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3 Lessons from Georgia Accounting Firm Hit with Two Professional Liability Lawsuits

3 Lessons from Georgia Accounting Firm Hit with Two Professional Liability Lawsuits

Tuesday, October 27, 2015/Categories: Errors and Omissions Insurance

Sometimes you get hit with a lawsuit. And sometimes you get hit with two. In the same year. From the same guy. When that happens, as one Georgia accounting firm is discovering, it can get expensive (not to mention annoying). 

According to the Macon, Georgia, Telegraph, the school superintendent Romain Dallemand filed a second lawsuit against accounting firm Mauldin & Jenkins, alleging that it manipulated and falsified records that ultimately resulted in the loss of his educator license. The backstory here is that the firm audited the school system in 2014, and the report states it claimed Dallemend had violated school board policy by ordering more than $26 million in technology equipment and services without board approval. When the audit was brought to the attention of the state's educator regulatory agency, Dallemand's license was revoked.

Dallemand maintains he did nothing wrong and that Mauldin & Jenkins is guilty of fraud, misrepresentation, professional negligence, and slander. But Dallemand's first lawsuit was quickly dismissed because of jurisdiction concerns, and according to a report by 41NBC, the accounting's firm attorney is planning on filing a motion to dismiss the "baseless" claims of this most recent suit.

Still, lawsuits are never fun, and this example provides a few risk management lessons for every accountant.

The Inconvenient Truth about Lawsuits

It's easy to see the story above as an isolated incident. That sort of thing could never happen to your firm, right?

Unfortunately, that's wishful thinking, and wishful thinking is only nice if you're friends with a genie. It's far more productive to be prepared for risk, and this particular case exemplifies…

  1. You can do nothing wrong and still be sued.
  2. Sometimes people sue to make a point.
  3. Lawsuits are expensive and time consuming regardless of the outcome (even if they’re dropped).

Regarding the first point, it's reasonable to assume that the accounting firm did its job appropriately when conducting the school system audit. It was likely professional obliged to bring up Dallemand's use of funds. Did the accountants expect to get sued for doing their job? Probably not. And neither will you. Most professionals don't go into work expecting to be sued (except doctors, maybe). But a client could file a lawsuit long after your work with them has been finished. (See our article "4 Reasons Clients Sue Accountants (and What to Do if You’re Sued)" to see why this is such a risk.)

As for the second point, a lawsuit may be entirely unfounded. Maudlin & Jenkins' attorney filed a motion to dismiss the suit, which shows that they think there's not much merit to Dallemand's claims. Dallemand may, understandably, feel a bit of anger toward the firm and may be suing out of spite. And even though a lawsuit like that is unlikely to go to court, it's still going to cost time and money, which brings us to the third and final point.

Lawsuits cost money even if they're meritless. The worst thing you can do when faced with a lawsuit is to ignore it, even if you think it's ridiculous. By ignoring it, you're risking a summary judgment in the plaintiff's favor or an ongoing battle with an emboldened attorney. To best protect yourself, you should get legal counsel right away and deal with the suit.

But lawyers cost money, and resolving the issue is going to take at least a little bit of your time. Are you prepared, financially, for even a best-case scenario?

Accountant Liability Insurance Can Help with Lawsuits

Consider carrying liability insurance as a backup plan in case you end up experiencing one of those three lessons firsthand. Coverage like Professional Liability Insurance may help pay for your legal costs when a client sues you over negligence or professional errors. That expensive lawyer we talked about? Not so bad when you have insurance to foot the bill. Best of all, you don't have to worry about surprise lawsuits behind every corner if you have an active policy in your back pocket.

Take a look at other insurance policies for accountants while you're at it. They won't do you much good if you wait until after you're sued to purchase, so get on it.

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