MOTHER & SON TEAM ACCUSED OF STEALING $16 MILLION FROM SMALL FIRM
Recently two New York City based textile companies fell victim to the embezzlement of $16 million by their trusted bookkeeper of over two decades. As reported in the New York Times article on June 24th, company checks were used to funnel money into a bank account controlled by the employee’s son.
This case illustrates the potential significant exposures that even small companies face from employee dishonesty. Often overlooked, appropriate Crime Coverage can minimize a company’s financial impact from an employee theft loss and reduce the Total Cost of Risk (TCoR). A company needs to carefully consider the limit of liability, as losses due to employee dishonesty often happen over many years before being discovered. In this case the thieves were embezzling over period of eight years. Companies tend to “underinsure” by purchasing too small of a limit thinking “that couldn’t happen to me…” while not fully considering a crime pattern that has been going on 5-10 years. Crime Coverage is typically inexpensive and can also include areas such as wire/electronic funds transfer.
While appropriate coverage is important, implementing preventative procedures is another key factor in mitigating the potential of employee theft from occurring. Prior to hiring someone, a company should conduct extensive background and credit checks on all applicants. Another way to mitigate risk is to separate duties and implement procedures that limit employee access to financial assets and information. Regular and random audits can also help identify new vulnerabilities and measure the effectiveness of existing controls.
Even with the best controls and coverage, employee theft can still occur. A thorough review of the coverage and potential for loss should be part of an initial Risk Management Assessment and updated annually. The ALS Group in conjunction with the firm’s accountant and other professionals can help a company implement employee theft preventative measures and structure the appropriate crime insurance policy mitigating the risks of an employee who decides to be a [silent] partner.
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