Small businesses and medium‐sized businesses are exceptionally vulnerable to crime events taking place “on the inside” of their businesses, including employee dishonesty, fraud, theft of property and computer‐based crime. The statistics are startling with 68% of all employee crime taking place in small/medium business for a loss of over $50 billion annually. Thirty‐three percent of business bankruptcies are due to employee theft, with a median loss of $290,000.
With many of these losses uninsured, business owners are looking for ways to avoid financial ruin. Suing their tax, bookkeeping or accounting professional is becoming more commonplace. Specifically, professional liability insurers are experiencing an increasing number of malpractice claims against all types of accounting professionals for “failure to identify” employee theft and dishonesty while performing audits, bookkeeping, reviews, tax preparation and payroll services. The illicit acts of an employee (or partner/management/ownership) include false vendor invoices, ghost employees, theft of valuable metals, computer fraud, credit card forgery, embezzlement and ERISA violations. The average time before fraud is detected is about two years and most instances involve small amounts of money over long periods of time. It is this last part that makes it difficult to detect crime as an auditor or tax preparer, but lawsuits are increasing nevertheless.
Accounting and bookkeeping professionals are amongst a business owner’s most trusted advisors, yet neither party might be aware of an insurance solution to employee crime. Often called crime or fidelity insurance, these policies protect businesses from the circumstances described above. Many of these offerings also feature broad ERISA protection, meeting the requirements of the frequently‐purchased ERISA bonds and negating the need for multiple policies. Policies should also include coverage for computer fraud and wire fraud transfer.
Recommending that a client consider the protection of a crime policy makes good business sense to for accountants, tax professionals and bookkeepers. Such a recommendation helps fulfill the fiduciary duties to the client. Documenting the recommendation, as one would document all communications with the client, further protects you should the client choose not to obtain coverage and attempt to sue at a later time. Remember, you do not need to know all the in’s and out’s of crime coverage, just that it is there. Making the referral to an insurance professional goes along way towards protecting the business owner, and your accounting practice.
John Torvi is the Vice President of Marketing & Sales at the Herbert H. Landy Insurance Agency of Needham, MA. John has been in the insurance industry, focusing on the needs of business owners, for over 28 years. He holds a Bachelors Degree from Providence College and a Masters Degree from Springfield College and is a frequent speaker and contributor to professional journals and conferences for the real estate, legal, accounting, and insurance industries.
The Landy Agency is a national leader in providing professional insurance services for attorneys, real estate professionals and accountants. John can be reached at 781‐292‐5417 or firstname.lastname@example.org. Or visit www.landy.com for more information.
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