Cyber Liability in the News

Inc.com and the Wall Street Journal have both released stories this week on cyber liability insurance.  Inc.com’s article highlights 6 reasons why a firm should carry the insurance.  The WSJ article carries the ominous title “Most Small Businesses Don’t Recover From Cyber Crime” and  explains that half of small businesses go bankrupt after a network security breach.

The dangers of a cyber attack are varied and include loss of confidential client information, loss of company trade secrets, business interruption while servers are inoperative, lost revenue from failed client transactions or lost clients altogether.  The risk is growing as more and more business is transacted online and via computers and many companies are looking into the insurance – if not already purchasing.

When buying cyber liability insurance, it is important to note that not all coverage is created equal.  This area is growing and developing each month.  No policy form is the same, so it is important to have knowledge of some items that you may want to consider when purchasing:

•  Do you have need for first party coverage, third party coverage or both?
•  How does the cyber policy coordinates with your existing general liability and errors & omissions insurance?
•  Since each form is different, it is important to check each option’s exclusions and exact coverage wording.
•  Insurance you already purchase may include a limited amount of cyber coverage automatically.  Know whether this is adequate for your company or if more should be purchased.
•  Know what ancillary coverage a policy has. This can include – breach prevention services, risk management, and legal services when a breach occurs.
•  Note the sublimits of coverages – notification costs, forensic costs, credit monitoring costs
•  Be aware of whether the options cover business interruption expenses.

Purchasing Cyber Liability is multi-faceted.  Contact us to discuss whether this policy may be right for your accounting firm.

Firm Ordered to Pay $50.9M for Poor Asset Management

In February, the accounting firm Anchin, Block & Anchin LLP was ordered to pay $50.9M to a former client in a judgement against the firm.  The former client, a novelist, claimed that the firm made inappropriate investment decisions with her monies which cost her most of her fortune.  She also claimed that the firm interfered with her writing by failing to find a suitable replacement house as the firm oversaw the renovation of her home.  Anchin says they are exploring an appeal.

Discretionary Asset Management opens a firm up to many allegations, explains InsureAccountants.com.  As this type of service is showing up up more frequently in courts, it is important that a firm is adequately prepared for a lawsuit in this area.  Contact us to discuss ways to protect your firm.

 

 

 

 

 

 

Express Scripts Sues E&Y for Theft

Express Scripts – the healthcare and drug fulfillment company – has brought suit against its auditors Ernst & Young for allegedly taking over 20,000 pages worth of digital information.  The suit explains that a personal email was used to send details about Express Scripts’ pricing practices, strategy and performance metrics to Don Gravlin, a partner of the firm.

While theft and illegal activity is not insurable, InsureAccountants.com explains that the defense of such allegations and suits brought against the managing partners of a firm for breach of care might be.  Contact us to discuss ways to best protect your firm.

 

 

 

 

 

 

$123M Tax Shelter Settlement

Ernst & Young LLP agreed on Friday to $123M settlement a with the Manhattan U.S. Attorney’s office to avoid criminal prosecution over allegations they helped wealthy clients illegally avoid or defer $2B in taxes.

The tax shelter group at E&Y was disbanded in 2003 and the settlement is over advice dispensed from 1999 to 2002.  KPMG agreed to a similar $456M settlement in 2005 and BDO agreed to a $50M tax shelter advice settlement in 2012.

KPMG Has also been in the news recently for their STARS and SLOTS tax shelter programs that have been closed down by the IRS.

InsureAccountants.com is working with their clients to protect themselves against growing costs of government investigations and provide risk management services in the event that any client was recommended a tax shelter later proved inappropriate.

 

 

 

 

 

Mike Tyson Sues Financial Planning Firm

Former boxer Mike Tyson has filed suit against his financial planning firm of SFX Financial Advisory Management Enterprises – a Division of Live Nation.  Tyson alleges that SFX stole money from his account which led to additional issues that caused $5M in total damages.  The attorney for Mike Tyson stated that “[the Tysons] have a legal team in place with unlimited resources to make sure [they] receive justice.”

InsureAccountants.com explains that while the attorney for Mr. Tyson stated that they plan to pursue the case with “unlimited resources”, most firms  can only fight a lawsuit with limited resources – limited to their assets and their insurance policy.  If an accounting firm provides discretionary asset management services, the limits of liability they carry should be greater than if they did not perform those services.  Contact us to discuss what limits of liability and coverage enhancements are available and appropriate for financial planning firms.

 

 

 

 

 

PCAOB Releases Report on Firms with Fewer than 100 Public Audit Clients

The Public Company Accounting Oversight Board (PCAOB) released its report on accounting firms that audit fewer than 100 public companies each year.  The report outlined that the number of firms having a practice deficiency has remained stable from the prior report’s period of investigation.  The PCAOB also notes that some firms do not seem to be actively improving their public company practice even though it was recommended to many of them.

InsureAccountants.com would like to remind firms that performing audits on public companies is the highest risk area of practice that a firm can engage in.  This exposure requires good internal controls and a sophisticated review of the accounting firm’s professional liability insurance policy.  The right policy language and limits can greatly help a firm in lawsuits, regulatory inquiries and subpoenas.  Contact us to discuss your firm’s insurance program.

 

 

 

 

 

 

Update: Dixon, IL Sues Auditor in Embezzlement Case

The city of Dixon, IL became famous last year for being the epicenter of the nation’s largest municipal embezzlement case in history.  Dixon Comptroller Rita Crundwell was discovered to have stolen over $53M dollars from the city through check kiting and other methods.  The city is now turning to its auditors to reimburse for the loss and to find why they did not discover the fraud earlier.  CliftonLarson is accused of using a local CPA as a front for the work.  The local CPA would sign the city’s audit but CliftonLarson would be doing the work.  The city claims accounting malpractice occurred because  neither party did more than compilations and failed to see the blatant trail of clues which would have led to Ms. Crundwell scheme earlier.

The latest turn in the case raises a serious warning to all audit firms, explains InsureAccountants.com.  Taking shortcuts or failing to perform adequate due diligence in any engagement can lead to costly mistakes – even if they are not as large as this mistake.  Being used as a front also carries risk.  The local CPA who did not perform any work (but who signed off on the audit) is also being brought into the lawsuit.  Contact us to discuss ways to better protect your firm and be assured that the adequate level of insurance is carried.

Former Grant Thornton Partner Arrested for Theft of $4M

Craig Horton, a partner of the accounting firm Grant Thornton until 2012, was recently charged with fraud.  The allegations explain that Mr. Horton changed his client’s invoice forms to reflect a mailing address of his personal office.  He would then deposit the client’s payment in an account he controlled.  It is alleged that $4M was stolen from Grant Thornton in this scheme.

InsureAccountants.com would like to remind firms of two import points.  The first is that employee theft insurance does not typically cover partners stealing from the firm.  If this coverage is desired, it is important to work with an experienced broker who knows how to cover this exposure.  Secondly, this situation highlights the need for strong internal controls and invoices to be sent from a department not in charge of reconciliation of those client accounts.  Contact us today in order to learn whether your insurance is adequate to cover this type or risk.

Accountant’s Personal Policy Excludes Client Data Loss

A United States Court of Appeals has settled a coverage dispute between an accountant and her home insurer over client data she lost.

The accountant had a CD with 30,000 individual names and social security numbers of a pension fund she was working with stored in her car. When the CD went missing the fund paid over $200,000 to provide credit monitoring to the persons involved and came after her to reimburse them.

The accountant attempted to file a claim under her home insurance policy, which the court of appeals ruled did not have to provide coverage.

InsureAccountants.com reminds it’s clients that with the growing costs of protecting confidential data almost all insurers have excluded coverage for these types of claims under their policies. Work with an expert broker to ensure the coverage you need is place on it’s own or rolled explicitly into an existing policy.

Court Decides that the IRS Cannot Regulate Tax Preparers

U.S. District Court Judge James E. Boasberg ruled on January 18th that the IRS does not have the authority to regulate tax preparers and force them to undergo testing or take continuing education classes.  The ruling explained that congress never gave the IRS authority to regulate tax preparers and that the IRS cannot give themselves that power.  The PTIN requirement is not effected by this ruling.  The IRS still has the option of appeal.

InsureAccountants.com adds that tax preparers might not have a duty to continuing education any longer, but a mistake can still cost them.  An accountant’s professional malpractice lawsuit can arise from any error in preparing taxes.  It is important for each preparer to remain diligent about properly filing taxes and to consider professional liability insurance as an additional means to protect themselves and their firms.  Contact a licensed broker today to discuss how insurance and risk management can help protect your firm.