Although it’s said that honesty is the best policy, many companies should consider a different kind of policy one that covers dishonesty. Employee theft/dishonesty coverage protects companies against the loss or damage of property by the unlawful taking of that property by an employee.
“Employers need to set in place proper procedures and documentations to protect against employee theft within their organizations,” says Rick Theders, CEO of Clark-Theders Insurance Agency. “Then, insurance is always an option coverage that would respond if employee theft or dishonesty came into play.”
Smart Business spoke with Theders about how employers can protect themselves from employee theft and dishonesty.
Why should businesses consider purchasing employee theft/dishonesty insurance?
If you’re a business owner and your business is robbed, your property insurance would respond to that theft. But employee theft is not covered under property insurance policies. Instead, you need to purchase insurance that would respond to an employee who takes your property.
Typically, we think of embezzlement as the biggest area of concern. But theft of inventory or cash is also common, and that type of theft is typically a repeated occurrence. For example, an employee in a retail establishment might take $20 out of the cash drawer. If the employee gets away with that, a few days later, he or she might do it again. If that employee is still not caught, he or she might escalate the theft to $50. That same example holds true for people embezzling larger sums of money.
It’s immaterial if the theft is cash, check or misdirected deposit into someone else’s account. Employees have even directed credit card payments from business customers into their personal accounts through electronic bank activity. The insurance would respond to reimburse the business owner for that theft of money or property.
How can employers ensure they are protected?
Employers must have the necessary controls in place, but back them up. Make sure you do appropriate employee screening, check backgrounds, and if something still happens, that is why you buy insurance.
Insurance responds if something happens. But better pricing comes when the buyer acts proactively to protect businesses or homes by eliminating the possibility of loss. Someone with a perfect driving record ought to get a better price on car insurance than someone with two DUIs. The same thing holds true with precautions for employee theft.
Also, employers need to pay attention to the form of insurance they purchase. One type covers a claim ‘upon discovery,’ which would cover multiple thefts by an employee or group of employees. This would be considered one claim with one deductible. Another form covers claims on a per-theft basis, in which each theft would carry a separate deductible. It is very important to understand which form you have.
What can employers do to reduce the risk of theft?
As with any other precaution put into place, you must establish and communicate your expectations of your employees. Let them know they are not to take the company’s property. Then, establish antitheft policies so everyone is aware that theft is not going to be tolerated. Employees need to understand that if theft is suspected, it will be pursued with the necessary legal authorities until the matter is resolved.
Educate your employees that theft comes out of their paychecks. That is income the business never had the opportunity to earn. Theft affects the business’s bottom line, so it’s in everyone’s best interest to keep an eye out for inappropriate actions or behaviors.
Also, pay attention to employee behavior. Someone who is coming in early and staying late, or spending time in an area where they don’t belong, is a red flag. Encourage employees to report suspicious behavior to management.
Keep an accurate inventory. If you have 100 TV sets, sold 20 and bought 30, you should have 110 sets. If it turns out that you have 105 sets, either your business practices or sales tracking is sloppy, or someone has taken those TVs. Management should pay attention to its inventory controls.
How can employers pinpoint potential theft risks?
Many companies are doing background checks when hiring employees. Check their records for a history of theft or any other criminal activity. If an employee has a history of theft, don’t put that person in a position where he or she would be tempted, or set up the necessary controls so the behavior would be found and stopped.
From a money standpoint, employers should be concerned about embezzlement. In that regard, the best protection is the establishment of procedures and policies that control access to the business’s financial income. Part of the application process that businesses must go through when purchasing employee theft or dishonesty coverage checks off whether the company has established those policies.
For instance, do you have dual signature requirements on checks issued by your business? If the answer is yes, that means the president and vice president, or the president and the CFO, both must sign. That makes it more difficult for theft to occur unless forgery is involved. Forgery is a criminal act, so the insurance wouldn’t respond to it.
Does having policies in place aimed at preventing theft in the workplace affect rates when purchasing this insurance?
Yes. If your business has many established controls and protections against employee theft of inventory, then you should receive additional credit or a better premium than a business that does not have all of those policies and procedures in place. The more stringent precautions you take, the better your rating will be.
Rick Theders is the CEO of Clark-Theders Insurance Agency. Reach him at (513) 779-2800 or firstname.lastname@example.org.