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Employee Dishonesty: Preventing Financial Theft

The Floyd Law Firm PC > Information > Employee Dishonesty: Preventing Financial Theft

An anxious call from a client – who had just discovered that a trusted employee had embezzled from their company – was a timely realization that they needed to reevaluate their office operating procedures and business security measures. The preventive answer lies within improved audits, fidelity insurance coverage, careful hiring practices, and implementation of a system of checks and balances regarding the management of company funds.

As part of best practices, it is wise to do away with the commonly used signature stamp or facsimile stamp if one is in use. Instead, an appointed representative or someone in a managerial role should always review the records for receivables and accounts payable. Make it a point to actually sign checks that are going out, and advise the person assigned to retrieving the mail to set aside the monthly bank statements for random audits by management. It may take a bit more time, but the review of cancelled checks and reconciling the business bank statements can help catch errors as well as fraudulent activity before it gets worse. Follow up on any calls from the bank about company accounts being overdrawn or calls from any suppliers who should have been paid. A monthly review of receipts and disbursements – coupled with an outside audit of the company’s books – is also a good idea.

Choosing fidelity insurance is a viable consideration. Keep in mind that your business’ practices and procedures will be evaluated by the insurance company, to be used in determining the premiums you would need to pay for employee dishonesty insurance. Fidelity coverage helps to protect business owners from employee theft of money, forgery attempts, property theft, securities fraud, cybercrime, embezzlement, unauthorized money transfers, and even credit card fraud. A fidelity bond can offer security against both physical and monetary business losses caused by dishonest employees. The Employee Retirement Income Security Act (ERISA) maintains fidelity bonds for protecting employee benefit plans such as 401(k) plans.

Besides ERISA-required fidelity bonds, other types of fidelity bonds include Condominium and HOA bonds, Non-profit organization bonds, and also protection for Doctor and Dentist offices. Dishonest employee coverage can be a crucial component within a commercial crime insurance policy, as it aids to compensate business owners for the physical or financial harm done to the business by the actions of one or more employees. Plans may feature various coverage guidelines and limits under names such as crime fidelity insurance, fidelity bond, employee theft insurance, or simply ERISA fidelity. Employee dishonesty coverage likely does not offer compensation for incidents related to accounting errors, legal fees, data breaches, vandalism, or government seizures. Errors and Omissions (E&O) coverage can be added that could help to cover certain other instances of negligence.

Finally, conducting a periodic and careful review of your company’s hiring practices can also be a productive preventive measure. Verify applicant backgrounds, overlap company assignments amongst different employees, and close any loopholes within the processes of handling company funds. With business embezzlement on the rise, it behooves all of us to review and establish adequate internal systems to prevent a problem before it occurs.

Our business litigation attorneys have represented individuals, startups, and corporations with a variety of commercial disputes. As a team of experienced advocates, we will work vigorously to protect your business, your assets, and your legal rights. Our firm manages a wide range of litigation matters that include contract disputes, intellectual property matters, trade secret theft, non-compete agreements, non-solicitation agreements, business fraud, and conspiracy. Whether we litigate to protect your proprietary interests – or fight beside you to defend them – you will get our straightforward analysis and help in making informed business decisions regarding your strategy and the direction of your case.

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