Taking the time to build a robust system of financial checks and balances is an organization’s best remedy for ever having to rely on their insurance coverage to be made whole.
Earlier this year, our local news was awash with incidents of employee theft from major public employers. There was the City of Gainesville employee who allegedly used city credit cards for 169 different purchases that summed over $91,000. Purchases included electronics, gift cards and a cosmetic surgical procedure known as a Brazilian butt lift. Quick aside: Was anyone else unaware of the epidemic of butt sagging in Brazil that gave rise to their patenting this surgery?
More significantly, at least from a monetary perspective, was the University of Florida employee who allegedly used her position in the Transportation and Parking Services Department to issue over 1,100 fraudulent checks to herself and 13 others, allegedly including her boyfriend, a gentleman named Herschel Walker, that totaled over $351,000 during a four-year period. Hindsight is always easy, but given that another Herschel Walker terrorized my childhood as a Gator fan, shouldn’t UF screen out anyone from employment who has even a coincidental relationship with the infamous Georgia Bulldog?Digressions aside, the purpose of this article is to point out that while employees are an organization’s greatest asset (butt lift pun intended), they also create what should be an obvious exposure to an organization’s finances. If you contend that these things only happen in very large companies, you’re simply wrong. In my 20 years as a commercial insurance agent, I’ve seen employee dishonesty claims impact companies and organizations of all sizes. So, the question is: What can you do about it? Fear not, dear reader, here are some suggestions.
- Know Your People In both instances mentioned above, the employees had prior instances of dishonesty that were known to the employers at time of hire. I don’t want a political backlash here, as I’m not saying that people with a blemish on their records should not be hired. I am, however, suggesting that great consideration should be given before those people are placed in positions involving financial management or access to company credit cards.
- Watch the Money — Have a formal process of approving purchases and making payments. Reconcile bank statements, ask for explanations before signing checks, and require receipts and other documentation on credit card purchases. Different employees should be assigned to duties such as recording checks when opening the mail, preparing the bank deposit and reconciling the deposits with the bank statement. Owners and managers who ignore oversight and separation of these duties do so at their own peril.
- Audit Your Process Obviously, formal audits by third-party accountants are terrific, but not every small business can afford a full third-party audit. A system of informal internal auditing can be very effective. On a regular basis, drill down into individual payments and credit card transactions. Ask questions until you are satisfied with the legitimacy of the expenses. Knowing that management is always watching can deter someone from trying to embezzle funds.
- Require Vacations Typically, the larger employee theft cases do not involve a single, large transgression but rather a systematic series of small thefts over time. In many instances, they involve someone with normal access to the company’s accounting system — and those employees are often reluctant to be away for very long in fear of a temporary replacement noticing an anomaly in the company’s books while they’re away. By requiring everyone to take several days off at a time, you guard against someone having a routine system of covering their tracks.
- Purchase Insurance — You knew this one was coming, right? The above deterrents are a great start, but should your organization still fall victim, it is wise to have coverage in place. Most commercial package policies include some sort of coverage grant for employee dishonesty. However, the coverage limit may be inferior given your business size OR the terms may not be broad enough to cover your actual exposure. Talk to your agent about whether the coverage that comes with your package policy is sufficient. Stand-alone crime coverage is available that can provide higher limits and broader coverage at rates that are extremely affordable.
I hope that your business or organization is never in the news for one of these types of claims. The old adage “an ounce of prevention is worth a pound of cure” rings true. Taking the time to build a robust system of financial checks and balances is an organization’s best remedy for ever having to rely on their insurance coverage to be made whole.
BRIAN SCARBOROUGH is the area executive vice president for Scarborough Insurance/HUB International and specializes in commercial insurance and employee benefits.