According to the U.S. Department of Commerce, Businesses lose an estimated $50 billion annually from employee theft. This government agency also estimates that employee theft causes 30 percent of business failures. 75% of employees have admitted to stealing from their employer and that it is responsible for 42.7% of inventory loss.
The cost comparison between oversight (such as internal controls and audits) and employee theft insurance can vary significantly based on several factors, including the size of your business, the industry, and the specific risks involved.
Oversight Costs
Internal Controls: Implementing robust internal controls can involve costs related to software, training, and ongoing monitoring. These costs can be substantial but are often seen as a necessary investment to prevent fraud and ensure compliance.
Audits: Regular audits, whether internal or external, can be expensive. The cost depends on the scope and frequency of the audits, as well as the size of the business.
Employee Theft Insurance Costs
Premiums: The cost of employee theft insurance (also known as employee dishonesty insurance) typically depends on the coverage amount, the number of employees, and the industry. For small businesses, premiums can range from a few hundred to a few thousand dollars annually.
Coverage: This insurance covers direct financial losses due to employee theft, forgery, and fraud, providing a safety net that can be crucial for businesses unable to absorb significant losses.
Which is Cheaper?
Short-Term vs. Long-Term: In the short term, employee theft insurance might be cheaper as it involves paying a fixed premium. However, in the long term, investing in strong oversight and internal controls can reduce the risk of theft and fraud, potentially lowering insurance premiums and preventing larger financial losses.
Risk Management: A combination of oversight and insurance is often the best approach. Effective oversight can reduce the likelihood of theft, while insurance provides financial protection if theft occurs.
Insurance Carriers May Require an Independent Investigation
Did you know that insurance carriers may require an independent investigation following an incident and before paying on a claim?
Most policies state that an insured must provide independent proof, in addition to a profit and loss statement, or inventory report, that corroborates that the theft was, in fact, committed by company employees. Consequently, the firm incurring the loss has the responsibility of performing an investigation and compiling evidence that proves that one or more employees stole the missing inventory. Without this independent corroboration, your financial computations alone simply will not count for much.
Insurance carriers typically require employers to conduct a fraud investigation when filing a claim for employee dishonesty. This is because the insurance company needs independent proof that the loss was indeed caused by an employee’s dishonest actions. Here are some key points to consider:
Documentation: Employers must provide detailed documentation that supports the claim. This often includes financial records, inventory reports, and any other relevant evidence.
Independent Proof: Simply presenting financial losses is not enough. Employers need to corroborate their claims with independent proof, such as undercover reports, video evidence, or covert surveillance.
Timely Investigation: It’s crucial to start the investigation immediately after discovering the theft and file a timely proof of loss with the insurance carrier.
Ipsen Due Diligence in addition to investigating claims of employee theft provides oversight on a quarterly basis to those wanting to protect their business from losses associated with embezzlement and loss of reputation.
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