Overlooked risk: ‘unscrupulous employees’

Losses caused from schemes by dishonest employees are one of the most serious, and often overlooked, risks to businesses.

Employee theft causes businesses hundreds of billions of dollars.

“Business owners spend a significant amount of time and resource protecting their business from a variety of risks, whether it’s liability for their products or services or severe weather,” said Helen R. Savaiano, president of management liability at The Hanover Insurance Group. “But, what can sometimes be overlooked are the risks presented by unscrupulous employees and unfortunately those types of losses happen more often than business owners think.”

Based on its claims, Hanover identified four most common employee theft schemes:

1.) Billing and Vendor Schemes – Employees set up false vendor accounts and bill a company for non-existent parts or services.

2.) Check Tampering Schemes – Employees use company checks to pay themselves or reissue the company’s old outstanding checks and alter the payee to themselves.

3.) Payroll Schemes – Employees manipulate the amount on their check, or create duplicates of their check to cash more than once.

4.) Expense Reimbursement Schemes – Employees submit additional expenses that never occurred or were not of a business nature and are then reimbursed for those bogus expenses.

Many business owners don’t realize they could have been protected from fraud committed by their own employees until it’s too late, according to Jeffrey Gordon, vice president of fidelity and crime at Hanover. While insurance protection is available through some carriers for this and other crimes, not all business owners secure coverage.

“We always advise owners to work with a knowledgeable independent insurance agent to ensure they have the right coverages, like fidelity and crime coverage, and place that coverage with a carrier who has expertise, so they can meet the specific needs of their business,” said Gordon.

The Hanover recommends business owners consider the following best practices. “The strategies for controlling employee theft generally come under the following four categories: pre-employment screening, procedures that make theft more difficult, improving employee job satisfaction, and maintaining a policy of apprehension and prosecution,” said Hanover in its report.