Professional Indemnity Insurance for Bookkeepers

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:

• Your hold a position of financial responsibility with your clients. This comes with a number of risks, as even a small clerical error could lead to substantial financial losses.
• Your clients may use the information you provide on their financial position to make business decisions, such as whether to hire more staff, invest in new equipment or continue relationships with particular clients. If you do not provide them with accurate information, those decisions could have negative outcomes for which you could be held responsible.
• You have access to sensitive financial data about your clients and you have a legal duty to keep that information confidential. If you should breach that confidentiality, for example by accidentally sending a file to the wrong client (say a competitor), you could cause your client considerable financial and reputational harm.
• If you provide account reconciliation services you are expected to detect and report any discrepancies. Should you make a mistake that causes an error fraud to go unnoticed, you could be held liable.
• If you face a negligence claim you risk losing your personal assets, as well as your business and reputation.

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.