[alloverit]

First off: I know the answer to this question.

I’m asking it because I find the scenario intriguing as it has a nice hook for determining ethical behavior for a CPA…and is good food for thought. Please see scenario below:

1. A CPA firm is owed $9,000 by a client who owns six businesses and is always behind on payment.
2. The client approves of the CPA’s write-up work and payroll processing.
3. The CPA possesses blank checks for each business AND a signature stamp to make payment to employees and taxing authorities.
4. The client has approved a handful of vendors for recurring payments in the past but none recently and has never not approved a payment.
5. The client has continued to supply work for the firm (through his managers) and approve the firm’s work, but again, has not timely remitted payment.
6. The business owner is an okay person, but has way too much on his plate.
7. The CPA firm has contacted the client, but the partner in charge of the account is about to retire and has put little effort into correspondence with the client and made contact only through monthly billings which the client has received.
8. The client has never complained when the firm makes unannounced payments to vendors on an occasional basis when it is prudent to do so.

Now, it is OBVIOUS that the firm should make an attempt to collect payment and fire the client if the bill is not paid in full within a reasonable time. But that isn’t the question.

Is the CPA firm ethically precluded from paying itself using the blank checks and signature stamp provided them without express permission from the client to do so (who is mostly silent on all issues).

Assume for purposes of this scenario that ample funds are available for each of the entities bills and that the average amount owed is $1500 per business entity.

Read the question and supporting facts VERY carefully (There is a “hook” in the supporting details).

I’m interested in your responses.

[Recked]

From an audit standpoint, the lack of controls is interesting.

From an ethical standpoint. I would never write and endorse a clients check to myself, even if I had the express written authority to do so, and the signature stamp.
Never going to happen. My reputation and the ensuing legal fight is not worth the 9k or even 90k.
Never ever happen.

If I were that desperate I would generate the checks using the system (QB?), and call the client in for a meeting and have him hand sign them in the office, or take his stuff and GTFO.

I will never write a check from a clients account and use a signature stamp to endorse it to myself. Slippery slope and lawyers are too expensive.
I have signing authority and POA at my firm, and I still would never write or sign a check myself.

[alloverit]

<del datetime=”2018-03-03T16:27:21+00:00″>@Recked,

You've brought the fear of legal standing into the mix and also reputation. But does the action (if taken) violate the letter of ethical standards?

The lack of controls creates something else….a type of relationship that I won't mention specifically.

The dollar amount and number of businesses is more relevant with a lower amount than a higher amount ($1500 each versus $15000 each).

[alloverit]

@Recked,

You've brought the fear of legal standing into the mix and also reputation. But does the action (if taken) violate the letter of ethical standards?

The lack of controls creates something else….a type of relationship that I won't mention specifically.

The dollar amount and number of businesses is more relevant with a lower amount than a higher amount ($1500 each versus $15000 each).

Does it change anything (ethically only) if checks have been issued in the past and approved by both client AND the firm partner?

[Missy]

Since the signature stamp is explicitly to be used for payments to employees and taxing authorities and the cpa firm is neither, they are precluded from using it to pay themselves.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[alloverit]

@Missy,

The scenario only indicates that the signature stamp is used predominantly, not exclusively, for payments to employees and taxing authorities.

There are several stated facts that are being overlooked.

I'm not saying you're wrong, but the reasoning behind right or wrong is what I'm curious about. No one has gotten it yet.

[Recked]

Counter point to @Missy
The stamp appears to be used for employees, taxing agencies, and recurring payments to vendors, and other prior authorized one time payments to vendors.

@alloverit
Not sure on the letter or the law/letter of ethical standards.
For me personally, it doesn't pass the “sniff” test, and that's all that matters.
You can't back pedal or explain this away to an unrelated third party point of view if they read this on the front page of the paper after your arrest was on the evening news the night before.

Remember – A wise man told me don't argue with fools ‘Cause people from a distance can't tell who is who
Jay-z Lyrics, also a similar quote attributed to Mark Twain, and referenced in Proverbs
Always remember the appearance from the vantage point of an onlooker.

Could I ethically justify writing the checks to myself? Perhaps. But it would still look awful fishy, and indefensible.
Human nature finds it incredibly easy to justify one's own actions to one's-self.

[Author]

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