Insurance with Assurance

Oct. 27, 2008
Employee Dishonesty Insurance

You Can Never Be Too SURE
I have known all my employees for more than 10 years now and I trust them. Do I really need Employee Dishonesty Insurance?

A: You always want to believe the best about your employees. I have heard many alarm company owners state with conviction that their employees would never steal from them. You seem to feel the same way. However, the fact remains it is very difficult in business to uncover problems with employee dishonesty. Many firms like yours shy away from purchasing Employee Dishonesty Insurance. Unfortunately, however, you can not assume all people are perfect all the time. Outside forces can change a person. Employees with a drug, gambling, credit card or other personal problems can often justify in their minds that they are entitled to your company dollars.

Many businesses have had their bank accounts cleaned out. On the other side of the coin, a large institutional client who carries Employee Dishonesty Insurance was spared. The company was covered when their CPA discovered — 2 years after the fact — that $125,000 had been taken by the assistant comptroller. This person was responsible for checkbook reconciliation. Of course, the books balanced until the CPA could not reconcile checks for purchase orders with bank balance statements.

That is why Employee Dishonesty Insurance should be seriously considered and included in your insurance portfolio. It is a must when business begins delegating check signing, depositing and reconciliation to people other than the owners.

For the most part, Employee Dishonesty Insurance covers only employees and specifically excludes owners, partners, officers and directors. The one exception to this coverage exclusion is the Employee Dishonesty Policy for many of the state burglar and fire alarm associations where coverage for directors and officers, as well as employees is specifically included.

Of course, there are safeguards that should be in place to help reduce the possibility of dishonesty claims such as:

  • Dual signature check signing.
  • Reconciliation of the checkbook by someone other than the person with authority to sign checks and make deposits.
  • Monthly or quarterly internal audit controls to review and prove checkbook balances and deposits. (Remember deposits can appear to have been made in your account when they actually went somewhere else.)

Loss of business property such as product, inventory and customers goods is also included in Dishonesty Coverage. Therefore, it’s important to include strict inventory controls and audits in your procedures. Inventory shortage due to miscalculation is excluded from the policy.

You want to believe the best about your employees. As good as they are extenuating circumstances cause people to commit acts they normally would not consider. The easy access and availability of your inventory and checkbook could prove just too tempting. Money and property are usually taken over periods of time, so problems are not immediately detected. When finally discovered, amounts are frequently in the tens of thousands of dollars. Prudence shows that now is the time to arm yourself with coverage against a potential loss.

Rick Janis is a Certified Insurance Counselor and president of the Alarm Insurance Agency. He is CEU certified by NBFAA and teaches CEU courses to the alarm industry on General Liability/Errors and Omissions and Worker’s Compensation. He can be reached at 800-474-0933 or [email protected].