SERVICES : Commercial Insurance RISK TIP: USE LOSS CONTROL AND LIMITS TO COMBAT EMPLOYEE DISHONESTY Aug 20, 2008 by Jerry Trupin, CPCU, CLU, ChFC The day before Independence Day is a slow news day. Perhaps that explains why the "New York Times" Metro section on July 3, 2008, had two long stories about employee dishonesty. One reported that a staff accountant stole $2.8 million dollars from his employer, Tishman Realty & Construction, and the other dealt with the Riverdale Country School suing a former bookkeeper to recoup $960,000 that she had embezzled. Tishman is a major player in the New York and national real estate field; Riverdale Country School is an upscale New York City private school. In addition to falling victim to the dishonesty of trusted employees they have something else in common: the employees both had prior histories of employment dishonesty! The lesson for us is obvious: loss control and limits. Employee dishonesty risk management starts with checking prior history. Other good steps are outlined in the questions in typical employee dishonesty applications. For example: * Audits by independent CPA that includes a review of internal controls * Two signatures required on all checks over a nominal threshold * Separation of duties and mandatory vacations for accounting/bookkeeping personnel * Confirmation of statement balance by someone outside the accounts payable unit * Stamping invoice "paid" when checks are issued * Joint control of securities by two employees * Regular inventory of valuable equipment and storing it in secure areas * Computer controls including: - Automatic prevention of repeated attempts of unauthorized access - Exception reports generated for unauthorized sign-in or repeated access attempts - Segregation of duties between programmers and operators - Individuals who can authorize checks should not also be able to produce them The answer to the question of what is an adequate employee dishonesty limit is: More than you think. Because employee dishonesty losses can go on undetected for years, even relatively small businesses can suffer very large losses. The record is probably held by a small Michigan County whose treasurer stole $1.2 million even though the county's annual budget is only a little over $4 million Incidentally, he stole the money to fund his investment in a Nigerian Internet swindle! A good starting point is 10 percent of annual budget, sales, etc., but note that in the case of the county, the amount stolen was more than 25 percent of one year's budget. Employee dishonesty is an exposure that gets little respect. It's time that it did. About the author: Jerry Trupin, CPCU, CLU, ChFC Insurance Consultant/Expert Witness Trupin Insurance Services Briarcliff Manor, NY
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Montgomery Insurance and Investments Agency, Inc. is a locally owned and operated independent insurance agency with specialists in personal and commercial insurance, financial services including investments and employee benefits. They have two conveniently located offices in the downtown areas of Jamestown and Xenia.
Left to right: Jim Saner, Eric Montgomery, Brad Montgomery and Roy Montgomery. "Prompt efficient service." - Paul & Edith Calloway DISCLAIMER - Securities and investment advisory services offered through Tower Square Securities, Inc., a member of FINRA / SIPC. Montgomery Insurance and Investments Agency, Inc. is not a registered investment advisor or a securities brokers dealer and has no affiliation with Tower Square Securities, Inc. Eric Montgomery is licensed in AL, CA, FL, GA, IL, IN, MA, MI, MO, NC, OH, VA, VT, WI, WV for the sale of security products. Roy Montgomery is licensed in OH for the sale of security products. Don Cain is licensed in OH for the sale of security products. |
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