The incidence of employee dishonesty claims is greater during challenging economic times.  These claims are also more prevalent when internal audits or controls are not in place. 

Crime coverage can be included on a commercial package or businessowners policy.   Generally speaking, limits above $250,000 are only available on a standalone policy.   Insurance company underwriters carefully review internal controls before crime limits are approved.  Proper internal controls and separation of responsibilities are required to minimize the possibility of an employee dishonesty claim.

One important internal control is the separation of responsibilities that limit the opportunities for dishonest employees to engage in illegal activity.  For example:

  Do employees who reconcile monthly bank statements also:

• Sign checks?
• Handle bank deposits or withdrawals?
• Have access to check signing machines or signature plates?

Even with internal controls in place, external audits are an effective measure in reducing possible fraud.    Fraud reporting or hotline programs are also a big deterrent and prevention measure against fraudulent activities.

 This information is not intended to be exhaustive nor should any discussion or opinions be construed as legal or financial advice. Readers should contact legal counsel or their CPA for legal tax advice.