Just in time for Halloween, we have real-life horror stories from the house of haunted insurers that are guaranteed to give you chills:
- A CPA, who handled multiple ERISA plans for various non-related companies, embezzled funds and caused a few million in losses for several carriers.
- A woman with financial problems hit crisis mode when her daughter became seriously ill. She stole cash from her employer, then gambled the money at a casino. She hoped, but failed, to win enough to return the cash to her employer and pay her personal debts as well.
- A home healthcare worker stole a $6,000 ring from a client, and he was convicted of the theft.
- A manufacturing company’s employees had access to valuable metals, which they stole and sold over the course of several years.
- A faithful bookkeeper of 23 years handled his employer’s banking duties. Unfortunately, he also set up fictitious accounts at the bank and funneled company money to those accounts for his personal use.
Are you spooked? Never fear! Those losses were covered, thanks to the appropriate fidelity bonds.
What is a fidelity bond?
Think of a fidelity bond as crime insurance for a business or government entity. Two types are available: first-party and third-party.
A first-party fidelity bond is purchased by an employer to cover crimes committed by its own employees. Those corporate crimes are intentionally wrongful acts such as fraud, theft or forgery.
A third-party fidelity bond covers the same crimes, but the perpetrator is a contractor or a contractor’s employee, and the bond is purchased by the contractor at the behest of the company that uses its contracting services. For example, a bank may require its contractors — such as project managers, analysts or consultants — to purchase third-party fidelity bond coverage to protect the bank from theft by the contractor’s employees.
Our horror stories illustrate some of the common causes of potential loss:
- Embezzlement is defined as the theft of personal property by someone who has been entrusted with that property. Usually it involves stealing cash or merchandise. Embezzlement can be devastating both emotionally and financially. An employer’s best deterrent to embezzlement is a company culture that is supportive and open but bolstered by meticulous record keeping and well-placed security cameras. To misquote former President Reagan, “Trust, but verify and don’t tempt.”
- Rather than stealing from the company, the disgruntled employee seeks revenge against the company. The form that revenge takes is limited only by the employee’s imagination to exploit the company’s vulnerabilities. Saboteurs have wiped computer databases, tampered with products, refused to perform duties and even have caused physical harm to their employers or coworkers. They have disrupted company operations or tried to damage their employer’s reputation. Because most saboteurs feel wronged in some way by their employer, an employer’s best defense is a company culture that is open, positive and supportive.
Deter, but insure
Don’t think, it can’t happen to me. No matter how thoroughly a business’s vulnerabilities are analyzed and no matter how robust the internal controls are that serve as the company’s first line of defense, crime remains an ever-present risk.
Business owners should examine their exposure and purchase fidelity insurance to cover the risk of employee of contractor theft or misconduct. Both tailored and blanket coverages are available in the fidelity line of products.
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.
- Increase the difficulty of access to company assets.
- Be more aware of substance abuse or gambling addictions. These can lead to employee theft losses.
- Make sure there is ample oversight for positions that have access to company assets.
- In a retail setting, have security beepers on the back door as well as the front of the store.
- Have a clear inventory process often that would catch any abnormalities.
- 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 is appointed with Old Republic Surety, please contact your local branch and we can get you connected.
Valerie is a Commercial Underwriter for Old Republic Surety and has been in the Surety and Fidelity Industry 30+ years, and in the Insurance Industry 37 years. She began her career in the file room, moved to processing, underwriting and then management. She enjoys being a resource to the agent plant, customers and peers. Surety and Fidelity remain one of the most interesting lines of business to her. Valerie really enjoys the diversity our presence in the surety industry brings to the industry, and continues to learn something new every day, and helps keep it fresh.