Written by
Shaun McGowanAs a Bookkeeper you are a qualified professional with skills and knowledge your clients may not have. This means that your clients have a legal right to rely on your knowledge, and to trust the accuracy of your work. Bookkeepers have a duty of care to process transactions correctly and on time, to maintain accurate financial records and to carefully reconcile clients’ accounts to ensure there has been no fraudulent activity.
The role of a Bookkeeper can vary enormously depending on the needs of your clients. In addition to keeping detailed records of a company’s financial transactions you may be responsible for invoicing, making and collecting payments, managing petty cash, administering payroll and superannuation contributions, collecting GST, budgeting and variance reporting.
If you make a mistake in any of these duties that causes your client to lose money or to make inappropriate business decisions, they may file a legal claim against you to reclaim their financial or business losses. Claims could include:
Even if you are implementing systems created by the client’s accountants or are following your client’s instructions, you could still be at risk of a negligence claim.
Professional indemnity insurance is a prudent investment for any professional offering independent or freelance Bookkeeping services. Unless you are employed by a Bookkeeping agency and covered by their corporate professional indemnity insurance, you will need a policy of your own to protect you against the threat of negligence claims. Here are some of the reasons why it’s so important:
You may already have public liability insurance in place to protect you for any physical damage you may cause to another person or their property, and for any injury incurred on your premises. You also need professional indemnity insurance, to give you cover in case one of your clients suffers a financial loss as a result of your actions, or an error you make.
Your professional indemnity insurance policy covers you for any damages that are awarded against you, up to the limit in your policy. It will also pay for your (potential very substantial) legal costs if you need to defend yourself a negligence claim - whether or not the claim is upheld.
As a Bookkeeper the premium for your professional indemnity insurance will depend on a number of factors, including:
A Bookkeeper was engaged to provide a range of services to an SME. Her duties included invoicing, making, collecting and recording payments in and out of the business, budgeting and variance reporting, maintaining financial records, providing data to the company’s accounting advisors, and conducting monthly reconciliations of all the company’s accounts.
The company was experiencing some cash flow difficulties, and on the client’s quiet instructions the Bookkeeper consistently withheld payment on a number of substantial invoices, even though these had been signed off by senior management. Over a period of several months the company acquired a reputation for unreliability, which ultimately led to the loss of a major client. This had severe financial implications for the company, and they decided to file a negligence claim against the Bookkeeper for her failure to pay the invoices in a timely fashion.
The Bookkeeper had no written record of the client’s instructions to withhold payment of the invoices, and was found to be negligent in failing to make prompt payment of the invoices that had been approved for payment. Damages of $147,000 were awarded against her and she incurred legal costs of $29,000 in unsuccessfully defending the claim. These costs were covered by her professional indemnity insurance, and she paid an excess of just $[xxx] on the claim.
As a qualified Bookkeeper providing any of the following services it is very important that you have professional indemnity insurance, to protect you from the risk of a negligence claim:
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Shaun
McGowan
Shaun McGowan
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.