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Given the current environment with the outbreak of the COVID-19 pandemic, now is the time to review your business interruption plans and take action. It is yet to be seen if losses due to interruptions caused by the pandemic will be covered in any business interruption policies or otherwise. That said, the pandemic is a great example of how fast things can change and why you should act now.
Business Interruption Insurance, often referred to as Business Income Insurance, is a type of coverage that provides for replacement of lost income in the event of a covered loss. As mentioned above, it remains to be seen if any losses associated with COVID-19 will be covered by insurance policies or some form of government program, but if it is deemed that coverage or other modes of reimbursement would apply, then companies deemed eligible or covered would be paid for some or all of the income lost while restoring the business to its original standing before the interruption occurred.
So, at this point, we know you are asking yourself, “What should I be doing right now to protect my business?” Based on our prior experiences with covered events and business interruption claims, there are many things you can do early on to ensure you are more prepared when the unexpected hits or, in this case, as a crisis is unfolding.
Here are the top three things you should be doing right now to position your business to make a claim for a business interruption loss:
#1: Ensure adequate recordkeeping
Many organizations believe they have sufficient recordkeeping when, in fact, they do not. Make sure you have copies of tax returns from prior years and that your financial data for the current year is accessible. In addition, make sure you know where source documents supporting your historical and current financial statements are located. Knowing where and how to access historical financial support documents can be extremely important in preparing a claim as many of the records necessary to support your claim may be outside of your tax returns and financial statements. As an example, bank statements, employee timekeeping records, vendor invoices, and other types of internal or third-party records are often necessary for preparing a well-supported business interruption claim.
#2: Know your policy
Don’t just assume your policy covers lost income due to business interruption. Read your policy and talk to your insurance broker or the insurance company to confirm your coverage. Also, understand that even policies that cover business interruption may have exceptions that are not covered. Another thing to keep in mind is whether or not your policy covers professional fees and employee payroll.
#3: Act quickly
When an event occurs, act quickly. Contact your insurance company and document everything you can. Many times business owners will try to calculate losses themselves, often unsuccessfully. As a result, you might want to consider hiring a forensic accountant with business interruption claim preparation experience. It is a common mistake to wait until late in the process to hire a forensic accountant, but we suggest that you engage experts as early as possible.
This is a challenging time. Understanding your coverage and having sufficient recordkeeping can give you peace of mind that your company is prepared and that you can act accordingly when the unexpected hits. As opposed to trying to perform a calculation yourself, a forensic accountant can help lend credibility to your claim by calculating income losses using methodology commonly accepted by the insurance companies and governmental organizations. Putting these action items in place while partnering with experts will allow you to put your focus back on normalizing your business operations.
Steven Jackson, CPA, CFE, is a Manager in Moore Colson’s Consulting Practice. Steven has 10 years of experience assisting companies with accounting and financial advice in forensic investigations and commercial disputes as well as providing financial and accounting analysis related to fraud investigations.
Tyler Wright, CPA/ABV/CFF, CFE, is a Director in the firm’s Consulting Practice. Drawing on 15 years of experience as an external auditor, internal auditor, and forensic accountant, Tyler provides accounting and financial advice in forensic investigations and commercial disputes.