Protecting Yourself Against Employee Dishonesty

Randy Tipton Comments
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Are you aware of the benefits of employee dishonesty insurance? Many self-storage facility owners aren’t, even though this coverage can be as important as fire insurance when it comes to protecting your business.

Unlike damage caused by fires, losses due to employee dishonesty may accumulate over time and reach alarming levels before being discovered. If you have one or more employees, you should safeguard your business with this type of important yet affordable coverage.

The Sad Truth

Employee theft ranks as one of the most underreported crimes in the United States. Estimates vary, but it’s safe to say millions of dollars are lost every year. Many business owners suffer severe financial damage and, in the worst cases, end up in bankruptcy. While the majority of dishonest acts are onetime or occasional thefts, most large losses are caused by long-term, ongoing schemes by one or more trusted employees.

Unfortunately, losses due to employee dishonesty are excluded under many commercial property policies. In other words, without specific coverage, you’re at risk.

Many facility owners or operators overlook this kind of insurance because they don’t want to think their staff is capable of dishonesty. But your most-trusted employees are in the best position to use their knowledge of the business to steal or embezzle from you. I know of one case where the owner of a self-storage facility treated a young employee like family—only to find out she’d been siphoning money out of his business for years.

The Defense

What can you do to protect yourself? In addition to securing adequate insurance, the best-available defense includes strict operating controls in combination with careful employee supervision. Several loss-prevention measures are listed below, but first let’s look at commercial-crime exposures in the self-storage industry.

Crime coverage can protect you against losses from robbery, burglary, theft, embezzlement and can be tailored to fit the scope of your operation. In most cases, policies covering business property and liability can be endorsed to include coverage against employee dishonesty and the loss of money and securities from your premises.

It’s important to remember that claims stemming from dishonest acts must be committed with manifest intent, such as an employee lying for personal gain. Without unethical intent, such claims would be disallowed.

Consider also that money, security and property claims are not the only losses that can be covered under employee dishonesty. For an additional premium, endorsements or riders might be available to protect you against check forgery, credit card misuse and computer fraud.

While no employer can completely eliminate employee theft, you should do everything possible to help minimize risk. For example, checks should be stamped “For Deposit Only” immediately upon receipt, and invoices should be marked “Paid” to circumvent the chances of paying the same one twice.

If one employee maintains your books, have someone else reconcile bank deposits and withdrawals. Consider instituting an internal audit system for all financial records and having an independent accountant perform a full audit annually.

Installing surveillance cameras in your manager’s office and other key locations is also effective. While any loss-prevention program can reduce your risk of serious financial damage, your best bet for true peace of mind is adequate dishonesty insurance coverage. Consult with your insurance agent or broker for details.

Criminal Mindset

Understanding why employees engage in dishonest behavior helps to recognize and prevent occurrences. Although a complete analysis of the subject is beyond the scope of this article, there are three key theft motivators to look for:

  • Opportunity. Even the most-trusted employee may be tempted to steal if an opportunity arises and he feels safe from discovery. Eliminating these opportunities through proper loss-prevention controls reduces temptations.
  • Economic or Emotional Pressures. Personal hardships caused by chemical dependency, gambling debts or medical bills may create a situation where an otherwise honest employee may become desperate enough to steal. Maintaining a good rapport with staff members can provide clues about problems they may be experiencing.
  • Employee Attitude. An employee passed over for a raise or promotion may turn to theft to take back what they consider theirs. Again, a combination of loss-control procedures and good communication practices is helpful.

Regardless of the size of your facility, securing adequate coverage is essential. Don’t be vulnerable; it’s always better to be safe than sorry. 

Disclaimer: This article was written as a guideline to aid in minimizing risk at self-storage facilities. The information contained in this document is intended to be of general interest and doesn’t address the circumstances of any particular individual or entity. Nothing in this document constitutes legal advice, nor does any information constitute a comprehensive or complete statement of the issues discussed or the laws relating thereto.

Randy J. Tipton, CIC, is president of Universal Insurance Facilities, where she is responsible for identifying and creating innovative new insurance programs to meet the needs of niche markets including self-storage. A seasoned industry professional with more than 30 years of insurance underwriting, marketing and management experience, Ms Tipton previously served as vice-president of MiniCo. Inc. and the Transamerica Insurance Group. For more information on Universal’s programs for self-storage, visit www.universalinsuranceltd.com

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