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Risk Management Measures Businesses Can Implement to Prevent Commercial Crime

Risk Management Measures Businesses Can Implement to Prevent Commercial Crime

All businesses have some exposure to employee theft. The consequences of employee theft can be crushing, from loss of reputation and productivity to impact on profits, and the longer a fraud scheme goes undetected, the greater the loss.

While most companies survive this kind of fraud, many do not. Surprisingly, most employees who commit fraud have worked for the company for over five years. Employees who stay for longer periods commonly have more responsibilities and, as a result, have more opportunity to commit larger frauds. Are you prepared to assist clients with potential employee theft-related losses?

Employee Crime Schemes

What should you warn your business-owner clients of in regards to employee theft? 

Common employee-related crimes include:

  • Billing and vendor schemes: Employees create false vendor accounts and then bill their companies for non-existent parts or services.
  • Check tampering schemes: Employees use company checks to pay themselves, or reissue the company’s old outstanding checks and change the payee to themselves.
  • Payroll schemes: Employees create “ghost” employees to add to payroll and direct-deposit their salaries into their fraudulent account, or employees fraudulently increase their salaries within payroll or HR systems.
  • Expense reimbursement schemes: Employees submit reimbursement requests for expenses never incurred or not of a business nature, and are then reimbursed for those fraudulent expenses.
  • Social engineering schemes: Intentionally misleading unsuspecting employees to send money or divert payments to imposters who impersonate vendors, clients, customers, senior executives or business owners. 

Reducing Risk

Business must be protected with coverage in the event that an employee steals money, securities or property. Even an entry-level crime policy can provide affordable coverage for a potentially big problem.

Protection plans will need to be adjusted in accordance with the client’s field of business. Encourage clients to review their internal processes and procedures and implement the following best practices:

  • Perform thorough background checks of all potential hires. Do not take shortcuts or make assumptions.
  • Set up a system of checks and balances with clear accountability for every position, and that no position has broad enough power to authorize payments without the consent of another individual.
  • Set up an anonymous tip line where employees can report suspicious activity. 
  • Encourage all employees who handle accounting and payment functions to take vacation time, with another person handling their work in their absence. This fresh set of eyes may detect questionable practices or trends.
  • Communicate often and clearly about employee conduct policy.
  • Establish clear processes for vendor acceptance and setup, inventory control, and expense reimbursement.
  • Never allow discrepancies to be attributed simply to the cost of doing business. Conduct a thorough investigation of all discrepancies.
  • Implement a call-back procedure to protect against social engineering-related losses. When a change in vendor bank account information is requested, or when a nontraditional internal wire transfer is received from a purported owner/ senior executive, employees should call the requester using a predetermined phone number on file.

No business is immune to employee theft, but agents can identify effective crime insurance solutions to put their clients in a safer position to withstand and prevent employee theft.

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