Employee dishonesty risk management starts with checking prior history. Other good steps are outlined in the questions in typical employee dishonesty applications.
- Audits by independent CPA that includes a review of internal controls
- Two signatures required on all checks over a nominal threshold
- Separation of duties and mandatory vacations for accounting or bookkeeping personnel
- Confirmation of statement balance by someone outside the accounts payable unit
- Stamping invoice “paid” when checks are issued
- Joint control of securities by two employees
- Regular inventory of valuable equipment and storing it in secure areas
- Computer controls including
- Automatic prevention of repeated attempts of unauthorized access
- Exception reports generated for unauthorized sign-in or repeated access attempts
- Segregation of duties between programmers and operators
- Individuals who can authorized checks should not be able to produce them
The answer to the question of what is an adequate employee dishonesty limit is: More than you think. Because employee dishonesty losses can go on undetected for years, even relatively small businesses can suffer very large losses. The record is probably held by a small Michigan County whose treasurer stole $1.2 million even though the county’s annual budget is only a little over $4 million.
A good starting point is 10 percent of annual budget, sales, etc., but note that in the case of the county, the amount stolen was more than 25 percent of one year’s budget.
Employee Dishonesty is an exposure that gets little respect. It’s time that it did.
By: Jerry Trupin, CPCU, CLU, ChFC, Insurance Consutant/Expert Witness
Employee Theft Statistics:
The FBI calls employee theft “the fastest growing crime in America!”
The U.S. Chamber of Commerce estimates that 75% of employees steal from the workplace and that most do so repeatedly.
One third of all U.S. corporate bankruptcies are directly caused by employee theft.
The Boston Globe and Denver Post newspapers recently reported that U.S. companies lose nearly $400 Billion per year in lost productivity due to “time theft” or loafing.
The American Society of Employers estimates that 20% of every dollar earned by a U.S. company is lost to employee theft