When good employees go bad

No employer wants to believe that their trusted employees would steal from them. Unfortunately, the unpleasant reality is that theft by servant is all too common.

Because of their trusted positions, it is often far easier for employees to steal from a company than any outsider. In other words, it is precisely these people who are familiar with the business to have the insider knowledge and information of its vulnerable areas.

Employees also have the added opportunity to cover their tracks so that the act can be concealed from detection and probably repeated. Once an employee begins siphoning funds from their employer, it often continues over a sustained period resulting in incremental but eventually substantial losses. Anything that can be stolen by third parties can be taken even more easily by insiders!

It is necessary to realise that other than greed there is no specific common denominator that distinguishes fraudulent employees from honest workers. White-collar offenders are mostly intelligent, manipulative and do not see themselves as hard core criminals. These offenders do not have a specific generic composition or social segmentation and therefore it is unpredictable as to which type or definition of employee has the potential to fit the profile of a white-collar criminal. Gambling addiction, drug or alcohol dependency, divorce, and terminal illness can and does exert unbearable economic pressures and stress that tends to create a situation where an employee becomes sufficiently tempted and desperate to steal.

An extenuating factor that may influence an employee’s sense of discretion and judgment arises if an employee feels they have been unfairly treated. Perceived or real mistreatment or financial desperation can lead to illegal actions by an employee who has bills that far exceed his or her income as a form of exacting revenge and retribution.

What starts out as a one-time act of “borrowing” to cover an exceptional expense can develop into a habit that extends over months, years and graduates into amounts in excess of millions of kwacha.

Even with the best internal audit and regulated controls as well as efforts to create a positive and conducive workplace, an employer can still fall prey to cheque tampering, loss from fictitious accounts or suppliers, embezzlement, or counterfeiting, among other losses. The problem could be getting worse with the increasing reliance by employers on technology that may open up additional avenues of entry into business accounts from professional unethical hackers or employees.

A fidelity guarantee as issued by the insurers is a contract of insurance and also a contract of guarantee to which the general principles of insurance apply. It does not guarantee the employees honesty at all material times but it guarantees that if and when the employer suffers any direct financial loss arising out of the employees’ dishonesty the insurers shall indemnify the said loss to the employer within the limitations prescribed by the contract.

Fidelity guarantee insurance known in other parlances as employee dishonesty insurance covers pecuniary losses sustained by the employer through acts of fraud, dishonesty, forgery or larceny committed by his employees in connection with their occupation and duties. The loss can be the result of employee’s theft of money or property belonging to the business, or of that for which the business is responsible, and the employee must have obtained direct financial gain from these dishonest actions. In other words, it covers property the organisation owns or leases, property of others in the organisation’s custody, and property for which the organisation has legal liability.

Typical exclusions in a fidelity guarantee insurance policy include mathematical errors or omissions, vandalism, government seizure or destruction of business property, profit and loss restatement, and loss by an act committed subsequent to an earlier act of dishonesty / fraud that had come to your notice. This is not an exhaustive list!

This literature only spells out the salient features of the cover. You may visit an insurance broker for more details on risk factors, terms and conditions.

With the right insurance coverage, the organisation and its trustworthy employees will survive a large loss caused by the untrustworthy few.