Are you trusting the wrong people?

Most employers like to think of their employees as inherently trustworthy, but employee fraud and dishonesty can have devastating results for a company. Make sure you have the appropriate cover to mitigate your risk, advises Apio director Devon Bishop.

Are you trusting the wrong people - chat to Apio about cover

In South Africa the risk of commercial crime is high, with a recent spike in employee related losses, and yet many business owners don’t perceive a risk to their business. However, a significant loss of stock or misappropriation of company funds through employee fraud could potentially drive businesses into business rescue or even liquidation when the owners have failed to insure against commercial crime.

Commercial crime is a hot topic in South Africa currently. Typically most business owners buy theft cover. However, very few insure against commercial crime, and when they do, they need to be aware that their exposure to commercial crime is often higher than theft, so it requires increased sums insured.

Specialised cover is a must if a serious incident could be a loss your company can’t recover from. How certain are you that the controls in your business can withstand employee fraud? Most companies have a segregation of duties and tasks, and dual banking signoffs required, but your employees know your business – and its vulnerabilities – better than any outsider.

Bear in mind also that in certain incidences, for example theft in a factory or warehouse, when an outside party is responsible, an alarm is likely to be triggered and your security company will respond, limiting the window of opportunity for the loss of valuable merchandise. However, if the alarm has been disabled by an insider, the window of opportunity is potentially far longer, and the losses are likely to be very significantly higher.

Legally, in South Africa a polygraph test will not stand up in court, and all insurance policies will not accept a failed polygraph test as evidence of employee dishonesty or fraud. Equally, theft insurance will likely not cover commercial crime.

Historically, Fidelity cover required proof of personal financial gain. However, with commercial crime cover, personal financial gain is not considered a defined event, reducing the burden of proof needed by the insured. Commercial crime will provide a specialised loss adjustor to investigate the claim and help recover lost goods or monies, as recovery of losses is by far the most desirable outcome for the business and insurers. The cover will also include computer fraud from a third party.

It can seem like an unwanted expense to invest in commercial crime cover and some business owners believe they can manage this risk, but it’s often the case that they only discover a significant loss once it has taken place already.

We view commercial crime as a catastrophe cover and would advise business owners to buy as high a limit as possible with a deductible that is palatable for the business. Discuss your risk exposure with your advisor to make sure that you’re appropriately insured.