate honestly and quickly when issues arise.
- Complex claims can be demanding and may require different types of expertise. It’s important that everyone who is assisting in the response do their own work and not meddle in things outside of their role as defined by the plan. As one of my colleagues once said, “Stay in your yard.”
Claims can present significant challenges for the firm and its partners and staff. Developing a response plan, having clear and open lines of communication, and supporting those involved can help the firm manage claims efficiently and effectively.
The Professional Services Practice at Aon values your feedback. To discuss any of the topics raised in this article, please contact Alex Jenks, Kyle Daker or Audrey Jenner.
This article is adapted from Navigating Accounting Claims: Insights from Defense Counsel (February 2025) from the Professional Services Practice at Aon.