When I receive a call about our forensic services, one of the first questions I ask is, “Does the company have theft insurance?”
The usual response is “Yes, we have insurance.” I ask for the policy. After examining the policy document in more detail, we collectively learn that they have standard business insurance, but that they are not insured from their employee’s dishonest acts of internal theft. In most policies, employee theft insurance is an additional rider, and many business owners are unaware of it.
Employee theft insurance can be called “Fidelity Insurance or Bond,” “Theft Insurance,” “Employee Dishonesty Insurance,” “Crime Fidelity Coverage” or “Commercial Crime Policy.” Regardless of what your insurance provider calls it, it is your responsibility to make sure that your business is covered. It is relatively inexpensive and, if you are a small business owner, it should be a basic staple.
Recently, we were engaged on two cases where the victim companies both had employee dishonesty coverage. In one case, the client was grossly under-insured and in the other case the policy failed to cover the cost of the forensic investigation and legal fees. In addition, the directors and officers insurance coverage was four times the coverage for employee theft—and this was a business with only one employee in addition to the owner. We have seen several instances of employee theft policies only providing $10,000 of coverage. Most forensic investigations exceed $10,000, and most thefts greatly exceed that amount.
Several years ago, we worked a case where close to $2 million was embezzled. The company has $1 million of employee dishonesty coverage. The theft, however, was by a personal employee of the company’s CEO, and against the CEO personally, and thus not covered by the corporate policy.
The purpose of this insurance is to protect the employer from theft by its employees. An employee dishonesty policy may state a loss limit, a per employee limit or even a per position limit.
We recommend that your policy cover unauthorized criminal acts committed by current and former employees for forgery, alteration, computer fraud, credit card fraud and electronic fund transfers fraud.
The amount of coverage is a business cost-benefit proposition. As is typical with most insurance coverage, the higher the coverage the greater the premium.
Like most insurance policies, you hope that you never need them, but if you do have an unfortunate situation, you are very happy you took the initiative to make sure that your company is protected. I regularly recommend that every business have some level of theft insurance. While most business owners don’t think it can happen to them, employee theft unfortunately occurs on a regular basis.
For more information on employee theft and other forms of white collar crime, contact Frank Suponcic at 440-449-6800 or firstname.lastname@example.org.
Frank A. Suponcic, CPA, CFE, CFF, is a partner in Skoda Minotti’s Valuation and Litigation Advisory Services Group where he regularly assists clients with fraud assessments, forensic investigations, economic damage claims, commercial disputes, divorce and labor relations. In addition, he frequently represents privately held business, nonprofit entities and individuals in an array of financial statement and income tax preparation and planning matters.