CAMICO insurance tip of the month: managing embezzlement risks.

Public or "jury standards" dictate that CPAs follow professional standards, uncover fraud in all engagements, advise the client of all significant matters, document, and "get it right."

While uncovering fraud in all engagements can be difficult, it is less difficult to advise clients about their exposures to embezzlement. Such advice should be provided in consultations and letters that:

1. Warn about the general risks;

2. Suggest the steps clients can take to reduce the risks; and

3. Offer annual CPA services to help reduce the risks.

Also, perform due diligence on your own firm's internal financial controls and security controls, especially if your firm's CPAs or their staff have signatory or check-writing authority over client funds. This will help minimize the exposure to a firm employee embezzling funds from a client, from the firm, or from both.

Professional liability policies generally include an "innocent insured" provision that protects the firm when a member of the firm's staff...