Employee Theft & Dishonesty Are You Covered?

By: Mary Thompson, Capstone Brokerage President, July 28, 2015

One of the most common insurance claims made in business are those due to theft by employees. Now I know what you’re thinking, “that would never happen to me”, BUT it does happen and more often than you would think, especially here in Nevada. Nevada was ranked #3 in 2014 for the most fraud and forgery claims. Maybe because of the amount of cash dealings that happens in our cities or perhaps the legalization and large gambling establishments that our cities thrive on. Whatever the reason may be businesses should really consider the risk of employee dishonesty and the impact it can have on the establishment’s survival.

Typically cash or other funds are the most common thing stolen by employees; it’s liquid, easy to use, and hard to trace. There are typically 3 types of cash theft in the business world; Skimming, cash larceny, and fraudulent disbursements. The National White Collar Crime Center estimates that employee theft can cost 20-90 billion annually. It is important to remember that theft can really occur even outside of the accounting department, especially when it comes to skimming.

What is Skimming?

Skimming is theft of cash or funds that have not yet entered the accounting system. A simple example would be in retail. A person pays cash for a transaction and the employee pockets the money and never rings the purchase. I hear all the time that my business never receives cash so skimming isn’t a concern, WRONG! Skimming does not always involve cash, it can also include checks. So any business that takes in checks as a method of payment is also at risk of skimming. An example would be a medical practice that collects checks from patients as payment for services. Rather then depositing the checks into the business account, an employee can deposit the check into their own account and never enter the information into the accounting program, leaving the business unaware that a payment or transaction took place.

What is Cash Larceny?

Cash Larceny is different from skimming in that it involves stealing cash or funds after it has been recorded in the accounting books. Although it is harder to conceal larceny because the funds are recorded, it is still common. An example of this would be if a sale is paid for with cash, then the employee still takes the funds and issues a refund for the purchase without actually taking back the material. This is less suspicious to the consumer because they actually get a receipt and the “larceny” takes place after they have left.

What is Fraudulent Disbursement?
Similar to cash larceny, fraudulent disbursement involves theft of funds after they have been recorded. The employee either creates overrides or alters a transaction. Fraudulent disbursement can include billing schemes. An example would be that the employee creates a fake purchase order or invoice and then issues a check to “pay” the bill but then goes on to cash the check themselves. Fraudulent disbursement can also happen with payroll, and expense reporting.

What can I do to protect my business from Skimming and employee dishonesty?

Well get an insurance policy of course… There are two different insurance policies that will cover employee theft; a commercial package policy with a crime endorsement or a separate crime policy. Many business owners think that their commercial property coverage will protect them against employee dishonesty; however, typically property policies do not cover cash or funds and exclude accounts.

It is important to consider purchasing insurance coverage for employee dishonesty. I have seen many businesses that did not have coverage, take a huge financial hit or even be closed down do to employee theft. Although it is an added expense for a business the protection against the risk of employee theft can save a company. On average we have processed employee dishonesty claims ranging from $25,000 to 250,000. For more information about Employee dishonesty and crime coverage look for next months Insight, “Crime Insurance Is A Necessity!”