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.