Walter Waverly, CPA, had been engaged for a few years by the trustee of a substantial family trust. While preparing tax returns and compiling financial statements for the trust, Waverly came across evidence indicating that the trustee was likely misappropriating trust funds. The CPA requested more information from the trustee but received nothing.

What was Waverly to do? If he “blew the whistle” and disclosed confidential client information to the trust beneficiaries (third parties to the trust), he would be in violation of confidentiality rules. So, Waverly chose to wait for more information before taking any action.

Meanwhile, a special agent from the criminal investigation unit of the Internal Revenue Service made a surprise visit to the CPA’s office. The agent flashed her badge, handed Waverly a subpoena, and requested an interview regarding the trustee in question. Waverly felt somewhat intimidated and wanted to cooperate with the agent, especially in light of his concerns about possible misappropriations by the trustee. The CPA agreed to the interview and decided to blow the whistle on the trustee by divulging information about the trustee’s suspicious financial dealings.

Several weeks later, the attorney for the trustee filed a complaint with the state’s board of accountancy against Waverly for improperly disclosing confidential client information to the IRS agent, whose subpoena called for documents but not for interviews or depositions. The complaint included criminal and civil allegations of misconduct and negligence, and Waverly spent many hours responding to the state board’s requests for information. It ultimately turned out that the trustee was indeed misappropriating trust funds, and the complaint was withdrawn.

After reading the following questions, select the one answer that is the best response.

1. How could the CPA have gained more protection from complaints that he violated client confidentiality rules?
1. By providing the documents called for in the subpoena but not agreeing to an interview.
2. By obtaining advice from legal counsel or a risk adviser and getting the advice in writing before responding to the subpoena.
3. Both a. and b. above.
2. What is a subpoena?
1. A subpoena is usually a formal request for documents and/or appearance, typically requested by an attorney in the course of litigation.
2. A subpoena is usually a formal request for documents and/or appearance, typically requested by a government agency in the course of a criminal or civil investigation.
3. Both a. and b. above
3. Why do attorneys and government agencies issue subpoenas?
1. An attorney or other party may issue a subpoena because they believe you are in possession of information that will establish facts relevant to the underlying case.
2. Sometimes a subpoena may indicate you are a target in the underlying case by seeking information that could implicate you as possibly liable for the matter being investigated or litigated.
3. Both a. and b. above.

Answers

1. a. Incorrect.

It is best to obtain experienced legal assistance before responding to a subpoena. CAMICO policyholders should inform CAMICO immediately upon receipt or notice of a subpoena.

b. Correct.

If counsel decides that the best course of action is to blow the whistle on a client in order to protect third parties or the public from potential fraud, the CPA can assert that they were acting on the advice of counsel with the intention of preventing the further defrauding of third parties.

c. Incorrect.

It is best to seek experienced legal assistance before responding to a subpoena. CAMICO policyholders should inform CAMICO immediately upon receipt or notice of a subpoena.

2. a. Correct, but there’s a better answer.

b. Correct, but there’s a better answer.

c. Correct, and the best answer.

3. a. Correct, but there’s a better answer.

b. Correct, but there’s a better answer.

c. Correct, and the best answer.

As situations surrounding subpoenas may vary, it is best to consult CAMICO immediately if you are served with a subpoena.

For safe measures, CAMICO policyholders are advised to inform CAMICO immediately upon receipt or notice of a subpoena. More information is available on the CAMICO Members-Only Site (www.camico.com) In the Subpoena Services Resource Center.

“War Stories,” drawn from CAMICO claims files, illustrate some of the dangers and pitfalls in the accounting profession. All names have been changed.