Professional Liability/Risk Management Brief: Code Compliance
By Richard B. Garber, Vice President A/E/C Risk Management Services, Victor O. Schinnerer & Company Inc.
Some clients and design professionals do not fully understand the responsibility to design a project in conformance with applicable codes, and that misunderstanding often leads to contractual and professional liability disputes.
The design professional’s normal professional duty includes reviewing the laws, codes, and regulations applicable to the project at the time services are provided and responding to their reasonable interpretation. This may include additional requirements imposed by governmental authorities having jurisdiction over the project.
Client-drafted agreements often require a design to comply with "all laws, regulations, codes, and standards." The complexities of the design process, coupled with constantly changing requirements and interpretations and conflicts between codes and other design constraints, make this absolute contractual requirement impossible to achieve.
Such contractual language not only raises the standard of care, but it may also constitute a guarantee, which falls outside the scope of professional liability coverage. This unreasonable obligation may also be used to require the design professional to re-design the project for no additional compensation if laws or interpretations change during design or construction.
The Use of Judgment
The design professional’s duty is to design in compliance with those requirements that are identified as applicable. Applicability is dependent upon professional judgment and the pronouncements of code officials and other government agents. Simply meeting the minimum code requirements may not be adequate. Because design professionals are licensed to protect public health and safety, judgment must be exercised. A design that is not in conformance with applicable minimum standards often constitutes negligence per se. A design professional, however, can also be held negligent for not going beyond the minimum requirements. Courts have held design professionals responsible for understanding the special needs of individual projects and responding to those needs during the design process.
Self-Certifications and Inspections
The move to self-certification of code compliance changes the risk and compensation equation. The immunity of code officials for their interpretations does not apply when a private practitioner determines applicability and certifies compliance. Requirements for special inspections can also lead to unmanageable exposures. In a special inspection, as required by some jurisdictions, the analysis is not just for general conformity; such inspections may be for verification not only of the design but also of the construction.
The Increase in Other “Codes”
The increasing complexity of design requirements extends beyond life safety codes. Now energy usage, environmentally conscious design, and other "voluntary" rules have joined federal and state regulations in establishing design constraints. And with each new requirement, the role and risk of a design professional increases. Design requirements imposed beyond codes and standards not only lead to enhanced risk for the design professional, but the potential is quite real for a design professional to inadvertently express a warranty or guarantee of results.
There must be clear communication between the client and design professional at the time of contract negotiation, a mutual understanding that design is an ongoing process, and recognition that increased duties and risks should result in adequate time and compensation for professional services. Without such, the code compliance issue can be an unmanageable risk for design professionals.
Victor O. Schinnerer & Company Inc. is managing underwriter for the CNA/Schinnerer Professional Liability Insurance Program, commended by NSPE/PEPP since 1957.
Top 12 Ways to Reduce the Risk of Employee Theft
Herbert M. Cannon, President of AEC Management Solutions Inc.
At my financial seminars, I always ask who has worked for a company where there was a theft of company funds. If there are 30 to 40 seminar attendees, about two thirds of the audience will raise their hands and share their stories. I have heard embezzlement stories ranging from several thousand dollars to over half a million dollars. Stories of several hundred thousand dollars were not uncommon. The sad truth is that most of the other third probably had some sort of employee theft but they employees had managed to avoid detection. Here are some suggestions on how to reduce the risk.
12. Sign All the Checks Yourself
Don't be quick to turn over signature authority to others in the company. If you sign all of the checks, you have much better handle on where the money is going.
11. Avoid Signing Checks on an Ad-Hoc Basis
Sign all of your checks on a regular basis. For example, all trade invoices are paid on the 1st and 15th of the month. All consultants are paid on the 10th and 25th of the month. It is too confusing when the staff is constantly interrupting you to sign checks - and easy to let something slip by. Sign checks while you are alone and have time to consider the validity of what you are paying.
10. Accounting Employees Must Take Their Vacation
All accounting employees must take their vacation ,every year and in a minimum of full week increments. By forcing these employees to take their vacation it becomes much more likely that you will be able to uncover fraudulent activities, they are not there to cover their tracks.
9. Always Question Something
When signing checks always question something. Pick up the check and invoice backup and walk across the office to the accounting department to ask a question. It sends a strong message that you are paying attention to what is being paid.
8. Separate the Check Issuing and Bank Reconciliation Functions
The person who writes the checks should not be the person reconciling the account. By separating these duties, you increase the likelihood of preventing and uncovering employee dishonesty. It is easier for a dishonest employee to cover their tracks when they are handling both functions.
7. Never Sign a Check Without an Original Invoice as for Backup
Impose the discipline of having an invoice to support every check. If there isn't an invoice why are we sending a check?
6. Have All Client Payments Sent to a Bank Lock Box
One trick that dishonest employees can use is to open up a bank account in the company name that only they know about. They then deposit checks to this account and cover their tracks through clever manipulation of the deposit records. Having the checks sent directly to the bank lock box reduces the opportunity for this to happen.
5. Have the Bank Statement Sent to Your House
Open the bank statement yourself and review the canceled checks for irregularities. When you get to the office, ask to see the backup for a few checks that were issued. This will send a message to the accounting department that you are on top of things.
4. Don't Issue Corporate Credit Cards Unless Absolutely Necessary
Corporate credit cards are another opportunity for employees to "sneak through" personal expenses at the expense of the company. If you do need to issue corporate credit cards, impose dollar limits on each card and force employees to turn in expense reports with original receipts as support for their expenses. Only then issue a check for payment.
3. Use Special Caution in Signing Checks to Credit Card Companies and Utilities
One of the more clever ways of cheating the company is to make a check out to, say, American Express and asking a partner to sign the check. The employee then makes out another check to American Express for the same invoice and asks a different partner to sign the check. The employee then sends the second check to cover their own American Express bill. It is a good idea to trace through the credit card and utility payments to make sure you haven't been the victim of this scam.
2. Don't Count on Your Accounting Firm to Uncover Employee Theft
A routine audit of your company's books will normally not uncover employee dishonesty. Most accounting firms lack the experience required to uncover employee fraud and it is not the focus of their audit.
1. Trust but Verify
Yes the employee has been with you since the beginning and has shown tremendous loyalty and you trust them immensely, but this is a poor excuse for not implementing internal controls that reduce the chance of employee embezzlement. If you didn't trust them they wouldn't be in a position to steal from you, would they?
Herbert M. Cannon, president of AEC Management Solutions Inc. and publisher of AEC Managing Partner Newsletter, is a management consultant, seminar provider, and speaker exclusive to the A/E industry. He is available to speak at company meetings and conferences. For more information, contact Herb via e-mail. Or visit his Web site.[ return to top ]
25th Annual NSPE New Product Award Call for Entries
Know of a process, machine, or material developed in the U.S. that improves the public’s standard of living? If so, it may be eligible to enter the 25th Annual NSPE/PEI New Product Award competition.
Winning products will be honored with the NSPE/PEI New Product Award crystal and are entitled to use the coveted NSPE/PEI New Product Award logo. Winners will also be recognized in the “Winners Circle” ad in PE magazine, in NSPE online and print communications, and through significant media coverage.
All 2008 NSPE/PEI New Product Award entrants will have the opportunity to showcase their product during the NSPE Annual Conference and will receive two complimentary tickets to the NSPE/PEI New Product Award presentation.
Submit your entry by February 15, 2008.
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NSPE Education for You and Your Firm
December 5, 1:30–3:00 E.S.T.
It’s Who You Know: The Power and Process of Building Your Network
Dan Ryan, The Human Capital Group Inc.
December 6 , 1:30–3:00 E.S.T.
Essentials in Cyber Law: Domain Names, DMCA , Cyber Squatting & Trademarks
Rick Martin and Michael Dockins, Attorneys at Law, Fraser Clemens Martin & Miller LLC
Intellectual Property and Technology Law
More information and registration form
April 9-11, Alexandria, VA
2008 Human Resource Directors' Roundtable
Topics for the 2008 schedule include: m ergers & acquisitions, HR support of the CEO, staff career development, employee engagement, generational diversity in the engineering firm, employment branding, the ever-popular open discussion sessions, and much more!
June 12-14, Alexandria, VA
2008 CFO Roundtable
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What's Your Expertise?
NSPE is looking for presenters of technical topics for web seminars and for the 2008 annual conference in Portland, Oregon July 24-26. Topics of interest include: structual engineering for non-structural engineers, HVAC, civil engineering for non-civils, basic instruction in fire protection, water/wastewater, etc.
NSPE welcomes proposals from experts in their respective fields: NSPE members, non-members and vendors. Submit proposals online for Portland. Contact Mary Maul, director of education, for more information about presenting a topic on a Web seminar.
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Survey Indicates 'Soft' Market for Professional Liability Insurance
A softening of the insurance market spells good news for engineers’ and architects’ professional liability insurance rates, according to a recent survey of 15 leading A/E insurance companies.
The annual nationwide survey—carried out by NSPE’s Professional Engineers in Private Practice and the Risk Management Committees of the American Institute of Architects and the American Council of Engineering Companies—compiles information relating to coverage, exclusions, claim trends, and the history of insurers, among other topics.
"Barring any significant catastrophes, such as hurricanes, insurance surpluses will continue to increase," writes Neil Van Dyke, P.E., in the December issue of PE. "When surpluses are combined with aggressive insurers, the result will be downward pressure on premiums and a so-called soft market for insurance."
In the December issue of PE, you'll have access to a directory of professional liability insurance providers and an overview of survey responses, as well as Van Dyke's complete article on insurance trends and an article on how to get the best from your insurance broker. You can also download a spreadsheet of the 2007-08 Professional Liability Survey results from the NSPE Web site.
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