Can a bookkeeper be sued for mistakes in a client's books?

Yes. Common claims include negligence (errors a competent bookkeeper would have caught), missed embezzlement the client believes reconciliation should have surfaced, payroll tax deposit failures, and third-party reliance — a lender or buyer who used statements you produced. The engagement letter's scope and your contemporaneous documentation usually decide these disputes.

Do bookkeepers need errors-and-omissions insurance?

Any bookkeeper charging for services should carry it. E&O (professional liability) responds to claims that your professional work was negligent or wrong — including defense costs, which dwarf most actual damages at bookkeeping scale. General business liability policies exclude professional services, so they do not cover the risk that matters. Match the policy's scope to services you actually perform.

Bookkeeper liability basics: what you can be blamed for

Bookkeepers carry more liability than the modest fees suggest, because the damage a bookkeeping failure enables — an embezzlement that ran three years, a payroll tax hole, a loan made on wrong numbers — is priced in the client's losses, not your invoices. The exposure is manageable, but only structurally: scope in writing, documentation as a reflex, and insurance that actually covers professional work.

What bookkeepers actually get blamed for

Missed fraud. The classic: an employee embezzles for years; the owner asks why the bookkeeper's reconciliations never caught it. Sometimes the reconciliation should have caught it — that is negligence territory. Often the scheme (skimming, collusion) was invisible to books-level work, which is exactly why the engagement letter must state you are not performing a fraud examination, and why recommending the owner-level checks in internal controls for a five-person business — in writing — is both good service and good defense.

Payroll tax failures. Deposits late or unmade, filings missed. The government pursues the employer, but the employer pursues you — and where a bookkeeper actually controls which creditors get paid, trust-fund penalty exposure can, in bad facts, reach beyond the owner. If the engagement includes payroll, treat deposit deadlines as the least missable dates in the practice (Publication 15 and EFTPS mechanics); if cash is too tight to deposit, escalate loudly and in writing, per working with the tax accountant.

Third-party reliance. A lender, investor, or business buyer relied on statements you produced; the numbers were wrong; the loss is theirs. This is why statements go out labeled as unaudited, prepared from client-provided information — phrasing your engagement letter should fix.

Scope drift. The client "assumed you were handling" 1099s, sales tax, the works. Unwritten scope is decided later, by the aggrieved party. The parallel exposure on the tax side — and how firms fence it — is laid out in professional liability in tax claims; the fencing logic is identical here.

The documentation habit

Documentation is cheap while events happen and unobtainable afterward. The reflex, five entries:

Every judgment call: what you decided, why, dated.
Every client instruction that affects the books: confirmed back by email ("Per your call today, posting the $15,000 as a shareholder loan — reply if that's wrong").
Every warning: the unanswered question list, the controls recommendation declined, the payroll-cash escalation.
Every anomaly you noticed and referred onward.
The baseline reconciliation memo from onboarding, marking where your responsibility began.

In a dispute, the contemporaneous email beats the confident memory, every time.

E&O in concept

Errors-and-omissions (professional liability) insurance responds when a client or third party claims your professional services were negligent. What to understand at the concept level:

Feature	Why it matters
Defense costs	Usually the largest real benefit — defending even a weak claim costs real money
Claims-made coverage	The policy in force when the claim is made responds; keep coverage continuous, and consider tail coverage if you wind down
Scope of covered services	Must match what you do — bookkeeping, payroll if you run it, never services you quietly added
Exclusions	Dishonesty and knowing misrepresentation are excluded — insurance never covers the "make it look good" client you should have declined per client red flags

None of this is a reason for fear; it is a reason for structure. The bookkeeper with a signed scope, a documented file, and continuous E&O has converted an open-ended personal risk into a bounded business cost — which is what professionals do with risk.