Don't Be A Business at Risk

You order appropriate background checks on all new hires...that’s good.  You institute internal controls creating obstacles against fraud and theft...that’s good, too.  But what about recovering from a loss when an employee or outsider finds a way to circumvent your system?  Even when the loss is discovered, investigated and the fraudster dealt with, you are still left with a financial loss and feeling shortchanged. 

Fidelity Bonds are purchased with a set limit on the amount that can be recovered called the “penal sum,” which is another term for policy limits. Depending on the amount of the penal sum purchased, the insurance carrier can require certain background research in advance, such as credit and criminal checks.  The higher the penal sum, the more in-depth the qualification inquiry of the person/s to be insured.   The premium for a fidelity bond is quite reasonable, usually anywhere from 1 to 3% of the penal sum depending on the risk evaluation.  So, all things being equal, a fidelity bond in the amount of $50,000.00, should cost somewhere between $500.00 to $1,500.00 per year or anywhere between $10.00 and $30.00 per week.  Not a bad investment against an unanticipated and serious financial setback the result of fraud or theft.

Employee Dishonesty coverage is usually part of a Crime Policy.   Again, the premium you pay depends upon the policy limits; but unlike the fidelity bond, the number of employees in particular positions dictates the premium.  For example, the carrier would want to determine who signs checks, who has access to sensitive information and who is responsible for secure areas of the facility.  The insurance carrier on a Crime Policy would want to know your loss history, as well.  Again, unlike the fidelity bond, the crime policy carrier doesn’t usually go into background checks on employees; rather, it takes an overall view of the operation and its risk factors.  I checked into this and found that a $100,000.00 policy was recently written for a company with ten employees and the premium was about $800.00 per year.  Imagine suffering a $100,000.00 loss without hope of recovery when an insurance policy costing $15.00 a week would have protected you!

Employee theft/fraud accounts for 6% of a company’s gross annual revenues, according to a study by the Association of Certified Fraud Examiners.  Small businesses are particularly vulnerable to this type of loss due to a lack of monetary depth and close profit margins.  In fact, a major loss can even result in shut-down

You buy business auto coverage, workers’ compensation, general liability and maybe errors and omission insurance, so shouldn’t you consider adding a fidelity bond or crime insurance to your overall business insurance package? 

Finally, just so you know, I don’t sell insurance, nor do I gain anything from the purchase of a policy.  My mission is simple.  I try to educate the business community about fraud, theft & embezzlement whenever I can.   Now...go talk to your insurance representative: Don’t be a Business at Risk!

Dave Watts is a Certified Legal Investigator in New Jersey. For over 30 years he has conducted all types of investigations for law firms, businesses and individuals. He and Linda, his wife of over 50 years, live in both Califon, NJ and Sanibel, FL. He can be reached at (800) 950-4808 or

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