Risk Management – Professional Indemnity Insurance for Accountants
Why do Accountants need PI?
If you’re a Public Practice Accountant, then it’s likely that at least on one occasion you have woken up during the night drenched in sweat, wondering if that nightmare about miscalculating your client’s tax return really happened. Sound familiar?
Accounting firms are fast-paced, high pressured environments where errors and omissions do unfortunately come with the territory. Rushing to complete tasks within super tight timeframes, especially during tax season, there just isn’t always time to double check work for errors. Speed and accuracy are two qualities most commonly expected of Accountants.
As an Accountant, at some point in your working life, there is a good chance that you may have entered the wrong digit in a calculation or forgotten to include some vital detail when preparing a tax return. Well, you are amongst good company. Even the most astute and methodical Accountants occasionally get it wrong.
However, any mistakes that you make, no matter how seemingly minor in nature, can have devastating consequences for your clients.
If one of your clients suffers a financial loss as a result of an error or negligent act on your part, then you can almost guarantee that client will be seeking compensation from your firm. If a claim becomes litigated, this can strain your business in a number of ways.
Long running legal disputes are time consuming and often require companies to pay massive settlements in order to compensate victims and cover exorbitant legal fees.
If a case receives extensive media coverage, this can stain your business’s public image and you will most likely require an expensive Public Relations firm to help restore your reputation.
Without a Professional Indemnity Insurance cover in place, these expenses could have a devastating impact on the financial wellbeing of your business. Litigation settlements and the associated costs have the potential to destroy uninsured accounting firms.
Professional Indemnity Insurance and CPA membership
When looking to purchase PI cover, there are a number of factors that you will need to first consider. Your Accounting business will require a tailored package that can sufficiently cover all of the associated risks. An experienced Insurance Broker can guide you through the process of selecting the right cover.
Accountants hoping to become members of the professional Accounting organisation – CPA Australia, will need to have adequate PI cover in place. The CPA website contains a specific list of regulations pertaining to PI that Accountants hoping to become CPA members must firstly meet.
Common Accounting risks
Professions with a high degree of responsibility also often attract the most risks. Accounting is no exception. Offering financial recommendations to clients on such serious and complex topics as taxation and superannuation requires the utmost standards of care, integrity and precision.
The Accounting landscape is constantly evolving. Accountants need to keep up-to-date with the latest changes to industry legislation and technology in order to continually deliver exceptional services to their clients.
Not surprisingly, due to the demanding nature of the role, risks are always looming somewhere in the background of all Accounting firms.
Errors and omissions
Certainly one of the greatest risks posed to Accountants is errors and omissions. Working at such a frantic pace to meet end of Financial Year deadlines, Accountants often understandably make data entry errors or forget to lodge tax returns by the due dates.
In fact, mistakes on tax returns and calculating incorrect refund deductions can sometimes land their clients in hot water with the Australian Taxation Office. If one of your clients is penalised by the ATO due to a simple data entry error you made when rushing to process their return, you can expect to hear from their lawyers very soon.
Many Professional Indemnity Insurance policies include a fidelity cover. These protect Accounting business owners should one of their staff commit a deceptive action that triggers legal repercussions for the firm.
You can’t watch over their shoulders all day, so consider including a fidelity cover when shopping for your policy.
Accidental breaches of legislation
In such a legislation rich industry as Accounting, important laws can sometimes accidentally be broken. Statutory Liability Insurance is included in many Professional Indemnity Insurance policies to pay for any fines incurred for breaches of industry legislation.
Accounting firms are no less susceptible to ATO audits than any other business. Even the most reputable Accounting firms slip up from time to time. An ATO audit on your business can lead to hefty penalties and mar your business’s otherwise impeccable reputation.
Risk Management Tactics for Accountants
Whilst Public Practice firms are never entirely immune to litigation, as a Director, there are certain measures you can take to minimise your exposure to the more common threats faced by Accounting firms.
Consider the following ways to reduce your business’s vulnerability:
Stick within your area of expertise
Instruct all of your employees to never provide advice on a topic that is beyond their specialisation. If a client asks for information regarding a non-accounting, or even a different type of Accounting matter to what you specialise in, then recommend they consult a professional who works within that industry.
Get your client’s agreements in writing
Following a meeting with a client, write a summary of what was discussed and make sure that you’re your client fully understands the advice they received. Request they sign a form to confirm their agreement. If the meeting happened online or over the telephone, send them an online signature request.
Over time, as your business expands and diversifies, your Terms of Engagement must be frequently revised to reflect the changes. Furnish each of your clients with a copy of the amended document to review and sign.
Criminal background checks
Arrange criminal history checks for any candidates under consideration for employment with your firm. Ensure they understand that any Offers of Employment will be dependent on a clean police record.
You can also subject existing employees to random police checks to ensure they are still honourable and trustworthy individuals who are suitable for continued service with your firm.
Assess the risk factor of each client
Much like your staff members, certain clients can pose a threat to your business. Dedicate some time to researching the active clients you have listed in your database. Have they been involved in any lawsuits or public scandals? Maybe they have sued a company in the past.
Don’t devote too much time or take extreme measures to learn about them, just a quick internet search for each client should be enough. What did you glean from this? Do you consider it prudent to end the professional association? This is your judgment call.
While it’s never ideal to end a relationship with a fee-paying client, sometimes cutting professional ties with a troublesome or risky individual is a pre-emptive action that can prevent any harm to your business in the future.
Professional Indemnity with Berkley Insurance Australia
As a world-renowned Insurance leader, Berkley Insurance Australia provide comprehensive Professional Indemnity Insurance for a multitude of industries. For decades now, we have developed coverage for a range of business risks.
We understand the Accounting industry like few others, having protected the full spectrum of accounting firms, from suburban sole traders to Top 100 blue chips. Regardless of the size of your business, we can offer a policy that perfectly covers your unique business risks.
Below is a general outline of our Professional Indemnity covers:
- Errors and Omissions that arise when applying your specialist services
- Accidentally offering the wrong advice to a client
- Involuntarily false or confounding activities
- Inadvertent violations of Intellectual Property
- Matters of Contractual liability
- Deceitful and manipulative actions of employees
- Unintentional defamation
- Missing or destroyed files and documents
- Expenses and damages
Speak with your broker about how Berkley Insurance Australia can design a tailor-made policy for your Accounting business today.