2020 outlook: top 5 emerging risks for cpas

and the top five emerging opportunities, if you handle them right.

by ken mackunis
executive vice president
aon affinity, professional firms

risk can come from unexpected places. as cpas look to capitalize on economic and industry trends to grow their business in 2020, they need to be vigilant in identifying and mitigating the risks that go hand in hand with the expansion of capabilities and capacity.

here’s a look at the top five areas that can pose the most risk – and reward – for cpas in the new year.

1. expand your infrastructure

inadequate or outdated infrastructure not only causes headaches for your staff, but it also creates room for error. as firms expand, for example, their infrastructure needs to expand as well. before rushing to implement the newest, often expensive platform to offer to clients, make sure that staff is fully trained and prepared to use the technology. failing to do so can lead to exposures concerning quality control and management of client information.

in times of growth, risk tied to offering new services to clients can increases. these risks surface when firms launch practices that are simply outside of their expertise, setting them up for potential claims and lawsuits down the road. new ventures can give your bottom line a boost, but they require due diligence upfront to ensure they are the right fit for your firm and your team’s expertise. without that critical phase, you can inadvertently open your firm to risks.

finally, thinking “big” is a must for firms as they grow.  more clients mean more responsibilities and often, more people on staff.  issues that could be managed informally by a small circle of people become more complex and varied and require more formalized protocols as a firm grows.

2. think outside the talent box

as the baby boomers continue to exit the workforce, firms find themselves competing for a smaller pool of traditional accounting school graduates in the face of increased business needs. this workforce shortage can make for bad hiring decisions, so don’t be in a rush to fill a role. those hurried hires may just be out the door in less than a year or two.

firms also need to take a look at who’s on their staff and their skill sets, then identify gaps. as the range of services the accounting profession continues to evolve, the answer may not always be the traditional cpa candidate. successful firms are recognizing that nontraditional, intellectual talent can pay off both internally and externally. for example, we’re seeing more it experts joining cpa firms to serve both client and firm needs.

and don’t neglect your current employees – the new hires of today tend to stay for shorter periods of time. a focused retention plan can help increase employees’ tenure, identify rising stars to groom, and alleviate some of the client risks tied to staff turnover. taking steps to ensure that current employees feel supported and appreciated needs to be a priority. after all, it will benefit your firm in the long-term.

3. learn to love documentation

claim activity against accountants may increase in 2020. and we believe many of these claims against cpas will result from growth into service areas outside of the firm’s traditional expertise, such as delivering family office services, providing broader guidance such as generational wealth transfer, management of investments and succession, or even taking on interim cfo duties. however, just as many – if not more – will come from engagement scope creep. far too many cpas informally provide advice or take on these additional tasks without updating their engagement letters – a move that leaves them vulnerable to lawsuits if things don’t work out the way the client envisioned.  documentation that establishes and manages expectations is an absolute must to protect your firm.

4. maintain your reputation

many internal and external forces can threaten a firm’s reputation every day. and that reputation can impact whether or not a potential client or employee decides to work with a firm. potential risks can range from a cyber breach that divulges sensitive client information or claims of discrimination. firms must be proactive and prepare for the worst. some risks cannot be avoided, so make creating a crisis plan that you update and practice on a regular basis a priority. you must be prepared to address these issues as quickly as possible, and if one arises, run at it – the longer you let a situation fester, the worse it can become.

however, there are still many reputational risks that you can mitigate. often the best way to do so is through documentation – whether that’s a written social media policy for your staff, a formal career path document, an hr policy manual, or an engagement letter that you update and have the client sign every time your scope of work changes.

5. secure your cyber space

while cpas might focus on the complexities of the technologies they are adopting, it’s really the little things that can create the most risk. for example, many firms forget to make sure their staff truly knows how to use new technology platforms, opening the door for so many preventable risks. others don’t consider how new technologies could impact their arrangements with providers and what they mean for the delivery of services.

cyber risks will continue to intensify in 2020. while things like firewalls and multi-factor authentication are good precautions to take to protect your firm from agile, clever hackers, basics like avoiding using unsecured personal devices while handling client data, changing passwords often, and keeping work devices off of public wi-fi are just as important. and if a security event does occur, cybersecurity insurance can support your firm and guide you through the steps to comply with applicable breach notification laws and recover from the event.

finally, cpas should remember that not all risks come from outside. a disgruntled current or former employee could easily compromise your data.  having robust internal security controls and updating passwords regularly can help mitigate the risks.

 

this article is provided for general informational purposes only and is not intended to provide individualized business, insurance or legal advice.

 

 

posted on december 5, 2019