3 Reasons Why Your Small Business Needs Improved Crime Insurance Coverage

New York Crime Insurance for Small BusinessesYet another news story has cropped up illustrating how easy it seems for employees to rip off their employers.  This story comes from St. Louis where a trusted employee stole over $2M from her boss over a period of ten years.  The employee’s duties included taking care of the employer’s personal affairs, paying his bills and managing his personal schedule.  You can only hope that the employer had some crime insurance to mitigate this sort of claim.  

As you can imagine an employee with this level of personal interaction with her boss garners an extreme level of trust over the years.  You may even have someone like this working for you doing similar duties.  What the crook’s boss did was sign blank personal checks that were supposed to be used for paying HIS bills, instead, the employee made those checks payable to her and deposited them into her own account.  Pretty brazen, right?

To cover up her crime, the employee intercepted the bank statements coming into the office where she removed and shredded the incriminating cancelled checks!  She also falsified entries into the boss’s bookkeeping system to further cover her tracks.  Simple enough!

What got her caught?  Like many other embezzlers, her downfall was her vacation.  While she away another employee was able to review banking information and the jig was up!

Now you may be thinking, “Who would ever sign a blank check?” – But in a small business, it’s probably done with regularity for any number of reasons.  The key is making sure you have a “check and balance system” to know and verify who the check was payable to and that it’s legit.

Beyond signing blank checks, frauds and embezzlements are rampant.  Only a small fraction of actual employee thefts ever make the news because employers don’t want to look bad or foolish in the press, or they may want to remediate the loss on their own terms.  So, what is an employer to do?

Basic Risk Control would mandate some separation of duties.  Those with check writing authority should be separated from those that reconcile accounts and make deposits.  Reconciliation itself is a form of internal audit and should be done monthly.  External audit is another method to control risk and depending on the size and complexity of your business, having your accounting firm audit your records can also be a good way to detect frauds.  It seems like every embezzler gets caught either because they become too brazen and flaunt their fraudulent wealth, or they go on vacation.  Vacations for bank officers of certain duration were mandated years ago for this exact reason – to catch embezzling.  In many of the cases of employee theft, the worker embezzling money was thought of highly because they were such a hard worker and never took a vacation!  There’s a reason for that, they know that if they are not there to catch that bank statement in the mail, or watch over the books like a hawk, they’ll get caught!

The common Business Owners Policy – or BOP for short does contain some coverage for employee theft and other forms of crime insurance.  Typically, the limits are going to be around $25,000 for employee dishonesty (theft) and $5,000 to $10,000 for Forgery & Alteration coverage.  Be aware that not all BOP forms are the same and some policies may contain NO employee dishonesty coverage at all!  In the case cited in this article, the employee stole $2 million, a $25,000 limit isn’t going to go very far in covering that loss!

The other reason why business owners should improve their crime coverage beyond the basics of a BOP policy is because it’s cheap!  We just quoted $500,000 in additional limits for a client and the annual premium was only $90!

Every business is different and has different needs when it comes to crime insurance.  Careful examination of your exposures and risk controls are necessary to tailor the crime policy to your specific needs.  But here’s the deal:

  1. You are exposed to loss when it comes to crime exposures, especially employee dishonesty, computer fraud, and funds transfer fraud.
  2. Controlling those exposures is not that difficult – following basic accounting procedures will help mitigate most of your exposures to loss, as will firewalls, advanced use of “tokens” for transfers, or multiple signatures.
  3. Crime Insurance is affordable and necessary to protect you and your cash for those instances when risk control is breached or outside forces outside of your control gain access to your money.

It really isn’t that difficult to think up potential exposures to loss and create a nightmare scenario for yourself.  Gain peace of mind with the right crime insurance protection.

For more information, please contact us for a conversation by completing the contact box above, or calling 800-287-4115!