What drives people to embezzle and is there coverage?

In recent years, some very high-profile thefts by employees and professionals have occurred in New England. These have been highly sophisticated and very costly schemes that took place in just a click of the mouse or over several years. The lure of extra income entices some people to steal from their employers or businesses. Often there’s insurance coverage but sometimes, there’s not.

What drives people to steal from an employer? Opportunity, knowledge of how things work, feelings of unfair treatment, money woes, a drug or gambling habit: all are excuses when theft of money or securities are discovered.

Think about the respected attorneys across the country who have been caught draining away assets from their clients, store clerks who trim receipts from daily transactions or non-profit executives who systematically skim donations into their personal accounts. No business sector is immune.

What kind of employer is most vulnerable? Generally, small employers; they far outnumber large employers and often lack procedures and safeguards that reduce opportunities to steal. They also seldom have their financials audited due to the perceived expense. And, contrary to perception, they are among the easiest targets for cyber crime as they lack adequate computer defense systems and procedures.

Denise Taaffe, an audit principal at Baker Newman Noyes, said “One of the most frequently perpetrated thefts are by trusted employees who simply write unauthorized checks to themselves or family members.

“Many times the small business owner is so busy running the business that he or she relies on the trusted employees to perform the accounting functions with little oversight.”

Taaffe recommends some easy procedures that small business owners should use to help uncover unauthorized disbursements

• Insist on receiving all the bank statements, unopened
• Review the statements and the related cancelled checks for any unusual items
• Look for unfamiliar wire transfers or any checks written to unfamiliar vendors or to the employee
• Examine check signatures since employees may forge the owner’s signature
• Review the bank account reconciliations to ensure they reconcile to the general ledger
• Review postings to the cash accounts to ensure there are no unusual entries

Joan Hopkins, an agent at Clark Insurance, suggests that no matter how much you love your fellow employees, the old adage of “trust but verify” makes sense when it comes to the health and well being of your organization. At minimum, an employer needs to:

• Start by setting the tone with all employees that honesty is expected and dishonesty will be severely punished. Also, encourage people to speak up if things look fishy – even with senior executives.
• Include background checks before a new employee starts work, particularly if that work gives the employee access to money or other assets.
• Train employees about safety and theft prevention on a regular basis: how to secure money, what to do in case of a robbery, how to protect merchandise, etc.
• Conduct a periodic audit by outside accountants.
• Take note if employees’ lifestyles are out of sync with what you’d assume their family can afford.
• Consider installing security systems such as safes, surveillance cameras and burglar alarms.
• Carefully review your crime insurance coverage with an agent. Why? Some events aren’t covered by standard insurance policies or they offer minimal There also are occasions when crime coverage has been offered by an agent but declined by the insured. Making an informed decision every time your policy renews should help cover those gaps. Depending on the risk, it may be possible to buy back coverage or increase coverage limits to fill those gaps.

Here’s a note of caution. When a theft occurs and a claim is made, the insurance company is going to investigate the entire incident. If the theft is by deception (e.g. giving money to someone you believe to be authorized to receive it), the claim may not be covered because the exchange was done voluntarily, not by force or break in. A good agent also will take time to explain explicit coverage for computer fraud, funds transfer fraud and social engineering fraud. The world is evolving and insurance companies are responding with new coverages and risk control measures so stay up to date.

Crime happens. Be sure you take measures to prevent thievery and be sure you have the proper coverage for when the unexpected occurs.