Tuesday, May 20, 2014

Do you trust your bookkeeper?

Does your small business or home owners association policy have Employee dishonesty coverage?  Most policies include a token amount of coverage. Make sure you have enough insurance for your business to survive an embezzlers theft. Almost every day you can read an article about some business's bookkeeper getting caught stealing money from their employer, ususally over a long period of time.

American Greed on CNBC has a weekly series on the Madoff’s and Stanford’s of this world of crime. According to the ACFE employee dishonesty causes up to $400 Billion in losses. But every day smaller thefts are taking place. For a few hundred dollars you can buy $250,000 of coverage to protect yourself.

As more executives get access to company assets and the technology that manages the company assets, employee dishonesty is the new pandemic. While earlier, dishonesty largely meant embezzlement or theft, now employees are finding newer and smarter ways to cheat their employers. 

Executives who work in the Administration, Finance and Asset Management departments of a company can commit forgery or manipulation of company documents, cheques and agreements. They can get access to the company’s cash reserves and initiate illegal fund transfers. Employees who work in Banks, Insurance and Financial Service companies are known to frequently indulge in computer or credit card fraud.

However, these are more common means of fraud and employee dishonesty which are covered by standard or standalone policies by most insurance companies.

It’s high time you asked yourself - does your business insurance have enough coverage for employee dishonesty?

Most policies cover a trivial amount automatically of $20,000 or less. It’s extremely inexpensive to add $200,000 or more. Stories like this are commonplace locally. The crooks are almost always caught after years of stealing and all the moneys gone. Think of Fry’s electronics whose millions of dollars were stolen by an executive recently. A local nursery was put out of business by an embezzler. Countless other examples of victims bilked by people they trusted.

If you are on the board of directors of a homeowners association or a commercial condo association you better make sure you have enough coverage to cover the total reserves in the association’s bank account. We have just reviewed 2 clients recently that have 0-$50,000 when they should have $250,000. As a board member, you can be held liable for this oversight.

Some companies include employee dishonesty insurance as a part of their other insurance contracts. The coverage can be added either by the base policy or by endorsement. The AICPA accountants program adds employee dishonesty coverage by endorsement.

However, this approach has its own disadvantages. The employee dishonesty component has its own limits, and this may not be adequate to cover new and unique kinds of frauds that are unearthed every day. For example, Business owner’s policies (BOP's) usually limit employee dishonesty component to $10,000, and this again covers only the first party committing the act of dishonesty.

Further, typical AICPA endorsements for employee dishonesty only factor acts committed by employees. Non employees such as agents, third party agencies such as Security companies who routinely transport or handle cash and securities are not factored. Also, these terms and conditions are outdated and do not factor computer fraud which is emerging as the number one choice for fraudsters and dishonest employees.

All this implies, you need to quickly evaluate your business insurance policies today.

Call Carlos or Mimi at Insurance by Allied brokers at (650) 328-1000 for a free insurance review.

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