Can You Trust Your Accounting Provider?

The internet is buzzing right now with the high profile story of Ernst & Young (EY) being forced to pay an unprecedented $100M fine by the SEC after it was discovered that hundreds of its auditors cheated on ethics exams to obtain or maintain their CPA licenses. To say that this has rocked the accounting world would be the understatement of the century!

This astronomical fine is the highest ever imposed by the SEC and likely reflects the fact that EY allegedly was aware of the cheating, which occurred over a four-year period, and covered it up instead of reporting it. In fact, the fine is twice what competitor KPMG paid in 2019 after cheating was discovered by SEC regulators. Speculation has it that the hefty fine is also meant to act as a signal to other accounting firms that the commission is not going to tolerate ethics violations, given that the auditors cheated on the ethics portions of the exams (of all things!).

In the wake of this very public news, accounting firms nationwide are being met with a dubious eye from current clients and prospects, who are questioning their ethics as well. And who can blame them? 

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​EY is one of the Big Four accounting firms. Their name inherently carries more cachet than a smaller accounting company simply because they are bigger and have perhaps been around longer. Now, that does not mean they are perfect (and clearly this news would indicate otherwise) – no company is. But pillars in an industry are often expected to set the tone for the rest the players. So, when these types of institutions falter, the fallout can be huge.

If you are questioning whether you can trust your accountant or accounting services provider right now, you are not alone! And, you know what? It is perfectly reasonable to question where you are placing your trust. You should always feel like you can ask the kinds of questions you need answered to be comfortable with the work being done within or on behalf of your company. If you are using a provider that discourages you from asking questions or will not answer your questions, that is likely a red flag that you need to look elsewhere because communication is a key criterion for any successful accounting engagement.

So, how can you know if your accountant or accounting services provider is trustworthy? Here are some tips to point you in the right direction.

Verify Credentials
In the case of EY, the problem was not that auditors were lying about having CPA licenses. The problem was that they were cheating to obtain and renew their licenses. As a business owner there is no way for you to know whether someone obtained their license legitimately. However, you can check to see whether they are, indeed, a licensed professional for the certifications they are claiming through the American Institute of CPAs. You can also verify a candidate’s education credentials and check their references before making an offer. Many employers also conduct a background check as part of the hiring process. If you know anyone at any of a candidate’s previous employers, you can reach out to solicit feedback about their reputation. Of course, bad actors can still make it past this kind of screening but making the effort can weed out some unscrupulous accountants or bookkeepers (or discourage them from applying at all if they know these steps are going to be taken).

If you are using an accounting provider, check their rating with the BBB and look at their reviews online, where possible. You will need to take these with a grain of salt, as online reviews can be falsified or unfairly weighted towards negative feedback since satisfied customers typically have less to say than unsatisfied ones. However, this provides at least some frame of reference when researching a provider, especially if you spot the same kind of negative feedback over and over. 

Ensure Internal Controls are Being Used
Implementing and maintaining internal controls are the most important way to protect your company from untrustworthy employees and providers. The most common types of internal controls are:

1. Segregation of Duties
2. Access Controls
3. Required Approvals
4. Asset Audits
5. Templates
6. Trial Balances
7. Reconciliations
8. Data Backups

These formal processes and protocols protect your company from internal and external threats, minimizing the risk of business fraud and are everyone’s responsibility to uphold. As such, trustworthy accountants should be familiar with these kinds of controls and always be willing to abide by them.

Remember, if you have accounting and finance employees working remotely, or are using a third-party accounting service provider, your company is only as secure as they are when working. Ensure that your internal controls are not failing in a remote work environment by modifying them to meet the challenges of a geographically dispersed workforce. Reputable accounting companies should have their own controls in place to ensure that they are mitigating risk on your behalf by doing things like following cyber security best practices and only granting restricted access to business data.

Prioritize Communication
Business fraud can occur anywhere given the right conditions, but transparency is the biggest deterrent to theft. Open communication keeps accountants and accounting consultants honest. Know what your accounting employees are doing to thwart unethical behavior. Remember, it is always easier to prevent problems before they happen than it is to fix problems after they have occurred.

Furthermore, do not let past performance blind you to the possibility of unscrupulous behavior occurring in the future. Just because an accountant has been working with you for a long time or you have a longstanding relationship with an accounting service provider does not mean that the relationship will always be positive. Think about it like this, employees that steal from their employer typically do not do it on their first day, nor do they do it before they have a strong understanding of how systems work so that they can conceal it. Additionally, most business fraud is not committed by hardened criminals waiting to attack your company. It is most often committed by regular people who find themselves in a difficult financial situation unexpectedly due to medical bills, the death of a loved one, increasing lifestyle demands, divorce, or other personal reasons. Knowing what is going on in your company is the best way to prevent falling victim to unethical actions. Ask questions, engage in open dialogue, and talk about anything that does not make sense with your accountant. (For a real-world example, check out this compelling article from our colleague Charlotte Morin about a fraudulent wire transfer that was caught just in time by an astute accountant: A True Story About Accounting Cybersecurity and “Acme’s” Narrow Escape.)

Regularly Audit & Evaluate
A good old-fashioned accounting review is a smart way to set your mind at ease. Regularly audit and evaluate your accounting activities and policies to ensure everyone under your purview is acting in a trustworthy manner. But do not just stop at bank/credit reconciliations and asset audits. Regularly review your accountant’s performance to ensure that nothing is slipping through the cracks. Complacency can set in for any staff that go too long without supervision, especially in technical and financial roles that naturally isolate professionals in these fields. Take the time to proactively understand what your accountant or accounting provider is doing. This is a good practice anyways to create redundancy in the case of turnover, but it will also give you a leg up in situations where trust is being broken.
Unfortunately, even when taking all of these actions, fraudulent or unethical behavior can still occur. As a business owner, it is your responsibility to ensure you are properly vetting employees and service providers before using them and then regularly review whether they are meeting your ethics and performance standards.

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