Professional Indemnity Insurance For Bookkeepers
Holding adequate professional indemnity insurance is a condition of membership of the Institute of Certified Bookkeepers. Even those who are not members of a professional body should seriously consider the advantages of being adequately covered, however.
This should cover you in circumstances such as a client or even a third party pursuing you for compensation for allegedly poor work or some other professional issue which has left them out of pocket. Although there may be no error on your part and the claims may be unfounded, the reality is that defending against such claims can be as costly as paying out. This is where indemnity insurance comes in. You can get cover for yourself or your business from such claims and associated expenses.
If you or your company are responsible for the recording and management of a client's financial transaction, there is a great deal of responsibility involved. Any mistakes during this process could leave the client or a third party in financial difficulty, in breach of the law, subject to a fine or many other difficulties. Often damages, including legal costs, can dwarf the fees charged to the client in the first place, leaving the bookkeeping business in a potentially parlous financial situation. A properly constructed PI Insurance policy could, however, cover most of all of your financial risks leaving you free to concentrate on running your business.
Bookkeepers are prime candidates for needing proper indemnity insurance. Risks are high when dealing with any financial scenario, so proper protection is essential. Most clients are aware of this and many will insist on only dealing with professional people who are properly covered; your PPI policy could become one of your greatest selling points!
Bookkeeping is hardly a risky profession - is it??
When it comes to recording financial transactions, processing accounts, and dealing with purchases, sales, receipts, tax, and payments, many a thing can go awry. From small family-owned independent firms to commercial giants such as Tesco, it seems that the capacity to make a series of blunders is all too great. Here, we examine book-keepers' blunders large, small, and shockingly stupid- and all of which could have lead to the companies or individuals involved being jailed, or sued, or both.
Tesco's Book-Keeping Under Scrutiny
Tesco have recently been in the news after over-stating profits to the tune of around £263 million.
The Tesco scandal rocked both the City and the nation in late 2014 when it came to light: the story centred around dodgy book-keeping practices at the supermarket such as habitually booking rebates from suppliers too early, and putting off costs in order to give an appearance of larger profits. With 8 senior members of staff suspended from their duties and possibly facing jail time, Tesco's trading in the run-up to Christmas was severely jeopardised. With a full criminal investigation launched, many documents, digital records and other files kept by the book-keepers will have to be minutely scrutinised, a process which may take years, and potentially millions of pounds of taxplayers' money.
Although it is not believed that any individual personally profited from the financial fiasco at Tesco, and the Financial Conduct Authority has dropped its own investigation in the light of the criminal investigation, the dodgy dealings at the international supermarket chain have far-reaching implications. Tesco's accountants Price Waterhouse Coopers as well as its suppliers will have to examine their own book-keeping records to search for potential wrongdoing. It was once said that £1 in every £4 spent in Britain was spent at Tesco, but in recent times the supermarket giant has lost ground due to customers' preference for "top up" convenience shops, online shopping, and the burgeoning popularity of German discounters Aldi & Lidl. Rather than trying to fix the underlying problems in its business model however, it has been suggested that Tesco have preferred to fiddle their books to present a better picture and to stop further decreases in share prices.
Pensioner Misses Out Due to Book-Keeping Blunder
This story centres around Hartlepool pensioner Frank Harrison, whooverpaid his NPower bill to the tune of £1,196. While allowing the customer to overpay to such an extent was arguably the first mistake at NPower, matters were made worse as Mr. Harrison's direct debit was still set too high, and he was asking the company for a refund for a full three months before he contacted the local press where a journalist intervened on his behalf.
Following the unwelcome glare of publicity, NPower then promised to fix the problem they had caused by sending Mr. Harrison a cheque for the full amount owed to him. Unfortunately, the energy company made a further mistake by sending a post-dated cheque, which was rejected by the bank and returned to NPower unpaid- a basic book keeping error which could have easily been avoided. Happily, Frank Harrison was finally issued with his refund in a direct transfer to his bank in January 2015, but not before the power company's poor attention to its book-keeping practices caused further trouble and harm. Similarly, the pensioner's recourse to the national press has meant further, avoidable trouble for NPower.
Massive Fraud by A Book-Keeper in Kent
While some such as Frank Harrison have suffered due to book-keepers' mistakes, one firm was down £104,320 after its dishonest book-keeper Lauren Cherry diverted the company's money into 6 different personal accounts. Sadly, the small company where she worked had to close due to its losses, and four people permanently lost their jobs as a result (at the time of conviction, Cherry had no assets, and although she was sent to prison for 25 months, she only had to pay back a nominal £1 sum). While working for the small company, as a trusted book-keeper Cherry had access to the company's accounts, and started transferring significant funds to herself, which she then spent on designer clothes, jewellery, luxury holidays, and even presents and nights out for her colleagues. Motivated by greed and the desire to paint the idea of a happy life following a break up, Cherry's actions and bad book-keeping unfortunately had a devastating effect on lots of people around her
Identity Theft Risk Caused by Book Keeping Employee in Houston
A private book keeping company in Houston, Texas was left red-faced recently when it was discovered that thousands of documents containing sensitive personal information including names, addresses, social security numbers, tax reference numbers and other identifying information had been dumped in boxes by a skip. Texas law, in common with law in many other parts of the world, states that such documents need to be shredded or otherwise rendered illegible before their disposal. To make matters worse, federal taxes were involved in the matter, meaning that stricter, more serious federal laws came into play in this case. The company implicated, Bill's Bookkeeping Service, could now find themselves in extremely hot financial water as the fine for improperly disposing of such sensitive information is up to $500 per document- and the book-keeping employee involved was said to be a family member of the owner, promising to make family lunches and celebrations just a little more awkward in the future.
Book Keeping Mistakes Lead to a Bradford Garage Being Named and Shamed Over Failure to Pay the Minimum Wage
Arthur Simpson & Co., a Bradford based garage run by the same family for 98 years, was recently shamed by HM Revenue and Customs over a perceived failure to pay its employees the minimum wage following an audit. The apparent book-keeping error amounted to around £35 over three years, although once it was pointed out to the owner, Mr. Simpson fully cooperated with the tax authorities to repay his debts.
Unfortunately, Arthur Simpson's book-keeping woes did not end there. Thanks to a new government scheme which publicly names and shames businesses and individuals who fail to pay the minimum wage, Mr. Simpson's garage's failings were made public, along with 25 other employers' in the town, including a hairdressers, a hotel, and a car hire shop. Mr. Simpson was forced to pay £6,426.12 to the government, in addition to statutory fines, of which around £2000 went directly to the employee, who joined the garage as an apprentice, who has been underpaid over a number of years.
As we've seen here, book-keeping irregularities, even "innocent" ones such as those made by Bill's Bookkeeping Service in Houston and Arthur Simpson's Bradford garage, can lead to substantial fines and public humiliation for the businesses involved. When more cynical or avaricious individuals are implicated, such as fraudulent book-keeper Lauren Cherry, or the dodgy book-keepers looking to skew the profit margins at Tesco, then job losses, financial catastrophe, business liquidation and even jail sentences are a real possibility. It's a hard life for book-keepers, who are tightly regulated, and have to shoulder a lot of responsibility in a fast-paced world.
We do not give financial advice on this website. If in doubt get professional advice and always read the policy information before purchasing an insurance contract.