Latest / The Diary of a CFO / Real Fraud Stories and Legal Protection for Your Fractional CFO Firm with Attorney Natalia Greene

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Real Fraud Stories and Legal Protection for Your Fractional CFO Firm with Attorney Natalia Greene · The Diary of a CFO

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Natalia Green is an attorney turned risk management
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expert helping accounting and professional firms
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reduce exposure and build resilience backed by
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over 20 years of litigation experience. Welcome
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back to the Diary of a CFO podcast, the podcast
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where finance leaders share the lessons, challenges,
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and wins that shape their careers, as well as
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their organizations. I'm your host, Vasia Kamani,
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and today I'm super delighted to have with me,
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Natalia Green. Welcome to the show, Natalia.
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Thank you for having me. Of course. You started
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your career as a litigation lawyer, protecting
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accounting firms. Can you walk us through your
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journey and how you ended up specializing in
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our space? Well, I can say this. As a child,
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I did not walk around saying, I think I'm going
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to be an attorney. Or that I think I'm going
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to be representing accounting firms one day in
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litigation. Attorney on either side of my family
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that I looked up to or had to look up to. So
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I went into UCLA undeclared. I took some GE courses
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and I was sure I might be a Spanish station meteorologist.
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But then by my junior or senior year, I due to.
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things going on campus. I decided I wanted to
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pursue a law degree and so I crossed town, went
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over to USC and got my JD and Then I did what
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we all do is send out that resume to various
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civil litigation firms. And ultimately I landed
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at Garrett and Tully. And that firm is a boutique
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Southern California law firm, but they do have
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a specialty practice representing attorneys and
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accountants. And so that is how I began looking
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at working with professionals. And while I don't
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have enough background in accounting, the accounting
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firm clients were my favorite to work with. And
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so for 21 years, I worked in litigation, fighting
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the good fight, defending our accounting firms
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against sometimes national firms. And I decided
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after that period of time that I wanted to kind
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of use my skills differently. And that's what
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brought me to Lemmy. And in my role at Lemmy,
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I get to do what I love most about being an attorney
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is I get to counsel accounting firms on risk
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management and help them with claims advocacy.
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And I don't have to spend every day all day fighting
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with opposing counsel over discovery or discovery
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motions. So it really has been a rewarding win
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for me to continue to work with accountants and
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accounting firms. Wow. That's impressive. I love
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how you said you didn't know what you were doing.
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Me too. In college, you were like... Sure. And
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that's kind of the way I also ended up in accounting.
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Thank you so much for sharing that. Yeah. Now
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I'm curious. You had some cases that have been
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featured on American greet. That's one of my.
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favorite TV show for a decade. I've been like
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hooked on that show. So without giving any names,
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what's one case that really sticks with you and
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why? Well, like you. So I was a fan of American
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Green and I just watch it for my entertainment
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purposes. I find it fascinating. And so I just
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recall one day this one stands out to me and
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maybe it's because it was one of the first meet
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perhaps, but I'm not quite sure. But I think
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it has to do literally with the facts of this
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particular matter. But I remember sitting there
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and all of us and you get the teaser and they
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said, there is an accountant in Laguna de Gal,
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California who scammed her winery owner clients
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and other, you know, small local businesses in
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some scheme that ultimately netted her $1 .5
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million of their money. And so I immediately
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sat up and I said, wait, wait, wait, hold up,
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wait a minute. I know that sounds very familiar
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to my case, the case that I had handled. And
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this particular individual, I think what stood
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out to me is the fact that this individual, she
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had rented the beach house overlooking the ocean
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in Laguna Beach, California. She showed prospective
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clients this very posh office with the latest
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technology and software on the screens to impress
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them and credentials. But what I found really
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interesting is that her target or victims were
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You know, like a small winery, a Pilate studio,
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a hair salon, a local luxury travel agency, like
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small businesses in the community she was living
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in. And she literally would go and attend classes
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with them. She went to their wedding. She befriended
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them. They really thought that she was. you know,
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their personal friend and happens to provide
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professional services. And they, you know, gained
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trust in her and allowed her to handle their,
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you know, accounting records and they trusted
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whatever she said. And somehow, because of those
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relationships, obviously, and because she was
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doing play dates with them and the whole thing,
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double dates and whatever, kids, spouses, the
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whole thing. And even actually when one of the
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victims was in an in -treatment drug rehab program,
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she was running their business and they thought,
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wow, she's just wonderful, trusted. And so she
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convinced all of them to make check payments
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to, quote, income tax payment. that's what these
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checks would be. And she told them if you do
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this generic check, you know, like that, that
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it'll enable me to pay any current or future
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taxes when they come up. And they, like I said,
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fully trusted her and what made her really unique
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because this is not like today's age, this is
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some years ago, but she went so far as to use,
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you know, fake email accounts. She used software
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that changed her voice so that she would talk
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to her clients in a different voice, a different
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persona. She had software that showed a different
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color ID number in case you did call with questions
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and concerns. And she even posed as a prospective
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buyer or investor for one of these victim clients.
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And so she went through all of those efforts
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and you always kind of go, for what? It literally
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is for, you know, American greed, right? It was
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the house that she lived in or rented, cosmetic
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surgery and an Arabian horse, you know, vacations
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and the sort. Again, I'm hooked on American great.
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So, but what was the feeling like, like that
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one of the cases you worked on was on TV. Like
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what was your initial reaction? I'm just curious.
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Well, beside, Oh my God, I know this. Oh my God.
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I know this. And I do think it's fascinating.
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And while I'm surprised, you know, whenever you
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have worked on something and you see it on a
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show that you watch, um, it's obviously takes
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on a whole different, you know, interest level.
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But I think. What I appreciated about this show,
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though, too, is the exposure that it it shined
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a light on what could happen. And and really,
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because my client was actually an outside tax
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preparer for one of these victims. And that's
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how we came to know it. But they had no, you
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know, they were told by the client to like deal
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with this lady only. So. It was just, I'm just
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very glad that it was something that small businesses
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could, you know, learn and understand and also
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outside, you know, hardworking accountants and
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tax preparers to be on the lookout for because,
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you know, you may be someone who can, you know,
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stop the bad behavior or the fraud that's happening.
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Yes. And it ties beautifully with what you do
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now, which is like more on the prevention side,
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like what should people not do or what should
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people be aware of, like on both sides? So I'm
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pretty sure you've seen more embezzlement fraud
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cases. Would you mind sharing one more, just
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one last one before we move on? Well, I'll share
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one that I thought was kind of wild, more focused
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on the facts that were available to the public.
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But I mean, this particular one, maybe it's interesting
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to younger folks too, is this company represented
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influencers who were on YouTube and Instagram
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and the like. Yes, and so they, you know, use
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this company to help kind of track the payments
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that they were due from subscribers and hits
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and all of that. And then they would send the
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money that came in and forwarded on to these
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influencers. But a lot of the influencers you
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can imagine are kind of unsophisticated or don't
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necessarily know what they're doing, owing, and
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they're trusting, right? Well, this case involved
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an executive who worked for that company who
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was College educated, guess what he had a background
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in? He had an accounting and finance degree,
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but he also graduated with an uncontrolled gambling
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addiction. And what was interesting about this,
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I mean, very smart, very obviously talented and
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could, you know, had great skills that could
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be useful to their company and to the client.
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However, His dreams were grander than that, and
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he aspired and looked up to, and when you read
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a sentencing statement, he wanted to be among
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the best poker players in the tournament, you
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know, that tournament circuit. And ultimately,
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what made this one kind of wild was literally
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during the time that he was committing this fraudulent
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scheme. He actually became a world poker tournament
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champion with a seven figure paycheck. And during
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that same period of time, he claims to have won
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and lost two million dollars on online slots
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in a 48 hour period. So right. So in the period
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of three to four years, three to four years,
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which to me was not a long time. He embezzled
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over $22 million. Yes, because again, it was
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a bunch of them, a lot of them over time. And
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he also claimed to be making payments. They were
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like ACH transactions because that's how they
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would get paid, these wire transfers to the influencers.
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And there was also supposedly, you know, lease
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payments being made to a non -existent condo
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in Mexico that was supposedly used for business
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development purposes, but it was a fraudulent
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lease that didn't exist. He was so that I think
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is probably a wild one watching it unfold or
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just wow. So he wasn't hiding. He was at the
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tournament and I'm sure it cost a lot of money
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to enter those tournaments. And he was on the
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pages of the poker, you know, literature and
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wow publications as a winner. Wow. That's. That's
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wild. But what was the most surprising things
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you've learned after defending accounting firms,
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right? Because you've seen what gets people in
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trouble. Like, what are those things? When I
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think of what's surprising to me about accounting
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firms really isn't So much related to this fraud
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or embezzlement or that sort of really what kind
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of surprises me about accounting firms specifically
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as compared to other professionals and other
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is the fact that accounting firms and accountants
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are very receptive and adaptive to Emerging technology
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and innovation they as soon as that's you know
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a new Tech, you know something comes out that
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they're willing to you know use it test it, figure
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out how they can implement it, and perhaps it's
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because they want to, perhaps it's because they
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have to understand it in order to serve their
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clients well and also for they themselves to
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become more efficient. So, you know, that I think
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is what's really surprising to me is every time
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there's something new, the accounting firms are
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the first to kind of What is this about? How
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do we figure this out? What should we do with
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it? How is it used? Are our clients using it?
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How do we test it? How are we reporting it? However,
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those sorts of things is kind of surprising to
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me. And maybe it's because attorneys are so reluctant
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to jump all in when it comes to technology and
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innovation. Okay. So back to, you know, accounting
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firm themselves, when there is a case of embezzlement
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or any cases brought against them, when the fraud
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is discovered, people often point fingers at
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the auditors or anyone that touches the financial.
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Why is that? Well, I think generally speaking,
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it's the public's view, right, that accountants
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and in particular, especially auditors, are professionals
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that have expertise and therefore, they're in
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the best position to discover the fraud. They
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also start with an incorrect assumption, and
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that is the scope of the accountant's services.
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You know, whether it's bookkeeping tax audit,
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they believe or assume that that the accountant
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will be able to somehow uncover any fraud that
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exists irrespective of how immaterial it is or
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how unrelated to the actual services that account
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is performing. Third kind of component I think
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that goes into this is I think they also fail
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to appreciate the level of sophistication of
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those fraudsters like we've kind of talked about
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and described there there. A lot of times they're
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not there very sophisticated people very smart
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people and also there usually is that complicating
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factor which is you usually have a collusive
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third party who's helping to either. perpetrate
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the fraud or conceal that fraud. But the reality
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that we have in each of these cases is Who are
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the people that discover the fraud? And typically
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that is going to be a whistleblower. And that
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whistleblower oftentimes is someone that works
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alongside the person or people that are committing
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the fraud, right? They're sitting with that person
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day in and day out and they're in the best position
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to see when their behavior changes or all of
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a sudden they seem to be able to afford all kinds
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of grand things that are inconsistent. inconsistent
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with their salary. They got the new cars. They're
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moving in the house. They're taking vacations.
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They're all of these different things. And I
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think that you that. So that's usually how it's,
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you know, discovered is those things or. The
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other way that it's discovered by these whistleblowers
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or co -workers is that fraudster is absent from
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a role or responsibility or can do it for whatever
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reason. And someone has to take over that task
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and they stumble upon it in undertaking that
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task. Wow. And so from a legal perspective, what
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does... When is it that the blame actually hold
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up and when is it unfair? So let's say a fraud
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is discovered and of course we're gonna blame
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the accountant the auditor the fractional CFO
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whoever touched the financials at What point
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does it actually hold up versus is it just unfair?
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Well, so I think that the let me kind of just
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back up in terms of the approach and how you
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figure out whether this is fair or unfair and
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that starts as an attorney defending an accounting
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firm or accountants or as an accounting firm
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looking you know, at this issue, I think it's
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important to have an attorney involved early
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and upfront because once you involve that attorney
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or the attorneys undertaking that investigation,
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it is under a privileged or protected, you know,
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there's attorney -client privilege and you can
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be more, you know, that you don't have to turn
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that over to the other side. But once you get
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that attorney in place, the really important
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thing is for that attorney to understand what
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claims are being asserted. what that engagement
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scope is based on a signed engagement agreement,
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to also identify what work papers and or email
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communication, that sort of thing. goes to that
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particular claim that's being asserted so that
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they can be collected and looked at and also
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consideration of hiring a consulting expert.
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And the reason why you want to do that is you
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want an independent person party that gives opines
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or gives an opinion on the standard of care.
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So you want under your cloak, again, your privilege,
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someone to say, hey, From an independent party
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looking at this as an expert, would you say that
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the accounting firm or the accountant met the
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standard of care? And if they did not, then you
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kind of don't start from a place of calling it
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unfair, you start saying, okay, what is the risk
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exposure? You know, because One, you want to
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say, okay, is there a problem with this particular
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audit? But you also want to know from that consulting
18:16
expert if there are other issues that perhaps
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the claimants have not identified yet. But that
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may come up as this matter progresses, because
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what you want to quickly pivot to is, okay, what
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positive facts or what positive aspects can we
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use to try and leverage to try and resolve this
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early? Because once you have to concede standard
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of than if there are damages that resulted from
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that failure, then there's exposure. So addressing
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it early if you can and trying to resolve it
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is key. When it's unfair is when the standard
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of care was met and typically... those scenarios
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where I've seen them. And of course, I think
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all of them are unfair, but it's when the claimant
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or plaintiff, in my view, refuses to take responsibility
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for their own errors and or their cause of the
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damage. And unfortunately, in doing that or in
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defending it, the accounting firm and the accountant
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still has to foot the bill of a defense, even
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though there's no merit to the claim. That's
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when it seems very unfair, but it's how it works
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here. Now back to the standard of duty of care
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and thinking from a prevention standpoint, because
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there is now a lot of fractional CFOs, small
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firm, boutique firms, going after a different
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niche within different industries. What would
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you say are some of the standard they need to
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understand to meet that duty of care? I know
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you mentioned something about the scope or the
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agreement. Can you tell us a bit more about that?
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Well, I'll just say as a common and general proposition
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is that you have to be very, very clear and specific
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about the scope of the work that you intend to
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undertake. It should be documented. And so you
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don't want some generic, I'm going to provide
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accounting services or tax services. And it'd
20:25
be this really broad thing because whenever a
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claim is made, typically the claimant is going
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to say that they relied upon you to do everything.
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Your scope was unlimited. And the only way to
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kind of push back on that is to have a signed
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engagement agreement that says, oh, no, no, no.
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Actually, the services that I signed up and agreed
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to perform for you client are, let's be clear,
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only this client, only this entity or entities
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that are identified in this agreement. only for
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maybe this particular year, financial statements
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or tax, whatever it is, tax year this or financial
21:03
statement period that. And it also identifies
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in those signed engagement agreements that you
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need to have signed, signed, signed engagement
21:13
agreements that also include in there the responsibilities
21:18
of the client to provide you truthful, accurate,
21:24
correct, you know, financial information and
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again, depending on the engagement of the scope,
21:30
whatever it is that the client's responsibilities
21:33
or duties or obligations are. And that same agreement,
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having those kind of agreements with a very clear
21:40
scope often should include and do include limitation
21:44
of liability provisions. That's where you can
21:48
try and control your exposure. in the event that
21:52
there is an error or dispute with the client.
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So that's really important. That's where you
21:58
can admit the amount of damages that can come
22:00
after you for that may speak to where this may
22:05
be litigated. If it's litigated, it may speak
22:07
to the requirement to mediate the dispute before
22:11
you file a lawsuit. So it gives the parties an
22:14
opportunity to resolve before you turn to litigation.
22:17
So I think those things are really important.
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Wow. That's very eye -opening for me because
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I, you know, I've worked on the other side, right?
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I received the engagement letter from the auditor,
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so I've never seen it really from their perspective
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or from the perspective of a business owner.
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Like you said, you can't just say providing accounting
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services and here's an invoice. You do need a
22:38
contract, the engagement letter. But then I'm
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curious, once you have that nice engagement,
22:43
what other things should people think about about
22:46
duty of care? on how they staff the engagement,
22:49
like how did the whole thing go goes on after
22:52
the initial one? Well, I can. Well, it's very
22:56
important. Or I guess, you know, one of the things
23:00
that I think. you have to think about with your
23:03
staffing. I'll answer that and then I kind of
23:06
go a little bit backwards with that. But I mean,
23:08
with your staffing, you need to make sure that
23:10
you have staff that have an appropriate level
23:13
of skill and training for the engagement, whatever
23:15
that is. They have an and or they have a lot
23:20
of oversight if that's what's required because
23:22
they they lack some of that training experience
23:26
that may be needed in your literally training
23:28
them. And you also need to make sure consider
23:32
whether or not you're allocating enough time
23:35
for the staff, the partner, the senior man, everybody
23:38
on the engagement to perform those responsibilities
23:42
on that engagement. That being said about the
23:46
staffing, I think one thing, you know, Like why
23:51
or how is it that accountants miss like red flags?
23:54
I think that's kind of what you may be speaking
23:57
to a bit and I think the the why Often that happens
24:03
is a lot of risk comes from professionals overreliance
24:09
in my view sometimes on the checklist approach.
24:12
It's like I have this checklist for whatever
24:15
the engagement is, whether it's tax or audit
24:18
or whatever, and I'm going through the list and
24:20
I'm checking it off. It's great to have those
24:23
as resources. It's great to know that you didn't
24:25
miss something, but that's not a replacement
24:28
for the thinking part, the does this make sense
24:34
part. typically happens when a claim is asserted
24:38
against an accounting firm or accountant or auditors
24:41
and that sort of thing. The hindsight criticism
24:44
is that the accountants were lacked professional
24:50
skepticism. They over relied on management or
24:54
whoever management deemed the appropriate contact
24:57
person. And they didn't for themselves, you know,
25:02
really actively engage and does this make sense
25:05
or I'm not satisfied with especially if they
25:08
get kind of pushback right from the other side
25:10
just kind of you're walking this line of I don't
25:13
want to upset the client, but I kind of need
25:14
this this is kind of good enough. but it's not
25:17
when you're looking at your license on the line.
25:19
You are a professional, they're hiring you to
25:22
do your professional job and you've got to do
25:28
it and they have to cooperate with it. So I think
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that accountants have to really trust and utilize
25:36
their instincts. when they're kind of going through
25:40
engagements and not overly rely on, like I said,
25:43
kind of, oh, check the box, check the box, check
25:45
the boxes, add in the file, it's in the file,
25:46
it's in the file, and not really understanding
25:48
why they need it. why it's important and why
25:52
do we have to document it. And I will stress
25:55
that documentation is everything. If it is not
26:00
documented, it didn't happen. So you later explaining,
26:04
oh, I spoke to this person or we had a conversation
26:06
or I did that analysis. I just didn't put it
26:09
in here because I was satisfied. Well, then in
26:12
the world of litigation, it didn't happen. So
26:16
I think that's what I would caution. Wow. So
26:21
to recap, so first my engagement has to be on
26:24
point. So the engagement contract, what are my
26:27
responsibilities? What is the scope of what I
26:30
will do needs to be on point. Then the people
26:32
that I will work on the engagement, the level
26:34
of experience or oversight has to be on point.
26:37
And then not just go by the checklist, but think
26:42
outside the box, which is Difficult when you
26:46
also press for time, but good to remember and
26:48
then documentation. That's a lot of work. I don't
26:52
think we factor all that when we build people.
26:56
Right. Well, and that's a good point that you're
26:58
making actually is that, you know, you may need
27:02
to reevaluate your budget for the, the job, but
27:07
you know, I think. Again, if you ask any of these
27:11
folks after the fact who have been through it,
27:15
you know, what are the ways to avoid being dragged
27:18
into a lawsuit? Well, it starts with client acceptance
27:22
and this annual reevaluation of whether or not
27:27
they should continue as an ongoing client, right?
27:31
So you start with client acceptance and say,
27:33
let me look at this client. Are we still? At
27:37
the outset, but each year, you know, are we still
27:40
a good fit? Does this client fit into my wheelhouse?
27:44
Do I have the expertise? Do I have the team available?
27:48
Do I have the time? How difficult or not difficult
27:51
is this client? Does this client not give us
27:54
documents on time? Does this document, you know,
27:57
put or I'm sorry, does this client not? provide
28:01
timely, accurate information? Do we need a long
28:05
lead way? Are they're kind of difficult to work
28:08
with for our staff and therefore they take up
28:10
a lot of time. And it's at that point you start
28:13
thinking about one, if they are still a good
28:17
fit for you and your expertise or your level
28:20
of comfort in the industry that they're in, they
28:23
may switch to a different industry and maybe
28:25
you're not so comfortable with that. You know,
28:27
you have to evaluate where your skill is and
28:31
what their need is to see if it's a great fit.
28:35
And then also, as part of that, consider how
28:38
much should I be charging given all of that information?
28:42
Because not everybody is the same, right? Some
28:44
clients require a lot more time for the same
28:48
scope of work than a different client. And so
28:51
maybe adjustments need to be made. After you
28:54
do that and you're satisfied that you have done
28:57
your diligence in terms of evaluating this client,
29:00
Googling them, searching them, making sure you
29:02
understand who you're going to be working with
29:05
and that you're comfortable. Absolutely the signed
29:07
engagement agreement. I would suggest that usually
29:10
it's, if they're insistent on you using their
29:14
engagement agreement, there's stuff in there
29:15
that you should be looking carefully at with
29:17
your counsel, your attorney. just to make sure
29:21
that you understand what their terms are. And
29:24
perhaps you want to, you know, invest in coming
29:27
up with your own engagement agreement if you
29:29
don't have one to make sure that the language
29:31
and the provisions and the limitations of liability
29:34
that you feel are appropriate are included in
29:37
that. And work off of your engagement agreement
29:40
and let them, you know, maybe, you know, go back
29:44
and forth with you on your version of it. It's
29:46
important that when you kind of hear some bubbling
29:49
up, you know, there may be some complaints, there
29:53
may be some issues with payment, there may be
29:55
issue. These things that are starting to make
29:57
you think, I feel like there's something more
30:02
here. At some point, I think it's really important
30:06
for professionals, but accountants in particular,
30:08
to consider whether or not they should reach
30:10
out to their insurance broker. and advise them
30:15
that there may be a potential claim on the horizon
30:18
or just talk through it. I can't stress how important
30:21
that is because I think a lot of people think
30:23
of it like auto insurance, like I don't want
30:25
to report it because I don't want my insurance
30:27
to go up and this, that, and the other. It's
30:29
very, very different, I think, with professional
30:32
liability because if you don't reported in time
30:37
as you should have, you may be compromising your
30:40
coverage down the line if it does turn into something
30:42
because they're going to ask for all of the back
30:45
and forth with a client or what happened or what
30:48
led up to the ultimate claim. So that may be
30:51
present a problem from an insurance perspective
30:53
for you, but also you don't want to create a
30:56
bad record. So if you contact your insurance
31:00
broker and they're We're a great one, but there's
31:04
many others. But you contact them to help you
31:08
navigate whether or not this is something to
31:11
report, but also to consider whether or not you
31:14
should have appointment of an attorney to help
31:17
you navigate it, even though a lawsuit hasn't
31:19
been filed yet, because a lot of times it's during
31:23
that pre litigation where you're trying to navigate
31:26
it that you may avoid the lawsuit altogether,
31:30
but you also at least have some advice on how
31:33
to not create a bad record because sometimes
31:37
clients in trying to make it right with their
31:41
client may, for example, be making admissions
31:47
that can be used against them if this doesn't
31:51
resolve and it turns to litigation. And again,
31:56
admissions are sometimes impact your coverage
31:59
if you made them. if you can see. So there's
32:03
various things that you should consider when
32:05
you kind of hear some bubbling up. But the first
32:07
thing I would do is call your insurance broker,
32:09
discuss it with them, whether or not at least
32:12
have the conversation about whether or not to
32:15
report it to the insurance company. See, you
32:18
went. 20 ,000 steps ahead. Because sometimes
32:21
when you think about a small accounting firm
32:24
or fractional CFO firm that's small, somebody
32:26
saying, hey, I want to start a side gig. I want
32:28
to be a fractional CFO. I'm going to do people
32:31
books or taxes on the line. They're not even
32:32
thinking about having insurance. So my question
32:35
to you is what's the insurance policy or the
32:39
kind of insurance nobody talks about, but you
32:42
know that every owner of a professional service,
32:45
whether full -time or a side gig actually needs.
32:48
I think it is very important to start off with
32:52
really, again, I'm not trying to sell this because
32:57
this is where I'm at now. I'm really saying it
33:00
is important that you consult with, at least
33:04
have the conversation. If you don't have an insurance
33:07
broker and you should talk to one, But the first
33:11
thing you need is professional liability. I mean,
33:13
you know, insurance is important. And when you
33:17
apply for that, however you apply for it, it's
33:19
really important that you, you know, disclose
33:22
in that application or with your broker who's
33:25
helping you complete that application that you're
33:30
forthright with the types of services you will
33:33
be performing, the scope of services, because
33:36
they're going to oftentimes say that application
33:41
is part of your policy. So if you said, oh, all
33:45
I do is this type of services, and then you go
33:48
and do some other type of professional services,
33:53
that may not be considered coverage. So that's
33:55
why it's really important that you speak with
33:58
someone to understand in your E &O policy how
34:02
you're defining professional services, what professional
34:05
services are covered and not covered. And then
34:09
also that once they have an understanding of
34:12
the types of services you are performing or providing,
34:15
it really has to be tailored. You know, what
34:17
other coverages you need. You might need director
34:20
and officers insurance. You might need cyber
34:23
insurance. You might need crime. But it really
34:29
does take kind of understanding what you specifically
34:32
are doing, what tasks you're performing as to
34:36
what coverages you may or may not need. And you
34:39
want that they're coordinated so that in the
34:43
event there is a claim, it's clear which policy
34:46
is responding and who responds first. All of
34:49
that coordination kind of comes when you have...
34:51
someone helping you figure out what coverages
34:54
do you actually need. So I can't really say you
34:59
need everything, what you need, but I can tell
35:02
you I would definitely start with professional
35:04
liability or E &O insurance. And while I think
35:07
it's really important that you talk to a broker
35:11
who can discuss all the coverages to figure out
35:13
what's best suited for what it is you're doing,
35:16
when it comes to an E &O or professional service,
35:20
What is an ENO? It is errors and omissions. Errors
35:25
and omissions. Okay. Keep going. Errors and omissions
35:31
is kind of commonly referred to as professional
35:34
liability insurance. It's basically saying I'm
35:39
in the event that I, you know, commit an error
35:42
claim that was from an actor error omission of
35:46
of mine in performing that service and I cause
35:50
damage to somebody else, my client, and they
35:52
sue me that I have insurance that helps me to
35:56
defend myself and or pay if there's, you know,
36:00
if it's appropriate because I did in fact create
36:03
an error. So that's what the professional liability
36:07
or, you know, insurance goes to your damage that
36:12
you cause a third party from the performance
36:14
of your services. So. You start there and in
36:19
that insurance policy, that's where I was speaking
36:22
to, it's important to, you know, a few things
36:26
to think about is how is professional services
36:29
defined in that policy, meaning what services,
36:35
you know? Is it just bookkeeping? Is it tax?
36:38
Is it audit? Is it software implementation? What
36:42
are you doing as to what is covered under that
36:45
policy? Importantly in those policies is also
36:50
understanding what is excluded from that coverage.
36:56
contract with someone and say, hey, I will assume
37:00
liability or hold somebody harmless, and it's
37:03
beyond what that policy covers, then that policy
37:07
may not respond. And you will be, you know, you're
37:10
personally liable for that. So there's things
37:12
in there. And that's why I was speaking to, for
37:15
example, if you if you admit, oh, I'm sorry,
37:19
I was wrong. I will make it right. Some policies
37:22
say, yeah, you are not to admit liability, you
37:27
know, that may impact your coverage. So that's
37:30
why I really go to, you want to talk to someone
37:33
and, you know, if someone says, hey, I want my
37:35
fees back because you perform poorly and I don't
37:38
think you should get your fees, well, that may
37:40
not be covered under your policy. So it's just
37:42
really important to understand what is covered
37:46
in that, what is excluded and what may have very
37:50
limited coverage. For example, some policies
37:52
have very limited coverage for regulatory matters.
37:56
So if the State Board of Accountancy or the SEC
37:59
or the PCAOB or anything, there's an investigation
38:04
and may be very limited as to how much of that
38:07
policy will be covered and how much you'll be
38:10
coming out of pocket. But those things are very
38:13
important to look at and know and understand.
38:17
This is super helpful. You probably have no idea,
38:21
but thank you so much for sharing all that. I
38:23
just wanted to have a quick recap, right? So
38:25
for fractional CFOs and small firm owners, when
38:28
we think about what are the simplest ways to
38:30
avoid being dragged into lawsuit, they had nothing
38:33
to do with. To recap, you start with the engagement,
38:37
making sure it's all clear, responsibility wise.
38:40
You make sure again that the scope that's defined
38:43
in it is actually what you're going to do. And
38:47
like we said, limited enough, but not too broad
38:50
to where you're doing whatever and we don't know
38:52
who's responsible for what. And also the people
38:54
you put on staff, how you document the whole
38:57
process, but also how you ensure yourself, which
39:00
I think is like, Oh my goodness, such an eye
39:02
opener. Yes. It's a lot. I definitely think that's
39:09
important. I think the only thing I would maybe
39:13
Add to that is, you know, your scope and your
39:17
engagement agreement should line up with what
39:22
you're billing them for. Because if you say I'm
39:25
only engaged to do this service, but then your
39:29
billing records show that you're doing all kinds
39:32
of other and different services, then that's
39:36
a problem. It's called scope creep. Again, if
39:40
a lawsuit is filed down the road and they say
39:42
you were my everything and you say, no, no, no,
39:45
here's the engagement agreement. I only signed
39:47
up for this. And they say, OK, well, deliver
39:50
to me your engagement agreements and let's look
39:52
at the emails or I'm sorry, your invoices. And.
39:58
You have to turn over your emails with them So
40:00
now all of a sudden your invoices your detailed
40:03
billing records show I had a call with them about
40:06
this. I had a call with them about that I looked
40:08
at this issue. I looked at that issue or your
40:11
emails may suggest that you looked into something
40:15
or you research something that is inconsistent
40:17
with the scope. So now you help them make their
40:21
argument that you were their everything, despite
40:24
what the engagement agreement says. So your actions
40:27
kind of have to mirror the agreement. And it's
40:33
entirely possible that the engagement can evolve
40:36
and change. And that's fine. But then what you
40:39
do is you amend or somehow document, doesn't
40:42
necessarily have to be another engagement agreement,
40:44
but it is written, it's documented that you have
40:47
asked me to undertake this additional, this is
40:51
what I'm going to do, the limitations of it,
40:53
et cetera. It's just, again, you want a document
40:55
to be clear what it is you're doing and equally
40:59
important, what you're not doing. That's so helpful
41:02
because when we think about scope creep, from
41:04
a business standpoint, oh, I'm going to make
41:06
more money. Right. So, but from your perspective,
41:10
you're like, but you have more exposure when
41:12
you do that. And here are some of the things
41:13
you should be thinking about in that process.
41:17
Yeah. And like I said, it's great that you're
41:19
going to have a deeper, you know, relationship
41:23
or an expanded service. Just document what that
41:26
expanded service is and be again, more specific.
41:30
You know, I'm going to take on, you've asked
41:31
me to undertake this project. I'm agreeing to
41:35
do it. This is the time, the estimate that, you
41:37
know, changing costs and how, or how you're going
41:40
to be billed and et cetera. It's just documenting
41:44
what is. and what is not. Thank you so much for
41:47
sharing. So I'm curious now, I started in accounting,
41:49
so I feel like I see the world differently because
41:52
of it. I see dollars, money, cost, margins everywhere.
41:56
So you as a litigation lawyer for 20 years, how
42:00
has your work shaped the way you approach decision
42:02
in your personal life? It makes you paranoid.
42:09
No. So I'll start with, well, I think as a litigation
42:14
partner, I think as a certified fraud examiner,
42:18
and I'll say as an insurance brokerage firm principal
42:22
responsible for risk management and claims advocacy,
42:26
all of those put together probably caused me
42:31
to approach in my personal life questions along
42:34
the lines of what risks? Does this opportunity
42:38
present? Is there any way we can mitigate the
42:42
risk so we have greater upside? And should I
42:46
be documenting or have a contract, this event,
42:50
this understanding, even in personal or my child?
42:54
Getting your nails done, you need a contract.
42:58
I might stop short of there, but you kind of
43:01
think that way of what documentation should I
43:04
retain or how should I confirm? with someone
43:07
an understanding or a responsibility and who's
43:11
doing what. I joke about how I do this with my
43:15
family and my children saying, OK, you are going
43:18
to take care of this part and I'm going to take
43:22
care of that part. Correct. Do we have an understanding?
43:26
Are we on the same page? Do I need to send you
43:28
a text to confirm? Handshake. That is so cool.
43:36
I'm curious to know though. What's your favorite
43:38
thing to do outside of work? That's risk -free
43:40
kind of Well, so we are definitely Professional
43:46
football fans. We like going to stadium games
43:49
if we're not a stadium game We like to host watch
43:52
parties go Niners. We are Niners fans So we're
43:57
happy football seasons back. So we're excited
44:00
to go to some games. We'll see some Chargers
44:03
as well And, um, this is not day to day, but
44:07
I always look forward to and start planning my
44:09
next Caribbean Island to visit. I've traveled
44:13
several of them. I love them. And so I kind of
44:17
keep working on expanding where I've been. Oh,
44:21
good for you. Good for you. We cover them all.
44:24
You're going to cover them all from an insurance
44:26
standpoint as well. Also, you probably the one
44:29
that check and share my flight. You that's what
44:31
you do. I actually have tried to talk to my litigation
44:36
partners, my colleagues into opening and also
44:40
my insurance company and brokerage, opening an
44:43
office in one of these Caribbean islands that
44:46
I will be happy to spend some time in because
44:50
I'm sure there is. risk there that we should
44:53
consider and advise on. There are accounting
44:55
firms on each of those islands. I went to Turks
44:58
and Caicos and I remember seeing like BDO and
45:01
all these different, there's a lot of accounting
45:03
firms out there. I'll be your assistant, your
45:05
accountant. We'll find a way to limit the scope,
45:08
but I'll be there with you. Thank you. Thank
45:13
you. Thank you so much for being on the show,
45:15
Natalia. This was super helpful. Thank you for
45:17
your time. Thank you so much for the opportunity
45:19
and it's been great. Thank you. And that's it
45:22
for today's episode of the Diary of a CFO. Thank
45:25
you so much for tuning in. If you enjoyed the
45:27
show, don't forget to like, review, subscribe,
45:30
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