My Employees Would Never Steal From Me. Would They?

Make no mistake, every business is vulnerable to employee theft. And in today's economy, employee theft is on the rise. If your firm is hit by employee theft, whether of the firm's funds or client funds, the firm and its principals must absorb the loss. With proper planning, however, you can prevent losses, or be protected if one occurs. Let's start with some facts about employee theft:

• One third of all employees admit to stealing from their employers
• The median loss from employee theft is $175,000; oddly enough, for small businesses, the median loss is $200,000
• Employee theft schemes take place on average over an 18 month period, and most are discovered by accident
• The average employee committing theft is a trusted employee of 6 years or more!*

These are truly alarming facts. The intent of this article is not to make you suspicious of your employees, but to make you aware of the risk of not taking the proper precautions. Here are some controls to help your business to prevent and minimize the opportunity for employee theft losses:

• Annual audits by an outside firm, including inventory, if applicable
• Bank accounts reconciled by an employee not authorized to deposit or withdraw funds
• Large checks should be countersigned and should be accompanied by supporting documentation, approved by a designated member of management
• Employees that handle funds should take annual vacations of at least 5 consecutive days

Thieves are often quite smart, so even with controls in place, employee theft may still occur. This is why all businesses should obtain Employee Dishonesty insurance. The cost for this insurance is minimal compared to the potential loss.

You can protect against Employee Dishonesty in different ways. To get the best coverage with high limits ($500,000 or more), purchase a Crime Policy (also known as a fidelity bond). It may also be possible to include lower limits for Employee Dishonesty on your Business Owner's Policy. Finally, don't forget the theft exposure to your 401(k) or other retirement fund. Coverage for ERISA can be obtained in the same way as employee dishonesty, and is sometimes packaged with employee dishonesty coverage.

*Statistics reported from the Association of Certified Fraud Examiners, 2008 Report to the Nation on Occupational Fraud and Abuse.

Adam Pierce, AAI, is the Director of P&C Operations at Lawyers Insurance Agency. For more information, contact Adam at 800.662.8843 or adam@lawyersmutualnc.com