Corporate Crime - How Fidelity Bonds May Reduce it's Impact on Your Business

Employee Stealing Cash

The industry refers to employee theft as white-collar crime – or corporate crime. Corporate crime refers to financially motivated, nonviolent crime committed by professional or government employees. 

A statistical analysis of corporate crime tells us that these types of crimes are on the rise. Employee Theft, Fraud, and other types of corporate crime cost organizations nearly $400 billion every year. The average company loses $9 per employee per day, and most of these losses happen in businesses with fewer than 100 employees.  Businesses lose 20% of every dollar to Employee Theft.

What is the one tool that businesses may use to mitigate their financial loss? A fidelity bond.

What is a fidelity bond?

Fidelity coverage, sometimes referred to as a fidelity bond, is actually an insurance coverage – the parties to the coverage are the Named Insured and the Surety or the Insurance provider.  It is different from errors and omissions insurance, which protects against honest mistakes. It’s also different from liability insurance, which protects against claims caused by injuries to others.

Standard Fidelity coverage is First Party coverage for the Named Insured to protect them from financial loss due to employee theft and/or fraud. It is written to protect the business entity.

Why are fidelity bonds important?

Employee theft is a concern for all business types. Fidelity bonds may protect the business against financial loss due to employee dishonesty/theft.

Common types of fidelity claims

Fidelity bonds may help ensure some solvency for businesses should they fall victim to a financial loss due to employee dishonesty/theft.  Many business owners trust their employees and don’t believe their employees would steal from them, but real life loss scenarios, unfortunately, tell a different story.

Here are some real-life examples of fidelity claims:

  • Restaurant employees can steal more than money from the cash register – i.e. food or liquor. Two employees had been taking shrink-wrapped cases of meat and stealing a significant amount of money in terms of food. They got caught.
  • Nursing homes and assisted living facilities have a potential exposure when employees have access to resident’s funds. In this particular case, a trusted employee friend of the nursing home’s owner stole $400,000 from the patient funds accounts. They got caught.
  • A company’s employee who has responsibility for handling deposits, withdrawals and reconciling the bank statement can easily hide a misappropriation of funds. An employee was able to fudge the deposit slips and deposit large amounts of cash into their own personal account and while this person was caught, it took longer (more misappropriated) due to the lack of internal controls.
  • An employee set up a few fake vendor companies and created fake invoices. That employee approved the invoices, and the company paid the fake companies – with the employee receiving the checks sent to a P.O. Box. He got caught when his department downsized and another invoice was already in the mail.
  • A bank teller was about to lose her vehicle because she was behind in making payments. She borrowed funds from her bank drawer with the intent to put it back.  A surprise audit found the drawer to be short. She didn’t know about the audit process in place. She got caught.
  • In a retail setting, the part-time worker responsible for upkeep of the store after hours was removing inventory that looked like a bag of trash. He would simply take it to his car. No oversight.  Easy access.  He got caught eventually.

These are just some examples of claim scenarios where the theft was discovered.  Think about all of those that aren’t found out – or haven’t been discovered yet.  How can you reduce the impact of theft like this on your business? A fidelity bond.

Fidelity bonds can mitigate your risk

It’s important to note that there are many types of fidelity bonds to choose from. A standard Fidelity bond offers First Party coverage for the business as discussed above.  There are also bonds which provide Third Party coverage for clients of the Insured.  For example:

  • ERISA bonds are required by the Employee Retirement Income Security Act (ERISA). These types of fidelity bonds protect the assets in employee pension plans from the dishonest acts by people managing the plan.  This is a first party coverage as the plan would be reimbursed under the bond.

Third party bonds include:

  • Business services bonds may protect companies or individuals that you’re providing with services from theft of client property by an employee of the provider.  This has often been referred to as a “janitorial” bond, but may be written for many types of businesses.
  • Specialty outside services bonds may protect customer property when your employees are handling it. For example, if you run a courier service and an employee steals something from a delivery, the specialty outside services bond may cover the damages.

All businesses should be concerned about employee theft. It’s a common problem, but businesses can protect themselves with the right type of fidelity bond.

Your business should consider a fidelity bond if:

  • Your business has assets you wish to protect.
  • Your business has valuable equipment or inventory.

There are a few workflow enhancements that a business can implement to help reduce the likelihood that a theft could occur. 

  1. Increase the difficulty of access to company assets.
  2. Be more aware of substance abuse or gambling addictions. These can lead to employee theft losses.
  3. Make sure there is ample oversight for positions that have access to company assets.
  4. In a retail setting, have security beepers on the back door as well as the front of the store.
  5. Have a clear inventory process often that would catch any abnormalities.
  6. Have segregation of duties over any position handling money. A single person should not be able to handle deposits and/or withdrawals and reconcile the bank statement.

Fidelity bonds are extremely useful tools to help protect businesses from employee misconduct. They are imperative for today’s business world, where corporate crime is increasing.

For more information about fidelity bonds and how they may protect your business and your customers, please contact your independent insurance agent. If you would like to be connected to an agent that Old Republic Surety is appointed with, please email us and we can get you connected.

Cynthia Combs

Cynthia Combs, Regional Director of Commercial Surety, heads our West Commercial territory, and is based in Portland, Oregon. Prior to joining Old Republic Surety, Cynthia was an Executive Leadership Consultant. She has over three decades of surety and insurance expertise, working for both national brokers and surety carriers and is a licensed Property & Casualty Producer in Oregon. Cynthia holds a degree in finance and has received many industry related awards throughout the years. "At the end of the day, it is my goal to provide exceptional service and find innovative ways to support my partners (both internal and external). It is about building relationships, pursuing passion and doing the right thing even when no one is watching - consistently going the Extra Degree!”