Fraud and embezzlement instigated by employees is on the rise in the small business workplace. According to the Association of Certified Fraud Examiners (ACFE), business losses can reach $400 billion annually as a result of employee-related fraud and embezzlement crimes. Small businesses are especially vulnerable; especially those who aren’t financially able to absorb large losses or cannot afford extensive precautions and safeguards.
Employee dishonesty insurance coverage, sometimes referred to as fidelity bond, crime coverage, or crime fidelity insurance, is a type of business insurance that protects a small business employer from a financial loss as a result of fraudulent acts conducted by an employee or group of employees. The financial loss can be caused by an employee’s theft of property, money, or securities owned by the small business.
Stand-alone employee dishonesty insurance coverage policies are designed to cover forgery, alteration, unauthorized electronic funds transfers, credit card fraud, computer fraud, money order fraud, and counterfeit fraud. These business insurance crime coverage policies not only protect the small business owner, but employees defined in the policy, such as current or former employees, trustees, members, partners, directors, temporary employees, and seasonal employees may also be protected.
Endorsements can also be added to employee dishonesty insurance coverage policies. For example, a third party endorsement can be added, which extends coverage to a client that you’re performing services for under a written contract. Pursuant to this endorsement, the policy will provide compensation for damage or loss to the property, money, or securities leased or owned by a client due to theft by your employee. Basically, this third party endorsement modifies the employee dishonesty policy to include client premises coverage. An endorsement can also be added that provides coverage for an Employee Retirement Income Security (ERISA) bond.
Some typical exclusions in an employee dishonesty insurance policy include math errors or omissions, accounting errors and omissions, vandalism, government seizure or destruction of business property, profit and loss restatement, theft by policy holder, and loss of income that would have been realized without a damage or loss to property, money, or security.