Dealing with a Subpoena (#231)
/In this podcast episode, we discuss how a CPA should respond to a subpoena. Key points made are noted below.
Definition of a Subpoena
A subpoena is a formal document that orders someone to give testimony, and it’s usually issued by a court. Though, to be accurate, it’s usually issued by an investigating attorney without the knowledge of the court.
There’re a few kinds of subpoenas. The first kind is a witness subpoena. As the name implies, the recipient has to appear in court on a certain date and testify as a witness, usually in a trial. A variation on this is a deposition subpoena, where the recipient has to provide copies of business records and possibly appear at a deposition to answer questions asked by one of the parties in a lawsuit. This variation is part of the discovery process before a trial.
And the one that’s most likely to matter to the CPA is a subpoena for the production of evidence. This version requires the recipient to produce any records under his control at a specific time and place. In this last case, the CPA may be able to just mail in the records, or perhaps even use e-mail for the delivery. Which is to say, there may be no need to appear in person at all.
If you don’t comply with the requirements of the subpoena, then you can be charged with contempt of court, which can lead to fines or jail time. So in short, there is a legal requirement to comply.
Why the CPA Receives a Subpoena
So why would a CPA receive a subpoena? Probably because you have control over some client records that an attorney wants to look at. For example, there may be an investigation of fraud at a client company. Whatever the reason for the subpoena, this presents a problem for the CPA, because the AICPA Code of Professional Conduct states that a CPA should obtain the consent of a client before disclosing any confidential client information. However, the code of conduct also provides for a few exceptions to the rule, one of which is that it’s acceptable to disclose confidential client information if there’s a validly issued subpoena enforceable by court order.
Steps to Take
So, you’ve received a subpoena. Now what? The first step is to contact your attorney. The attorney will want to review the subpoena to see what kind of legal proceeding is involved, such as whether it’s a civil case, a criminal case, a tax case, and so on. There’s a different set of rules governing each of these types of legal proceeding. The attorney will also want to review both the situation and the document, to see if the subpoena was served properly and that it’s valid. Depending on the rules, a subpoena might have to be served to the CPA in person, or it might be acceptable to mail it. As another example, a subpoena issued by a state court is only valid in the state where it was issued.
The attorney will then want to talk about exactly what’s supposed to be produced. The attorney can advise on which documents need to be produced and which to hold back for other reasons.
According to the AICPA’s interpretation of its code of professional conduct, you do not have to notify the client that its records have been subpoenaed. Though you still can contact the client, except in cases where the subpoena is supposed to be kept confidential – which can happen with a grand jury. It might be useful to contact the client, in case your agreement with the client allows you to bill it for the cost of preparing any documents for a subpoena request.
The AICPA’s interpretation also advises that you might want to consult with your state board of accountancy, perhaps so that they can provide some additional knowledge about how the state-specific ethics rules might relate to the subpoena.
Objecting to a Subpoena
The client or your attorney can request that you object to either the scope of the request or the nature of the documents to be provided. This can be a valid concern when the subpoena covers confidential information, such as trade secrets or market development plans.
But before making an objection, it can make sense to have your attorney contact the attorney that issued the subpoena, to get a better understanding of what’s going on. The person who issued the subpoena may not realize just how much effort is needed to comply with it, and so could allow you to respond with a reduced amount of paperwork. This means negotiating for a narrow scope on the subpoena.
If you do decide to object to a subpoena, document everything in a letter and send it to the issuing attorney by registered mail, so there’s a record that the attorney received it. Depending on the situation, making an objection can mean that you no longer have to comply with the subpoena, unless the issuing attorney obtains a court order that enforces it. Consult with your attorney about this, since the rules depend on the situation.
A variation on issuing an objection letter is to file a motion with the court, asking that those parts of the subpoena relating to your objections be cancelled. This approach might work better when the issuing attorney is being a pain.
The Issuance of Documents
When it comes time to send documents to the issuing attorney, be sure to only send copies of the documents, since the originals might otherwise get lost or damaged. Also, make a complete record of exactly what was sent, which can guard against complaints that you didn’t send everything that was requested.
Accountant-Client Privilege
That’s the essential process flow, but we’re not done yet. In addition, quite a few state governments recognize an accountant-client privilege. This privilege means that the information communicated to the CPA by a client in regard to an accounting engagement is confidential. This information belongs to the client, not the CPA, so consult with your attorney to see if any documents are protected by this privilege.
There’s something similar to the accountant-client privilege in the tax area, which is the federally authorized tax practitioner privilege. This one only applies to tax advice between a client and its federally authorized tax practitioner. It probably doesn’t apply to most of the work papers involved in preparing a tax return.