Employees in the course of their handling business funds or products, expose employers to theft losses. Coverage is available to protect the Insured from substantial financial loss. While it is difficult to think of your own valuable employees as being capable of such deeds, unfortunately it is a reality. The following are samples of claims involving a form of employee theft for which a coverage called Employee Fidelity Bond would provide protection.
Sample Case #1
Over the course of two years, each time he issued a cheque reimbursing an employee for expenses, the thief, employed as an accounts payable clerk, issued a duplicate cheque to himself and then doctored the records accordingly. The thief had an intimate knowledge of his employer's accounting and audit procedures which enabled him to execute the fraud.
The fraud was discovered when the employer's bank contacted the controller and advised of discrepancies in the account from which the cheques were drawn. Internal audits failed to discover the fraud. All cheques were within the defaulter’s authority of $2,500.
The fraud occurred over two years and amounted to almost $1,000,000. As soon as it became aware of the loss, the company promptly investigated the thief’s assets as best it could and promptly applied to a court for an injunction freezing all those assets including bank accounts and land.
In the end, the fidelity bond responded and repaid the company the amount of the loss less the deductible. The insurer was left to recover from the thief and, in the end, was only successful in retrieving approximately $800,000. It bore the balance of the $200,000 loss. Had there been no insurance, this loss would have been fully born by the Insured company.
Sample Case #2
Over the course of several years, a warehouse supervisor falsified bills of lading for the delivery of dairy products to retail clients. Normally a certain amount of shrinkage is expected within this industry as a result of spoiled product due to expiry dates. In this case, the warehouse supervisor, in concert with a select group of drivers, was artificially inflating the amount of shrinkage, selling the product for cash and pocketing the proceeds.
The fraud was only discovered when by chance a retail store’s accountant called the dairy to question why the GST input tax credits on their invoices did not match the volume of product they had been purchasing. By chance the warehouse supervisor who normally was responsible for reconciling that information was on holiday.
Due to the number of employees suspected, a private firm was hired to infiltrate the select group of employees and obtain the necessary information to criminally charge the employees involved. This loss involved millions of dollars of lost product.