As you have probably heard by now, actor James Franco has made the news – again. This time, however, the news is how he was allegedly defrauded out of money by his former talent manager and aided by his accounting firm. The lawsuit explains that the talent manager went to the talent agency and said that Franco would no longer pay 15% commission, only 10%. The agency agreed and moved on. The talent agent did not tell this to Franco, but instead took that 5% and diverted it to businesses and accounts he himself owned. The lawsuit also claims that the accounting firm aided in this scheme by hiding the accounting. The accounting firm of Tanner, Mainstain, Blatt, Glynn & Johnson have not made any direct comment to the press. They have filed a counter-suit against the talent agency claiming they were mismanaged, though.
This case brings up two important risk management issues. The first is the need for strong oversight of the relationship when working with high-profile clients. The entertainment industry continues to be high-risk for lawsuits due to the high dollar amounts handled. Rarely is there a “small” claim dealing with actors. Having a second partner or a committee review the relationships is a prudent step for any firm. Knowing when to disengage a client before a situation arises is often best done by an independent set of eyes.
The second risk management point to consider is proper oversight of the work product. While it was the talent agency – not the accounting firm – whose partner made the misrepresentation about the commission change, many accounting firms are working on commissions and the same situation could happen. Having two partners review the contract and work product of each engagement will reduce the risk of such fraud.
Contact us today to discuss further ways to protect your firm.