Crime Insurance & Fidelity Bonds, Explained

Fidelity & Crime

White-collar crime should concern every business owner — because it happens in front of us, committed by people we trust. The kindly bookkeeper, the polished executive, the respected manager: the news regularly carries stories of exactly these people arrested for stealing from their employers.

“I trust my employees — I don’t need crime insurance”

No one knowingly hires a dishonest employee, and trust is the core of any working relationship. But people change. Employees rationalize theft in familiar ways — “the company won’t miss it,” “they don’t pay me enough” — or fall into gambling and other addictions. Businesses go bankrupt because employees steal large sums at once, or smaller sums over years, or commit computer fraud. The damage lands not just on you but on your other employees and everyone who counts on your business.

The numbers back this up: a large majority of workplace crime is carried out by employees; roughly one in four employees has committed or witnessed workplace fraud; a quarter of employees committing fraud have been with the company more than ten years; and only a third of witnesses ever report what they saw. These schemes commonly run for over a year before discovery — and the number-one way employers discover them is by accident. Smaller companies are especially vulnerable precisely because closeness increases trust. Employee dishonesty is cited in as much as a fifth of business failures, and most standard business policies either exclude money-and-securities and employee-dishonesty losses or cover only nominal amounts.

What crime insurance is

Crime insurance — also called fidelity coverage — addresses the most common fidelity threats: employee dishonesty, forgery, computer fraud, and theft, disappearance, or destruction of money and property. Even the best internal controls frequently fall short of stopping a trusted employee. Fidelity and crime coverage is the backstop: your company’s assets are protected at the time a crime is discovered, regardless of whether it occurred before or during the policy period.

The two types of fidelity bonds

• First-party fidelity bonds protect your business against intentionally wrongful acts — fraud, theft, forgery — committed by your own employees.
• Third-party fidelity bonds protect your business against the same acts committed by people working for you on contract — consultants and independent contractors.

What a typical policy covers

Comprehensive coverage for employee theft; money and securities on premises or in transit; forgery or alteration of negotiable instruments (including business credit cards); funds-transfer fraud; computer fraud; money-order and counterfeit-currency fraud; and credit-card fraud — with optional client coverage, coverage for investigative costs, and a response to ERISA plan-bonding requirements. The definition of “employee” is broad: directors and officers, part-time, leased, temporary and seasonal staff, and volunteers, with worldwide coverage available.

What claims actually look like

• Embezzlement: a bookkeeper prepared two deposit slips — one into the company account, one into her own.
• Forgery: a signature was forged on a company check and cashed at the insured’s bank.
• On premises: rent checks from eight residents were stolen from inside the office; the theft surfaced only when “overdue” notices went out and a resident produced his cashed check.
• In transit: cash stolen from a messenger’s truck.
• Payroll fraud: a payroll clerk issued duplicate vacation checks — for eight years.
• Billing scheme: four employees, including a supervisor, invoiced through fictitious vendors for work real vendors performed.
• Counterfeit payment: a company accepted a counterfeit cashier’s check for delivered equipment.

Bernard Fleischer & Sons offers crime policies covering dishonesty, forgery, robbery, safe burglary, computer fraud, and other criminal acts committed by employees, leased employees, volunteers, or anyone required to be bonded under ERISA. We’ll help you assess your exposure — internal and external — and determine the precise coverage your business needs.

Get a free, no-obligation fidelity/crime quote at bfbond.com or call 800.921.1008.