Avoid the Race For Equity

Employers need to examine their insurance coverage to ensure sufficient employee crime coverage has been obtained.

In a recent case an employee embezzled over $10,000. As the amount was growing towards $20,000 with no end in sight, we started to strategize how we would recover the diverted funds from our target.  We determined the only hope of recovery was through the target’s real estate. At about the same time an employment verification was received for the target in support of a mortgage application.

How does the victim organization proceed? If the target succeeds with the mortgage, it is likely any equity in the residence will be gone to the new financing. If the organization obtains a lien on the property to secure the equity for potential recovery, the target will not likely obtain the financing. Ultimately the organization would want the target to obtain financing to use the proceeds to repay the organization.

Certainly life would be a whole lot simplier if the organization carried employee crime coverage sufficient to cover the loss.  A claim could be filed with the carrier, the organization could recover the diverted funds, and the insurance company would have to go after the target to recover their funds.

With the declining economy and downsizing positions, now it is more critical than ever to ensure sufficient coverage exists to recover a loss from an employee theft.

Here is an article written in 2006 that is still relevant today:

Employee Crime, Lack of Insurance Coverage Threaten Company Coffers

WARREN, NJ, October 30, 2006 – More than one in three (36 percent) private companies, many of which were uninsured, experienced an employee theft averaging nearly $350,000 within the past five years, according to research by the Chubb Group of Insurance Companies. And more companies may now face a similar situation as they execute plans for staff reductions and budget cuts-actions which tend to motivate employees to steal funds, equipment and inventory.

“It’s the perfect storm,” said Gregory Bangs, manager of the crime unit at the Chubb Group of Insurance Companies. “Despite corporate America’s emphasis on a more ethical business culture, employee crime continues to drain corporate coffers by an average of six percent each year.  Furthermore, many more employees may steal from their employers as a large number of private companies take actions that typically unsettle employees.”

According to the 2005 Chubb Private Company Risk Survey, 31 percent of companies plan to outsource major functions or operations, 21 percent plan to reduce their workforce, and 20 percent plan to reduce or eliminate some employee benefits this year.

“Larger firms may be able to absorb the financial shocks of employee crime, but smaller firms may be faced with financial disaster. Surprisingly, our research shows that more than two-thirds of private companies do not buy crime insurance,” said Bangs. “Regardless of size, strong risk management and ethics programs can help companies reduce the potential for white-collar crime, and insurance can help them recoup some of the losses.”

Here is the link to the article:
http://www.chubb . com/ corporate/chubb5953.html

We have the resources to get to the bottom of your most complex financial matters. Our team of forensic accountants brings a varied background of experience to each matter.

Heading the team is Stephen A. Pedneault. A CPA and forensic accountant, Steve is also a Certified Fraud Examiner (CFE), Certified in Financial Forensics (CFF) and is a Forensic Certified Public Accountant (FCPA). He brings nearly three decades of accounting and fraud investigation experience to the firm.