Employee Theft – Part
One
When a business uses insurance
and/or loss control to protect itself from losses, the focus is usually upon
outside forces. In other words, the assumption is that some event or some party
not directly connected with the business will be the source of a loss. While
this assumption is legitimate in many instances, it is a very limited and
dangerous assumption.
Unfortunately losses may
occur from inside a business just as easily as from outside. A major source of
loss for many businesses is their employees. The more trust an employer places
in a given employee, the more vulnerable that employer is to suffering an
employee-related loss if that employee is dishonest. To protect itself from
crooked employees, a business may need to purchase crime coverage.
A company’s exposure to
theft from employees lies with workers who are responsible for handling money
(and similar property) and those who have significant access to company
inventory. Therefore, a company that wants to evaluate its possible expense for
purchasing crime insurance as well as to determine what control measures it
should create to minimize theft losses, must properly classify its employees.
Types of Employees
Employees in positions
of greater trust (such as supervisors, managers and executives) usually have
greater access to company assets. These workers are more expensive to insure
because they can, potentially, create greater theft losses. These employees are
often in a position, not only to handle money and securities; they usually
handle company records concerning monetary transactions. They are also, often,
in charge of benefit plans or have other fiduciary responsibilities.
Other employees, with
non-managerial duties, can also cause problems. Consider persons, such as those
in sales, product transportation and/or warehousing and supplies who have
constant access to valuable company property. Because dishonest employees at
this level deal with tangible items rather than money and securities, they
represent a less dangerous source of loss. However, depending upon the property
involved, they may also create substantial losses. Still, such employees are
less expensive to insure. A business that is evaluating its need for insurance
coverage and for anti-theft controls MUST make thorough consideration of their
type of business.
Employee Theft – Part
Two
Employee Theft Controls
Controls refer to
techniques and processes that discourage employee theft. While controls can’t
fully eliminate theft; they can certainly help minimize the danger. Further,
they may also assist in quicker discovery of losses and aid in capturing
dishonest employees. The most effective controls are those that limit theft
opportunities and the use of auditing.
One important control is
to thoroughly check new employees. The hiring process must include adequate references
that are verified, as well as running pre-employment background checks. Hiring
workers with criminal backgrounds is a near guarantee that losses will soon
occur. Such losses may not be covered since insurance companies usually exclude
losses involving employees with a documented criminal history.
Another control is to
assign distinct job duties among different employees. Responsibilities for
making deposits should not be assigned to the same employees responsible for
making account payments. The worker who orders inventory should be different
from a worker responsible for receiving property. These workers should be
different from the worker who pays for shipments. In small businesses, with few
employees, such tasks can be rotated among different workers. This reduces the
chance for a dishonest employee to create theft opportunities. Employees will
act as checks and balances against crooked activity. Sadly there is still the
chance that workers will cooperate with each other to steal property, but collusion
is significantly less common than individual acts.
Other important controls
involve having proper procedures for handling company check disbursements (such
as use of countersignatures, stamping incoming checks “for deposit only),
monitoring electronic payment processes and inventory controls that include
accurate record keeping (either manual or computerized) to track inventory
levels. It also helps to closely monitor ordering procedures, acceptance of
credit and separate approval of suppliers. Another way to exert control over
possible thefts is to use qualified, independent auditors regularly. Outside
auditing can quickly and accurately identify problems Implementing auditing
recommendations is also a smart idea.
Regardless the type of
business, it is important to recognize that, unfortunately, employees can be a
major contributor to business losses. An insurance professional is a good
source of expertise for identifying ways to protect against internal losses.
COPYRIGHT: Insurance Publishing Plus, Inc. 2015
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