How big of an issue is employee theft? According to a study done in 2012 by the Association of Certified Fraud Examiners, the average business loses 5% of its revenue to occupational fraud (employee theft) every year. Small businesses are particularly vulnerable with the largest median losses – largely due to fewer anti-fraud controls.
Here are some examples of employee theft in Alberta:
- In June 2018, a Red Deer woman was charged with stealing over $1 million from her employer ATB Financial.
- In August 2018, an Edmonton woman was charged with stealing $2 million worth of Percocet tablets from the pharmacy where she was employed.
- A treasurer stole over $200 000 from the Children’s Heart Society charity in Edmonton.
- An office administrator took more than $100 000 from his non-profit employer.
The Retail Council of Canada reports that employees steal about $2500 in cash or goods before being caught compared to the $175 average a customer might steal. In all, the Retail Council found that employee theft costs Canadian businesses about $1.4 billion annually. Clearly, this is a serious risk and problem!
Even as our tools to spot and thwart fraud become more advanced, employees have developed more sophisticated ways to defraud their employers and customers. That’s why it’s important to have a business insurance policy that covers fraud and associated damages can help protect your business and mitigate the damage caused by employee theft.
What is employee theft?
Employee theft can be as simple as a cashier dipping their hands into the till or pocketing merchandise off the shelves but it also can be a complex scheme resulting in the business or customer being out dollars or products. It can be nearly impossible to detect.
Fraud is a broad term in a legal sense and it comes in many forms. It can include the misappropriation of confidential information belonging to the employer using the company’s brand identity to defraud third parties or receiving bribes or kickbacks from a business’s suppliers or customers.
Specific examples of dishonest activity within a small business include:
- Property theft
- Theft of cash cheques business equipment or client property
- Data theft or cyber-related embezzlement
How to Stop Employee Theft
There are several steps an employer can take to limit the chances of their business becoming a victim of employee theft:
- Thorough employee screening:
Conduct exhaustive background checks that look at a candidate’s personal financial and criminal background.
- Install security measures:
Cameras alarms biometric identification systems – all of these are effective tools to stop employee theft. Also, restrict access to data and office areas on a need-to-use basis.
- Employ checks and balances:
Restrict access to unauthorized areas and data. Require more than one signature on transactions of a certain amount. Always have refunds and voids approved by a manager. Put in place strict confidentiality policies regarding accessing transferring and handling company information.
- Always prosecute:
Should you discover that an employee has stolen from the company file a police report and have the thief prosecuted to the fullest extent possible. Settling for restitution and a private apology doesn’t deter future theft. You must set an example that your other employees respect and understand.
An Alberta Court of Appeal decision in 2013 made it clear that an employee owes fiduciary obligations to their employer. That decision makes it easier for businesses to recover assets stolen converted or misappropriated by dishonest employees through the courts.
Having said that if the employee doesn’t have the financial means to cover your business’s losses how will you recover your lost revenue and assets? That’s where business insurance can help.
Business Insurance Covering Employee Theft
Coverage varies by the insurance company so be sure to contact your broker to discuss what is currently covered when it comes to employee theft and fraud. Often your commercial property or liability insurance covers actions by outside third parties but it doesn’t cover crime-related losses from employees. You’ll want a policy or endorsement that covers your business in the event that you suffer losses due to:
- Employee dishonesty
- Forgery or alteration
- Theft of money and securities
- Computer fraud
These policies not only protect money securities and business personal property but also employee benefit plans. There are a few names for this type of coverage. Aviva for example calls it Crime Insurance. Traveler’s also provides crime Coverage as well as bonds against employee dishonesty.
Your insurance broker can help you decide what is the best policy for your business. Get in touch to start a conversation about adding commercial theft coverage to your business insurance policy.