Lemme, a specialty division of EPIC Insurance Brokers and Consultants focused on providing professional liability insurance solutions and risk management advisory services to accounting, legal and other professional services firms, recently surveyed a cross-section of its Top 100 accounting firm clients regarding the types of advisory services provided in connection with the SBA Paycheck Protection Program (PPP). Significant findings included:

  • All the firms reported providing some level of PPP-related services.
  • Fifteen percent (15%) of firms indicated they had accepted “agent fees” as payment for assisting clients with the preparation of PPP loan applications.
  • Sixty-nine percent (69%) of firms indicated they expected to provide additional services later in the year related to analysis of the use of PPP proceeds for purposes of the PPP forgiveness terms.

Firms are being asked to provide a range of services to their clients in connection with the PPP. All the firms surveyed reported advising and assisting clients with gathering the documentation necessary to prepare the PPP loan application. Eighty-five (85%) reported assisting clients with the required average monthly payroll calculation required for the application. Less than half (46%) reported assisting clients with preparing the actual loan application.

Fee arrangements for PPP-related services vary based on the specific advisory services provided. Time and materials arrangements were common to all firms surveyed. Only 25% of firms reported the use of fixed fee arrangements. Fifteen percent (15%) of the firms indicated that in certain instances, no fees were charged for the services.

A key consideration early in the PPP’s rollout was whether a firm might be considered an agent and asked to accept payment for their services in the form of an agent fee, as prescribed under the Treasury Departments program rules, based on the size of the approved loan and paid by the lender. Of concern to firms was whether advising and assisting an attest client in preparing its loan application or accepting an agent fee as payment for these services might impair a firm’s independence with respect to the attest client. The AICPA’s Professional Ethics Executive Committee indicated on April 13, 2020 that firms may advise and assist attest clients in gathering the information needed for the client to prepare and submit the loan application to a lender without impairing independence. Additionally, if the lender pays the firm an “agent fee” for that service, the firm is not, simply by nature of receiving the fee, an agent – nor does receipt of the fee constitute a contingent fee. Just 15% of survey respondents indicated they were entering into agent fee arrangements in exchange for assisting clients with preparation of the loan application.

With regards to engagement letters, nearly 40% of firms surveyed utilized templates created by the firm specifically for these services and another 30% reported using existing templates with modifications to the firm’s standard terms and conditions. Several responding firms indicated that no formal engagement letters were issued for these engagements. Owen Bailitz, CPA, a Principal in Lemme’s Risk Management Services Practice and a former Risk Management Partner at a large international accounting firm, noted “the use of well-crafted engagement letters is a key risk management procedure for firms as they assist their clients in navigating these uncertain and challenging times. Small businesses and nonprofits have looked to the PPP program to keep the lights on, their people employed, and families fed. Managing expectations with these clients is critical as there is not enough money to go around and a simple error could result in denial of a PPP loan. In addition, like any government relief program, the risk of fraud is high, and engagement letters go a long way in protecting the firm from misconduct by clients or third parties.”

In addition to modifying engagement letter terms and conditions, firms also reported taking additional action to ensure appropriate risk management and quality control procedures were in place when providing PPP-related advisory services to their clients including:

  • Issuing written policies or guidance to its professionals regarding engagement acceptance (64%)
  • Issuing written policies and guidance for planning, performing and reviewing the work (45%) and
  • Creating internal templates and toolkits (91%)

91% of respondents indicated their firms had published toolkits, guides or other thought leadership regarding the PPP for use by their clients and the general public.

Please contact Owen Bailitz at 847-385-6805 should you have questions regarding Lemme’s SBA Paycheck Protection Program survey findings.

For more of our coronavirus coverage, visit epicbrokers.com/coronavirus 

EPIC’s Accounting Firm Practice

The Accounting Firm Practice of Lemme, a division of EPIC Insurance Brokers & Consultants, specializes in assisting accounting firms worldwide with the procurement of insurance coverage. Our team provides personal, proactive, timely and exceptional service while being fully transparent and accountable to our clients. We do not believe in the status quo. Experienced, results driven brokers negotiate creative insurance solutions while also offering best practice advice, valuable insight and risk management services for our accounting firm clients.