What Protection Do You Have Against Employee Theft?

Theft of business assets by employees is very common, and is growing because of the complexity of today’s business environment and new electronic technology which enable this type of crime.

It is not governed by size of commercial enterprise, type of asset, or economic environment. It consists of cash, balance transfers, securities, and all other types of property owned by clients. Most often, employee theft is governed by type of lifestyle when an employee has a desire to maintain a certain standard of living not warranted by their normal income. It commonly occurs by members of an accounting or finance department who have access to electronic books and records which can be manipulated to afford them a flow of income not otherwise attainable.

Some examples are:

• An Accounts Receivable clerk defrauds the bank deposit for the firm and takes the balance in his/her own account.
• A member of the Accounting department takes cash and pockets it, never sending it on to the bank, and falsifies the payor’s records.

Often, the mindset of the criminal in these cases is one of entitlement. They feel that their work product or effort is equal to those in other parts of the firm, and therefore they should be paid equally; thus, the justification for stealing from the firm. Fortunately for the business owner, insurance protection is available (for many decades) to protect against this risk. It is known as “Employee Theft Coverage” and can be purchased separately or as part of packages that include other forms of money and securities coverages. For small businesses insured on business owner’s polices, usually a small amount of protection is automatically included under $25,000 in limits.

Here are important features of this valuable coverage:

• Only employees are covered against their wrongdoing; independent contractors and others who have relationships with businesses do not come under this protection for their wrongdoings. Be sure to include temporary or part time persons as covered persons because they are often the wrongdoers in these crimes.
• Other persons can be covered for their wrongdoings, but not by this coverage.
• For persons in collusion, the amount of insurance is blanket instead of per person, so be sure to choose a limit high enough to cover each occurrence.

A theft of employer’s property over a period of time is one occurrence, and therefore is subject to one amount of insurance, even if multiple policy years are involved.

The protected, named insured is the business, usually a corporation or LLC. However, in the case of entrepreneurial businesses, individual person’s names can be added with a carrier’s prior permission when crafting the insurance policy.

There are only three ways to prove your loss in general: 1) Catch the culprit in the act; 2) Get the culprit to admit his/her wrongdoing; or 3) Show that there is no other plausible way that the loss of assets could have occurred were it not for an employee or group of employees stealing from the company.

Certain definite timelines must be met after discovery. Notice to this agency and their insurance carrier is critical, as is the time limit for submitting a proof of loss, which is the formal document demanding money from the insurance carrier for this crime.

The insured must also agree to prosecute the wrongdoer in order to be paid. Refusal to do so will result in non-payment of their claim.

Finally, at this time, loss of business assets via electronic means is still covered as long as committed by an employee. Today’s electronic media policies (cyber liability protection) do not cover this risk, so it’s important to evaluate your exposure to loss via this ever-expanding technology.

To discuss the coverage and limits available by this valuable protection, please call or email the Fedeli Group or the author of this post.