Does your insurance protect you from theft by employees?
by Theresa A. Kane, Director of Insurance Services
Unfortunately, news reports about employee theft and embezzlement are becoming more common.
Making matters worse, in many cases, the culprits are long-time employees, who’s equally long-standing pilferage is discovered by accident.
In one case, an employee opens the mail because the office manager is busy and sees the envelopes include payments from several clients. But a few days later when the employee checks the deposits online, she notices not all the checks from the other day are recorded.
A subsequent investigation finds the manager, beset by gambling debts, stole more than $85,000 over several years.
The Association of Certified Fraud Examiners says employee theft often falls under what it calls the Fraud Triangle; an employee has a financial need he or she can’t talk about; there is a perceived opportunity; and the rationalizes the decision to steal.
By its very nature theft by a trusted worker is unexpected – which is why prudent companies need to make sure their insurance includes dishonesty coverage.
Here are seven things to keep in mind when selecting the right employee dishonesty policy for your business:
1. Make sure you have enough coverage
While employee dishonesty policies cover the theft of money and property, your company’s reimbursement depends on the coverage limits. Because most embezzlement occurs over a period of time, losses can vary greatly. You’ll want to talk to an insurance professional who can help you weigh your risks and recommend an appropriate coverage level.
2. Discovery vs. Loss Sustained
There are two types of coverage that can affect your coverage limits: Discovery Form and Loss Sustained Form.
Discovery Form Employee Dishonesty coverage is the most common and pays the limit that is on the policy at the time the theft is discovered, regardless of how long the embezzlement occurred.
By contrast, the Loss Sustained Form allows you to use the policy with the highest limit of coverage during the years the embezzlement took place. That means if you had a higher limit in a previous policy and reduced it at some point, the insurance company allows you to use the higher limit to cover your losses.
Should a company opt for discovery coverage, an insurer may want to review the internal controls and practices in place before the policy period, as well as current safeguards. Without good controls in place, an insurance company may decline to provide a quote or write coverage.
When renewing or changing insurance, it is essential to have an insurance expert review the coverage to ensure all the discovery and loss sustained issues are understood.
3. Make sure the coverage extends to everyone
Employee dishonesty policies are just that – coverage that applies to paid employees, not owners or partners of the business. Endorsements can be added to provide coverage for volunteers, non-profit board members and partners.
4. Client protection not a given
If one of your workers steals from a client, coverage depends on whether your policy includes “third party” coverage. Standard employee dishonesty coverage does not cover theft of your customer’s money or property by your employee. You must ask for the coverage to be added.
5. If you know about a worker’s criminal background, your policy may not cover that employee
It’s not unusual for companies to do criminal background checks on employees and still hire a good candidate even if they made a mistake in their past. But if an employee committed a “theft’’ or other bad act before being hired – and you know about it at the time of hiring or find out later – that worker will be excluded from your company’s employee dishonesty coverage. That means if they steal from your company, your policy won’t cover the loss.
6. Investigations are extra
When theft or embezzlement occurs, a company typically faces additional expenses to determine who committed the crime and the size of the loss. These investigative costs – which could include attorneys and forensic accountants – are not covered by regular employee dishonesty policies. Some coverage for these costs may be part of your Business Package policy, but you’ll want to talk to an insurance expert to make sure you have the protection you need.
7. Criminal charges
While the insurance carrier will pay your claim, filing criminal charges is up to you. The insurance company might file a civil suit against the employee to recoup the money it paid out under the claim.
An independent insurance review is a critical way to determine whether you are sufficiently covered against the possibility of employee theft, as well as making sure you have the right processes in place to protect your company against risk.
In addition to offering insurance reviews, Boyer & Ritter’s fraud and forensic team — led by personnel who are members of the Association of Certified Fraud Examiners – have the background and experience to analyze your internal controls and suggest areas to strengthen. Our risk management services involve an integrated approach to help you prevent, detect, and investigate fraud.
Not only can an insurance and forensic review prevent costly and painful issues down the road, but employees who know there are active fraud control measures in place may be less likely to steal in the first place.
Theresa A. Kane is a Certified Insurance Counselor and director of Insurance Services with Boyer & Ritter LLC, where she provides unbiased insurance reviews and cost-effective guidance for clients’ coverage needs. Boyer & Ritter does not sell any insurance products nor favor any provider. Contact Theresa at 717-761-7210 or email@example.com