Prudential
180x150_compliance%5b1%5d
IllinoisCPA-180x150

The Case of the Losing Lady

RULES THAT APPLY:
501 - Acts Discreditable of the Code of Professional Conduct

THE PLAYERS:
Respondent: Ms. Cold
Complainant: Mr. Hot

CASE DETAILS:
In a letter to the ICPAS, Mr. Hot filed a complaint against Ms. Cold. Mr. Hot was employed by Ms. Cold from September of 19xx to August of the following year. He claimed that Ms. Cold:

  • Did not pay insurance premiums that were deducted from Mr. Hot’s paychecks, resulting in loss coverage during his wife’s pregnancy.

  • Terminated employment without the proper notice period specified in the employment contract.

  • Did not pay for traveling expenses that were incurred by Mr. Hot. during the course of his employment.

  • Has ruined Mr. Hot’s credit rating as a result of her actions, or lack thereof.

Following receipt of Mr. Hot’s letter, the Ethics Committee informed Ms. Cold that a complaint was filed against her and that the Ethics Committee will be conducting an investigation.

Ms. Cold wrote to the Ethics Committee with the following itemized responses to the complaints:

  • She instructed her attorney to send a letter clarifying his interpretation of her obligations for severage pay under the terms of the employment contract.

  • She spoke with the finance director of Mr. Hot’s hospital. The Finance Director said that the account had been turned over to collection, but that he would make sure that Ms. Cold’s remaining liability would be separated from Mr. Hot’s. She was also able to lower Mr. Hot’s liability, since Mr. Hot made a payment already. Ms. Hot indicated that her portion of the bill would be paid by the end of the year. As per Mr. Hot’s portion, he apparently has not yet paid the hospital for the balance of his obligation.

  • She mailed a letter to the doctor who has an unpaid balance, assuming liability for the balance.

  • She indicated that she has paid Mr. Hot’s travel expenses.

  • She indicated that in regards to Mr. Hot’s credit rating, he is responsible for the lateness of his co-pay obligation, since he paid the doctor nine months after service and still has yet to pay the doctor the final balance of his obligation.

Initially, the Ethics Committee investigator stated that there was not an indication of a deliberate attempt by Ms. Cold to single out the complainant’s insurance payments and withhold them. She paid the group policy late and the group policy was cancelled. Ms. Cold acknowledged her responsibility and agreed to pay for her obligation.

When the Ethics Committee voted upon the case, they struggled with the issue of whether a member should be found guilty of an ethics violation because they were experiencing financial difficulties. The premium was not paid because of cash flow problems at Ms. Cold’s firm. After debating on the issue for some time, the Committee concluded that Ms. Cold had a fiduciary responsibility to her employees to make sure the health insurance was kept current. When she failed to pay the premium, the trustee relationship was violated. At the very least, she should have informed her employees of the situation so that they could secure other coverage.

CONCLUSION:
The case was closed with a determination that there was a violation of Rule 501- Acts Discreditable by Ms. Cold. Note: Cases involving employment situations are sometimes dismissed and forwarded to the Department of Labor for their action.

CORRECTIVE ACTION:
Ms. Cold was instructed to take and pass the self-study class, Professional Ethics for CPAs, within 12 months. She was also instructed to never again engage in the behavior that was the subject of the complaint and subsequent investigation. Corrective action was muted somewhat by the fact that she had taken action to correct her wrongdoing.

LESSONS LEARNED:
Understand that as an employer, your employees count on you to act financially responsible, and that includes keeping crucial benefits such as health insurance current. At the very minimum, if hard times fall upon you and you cannot provide benefits, let your employees know in advance so that they can make other arrangements.

Special thanks to Dr. Howard A. Kanter of the DePaul University School of Accountancy
and the ICPAS Ethics Committee for developing and maintaining the Ethics Case Studies.