Most Business Owners Policies (BOPs) list “Employee Dishonesty” on the declarations page—yet when embezzlement strikes, many owners are blindsided to learn the limits are small, the exclusions are broad, and the proof requirements are strict.
What’s happening in small businesses today
Embezzlement is not rare—it’s a steady, ongoing risk. Many cases involve trusted employees in accounting, payroll, or management who manipulate financial systems over years before being caught. Cyber-enabled theft adds a modern twist, with payroll diversion, fake vendor schemes, and email-based payment requests blending into internal processes so well that losses can look like “business as usual” until it’s too late.
Examples from recent years include:
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Bookkeepers quietly siphoning hundreds of thousands of dollars over time.
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Payroll coordinators rerouting direct deposits to personal accounts.
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Employees creating fake vendors and approving payments to themselves.
In each case, the business either had no coverage or discovered their BOP only paid a fraction of the loss.
Why payouts are often small or denied
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Low BOP limits – Standard BOP sub limits for “Employee Dishonesty” are often $10,000–$50,000 unless you’ve purchased a separate crime policy.
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Coverage scope confusion – Employee Dishonesty coverage protects your business from your own employees. It’s different from a business service bond, which protects your customers from your employees.
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Proof pitfalls – Many policies won’t pay if the only evidence is an “inventory shortage” or “profit and loss” analysis. Insurers often require direct proof like bank records, forged checks, or audit trails tied to a specific act.
How to protect your business
1) Buy the right coverage
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Increase your Employee Dishonesty limit or purchase a dedicated Commercial Crime policy.
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Add Social Engineering Fraud and Funds Transfer Fraud endorsements to protect against cyber-enabled theft.
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If your team works on client premises or handles client funds, consider a business service bond.
2) Build strong internal controls
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Segregate duties so no single person can create vendors, approve payments, and reconcile accounts.
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Require dual approval for ACH and wire transfers, use Positive Pay for checks, and set transaction limits with alerts.
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Verify vendor changes and payroll changes through a separate communication channel.
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Enforce rotating vacations and surprise audits to force potential fraud into the open.
3) Prepare to make a claim
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Keep clear, accessible records—bank statements, approval logs, and user activity reports.
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Understand your policy’s reporting deadlines and evidence requirements before a loss occurs.
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Avoid relying solely on inventory discrepancies to prove theft.
4) Vet your employees
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Conduct thorough pre-employment screening for positions with access to money, inventory, or sensitive systems.
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Re-vet employees in high-trust roles periodically.
Annual “Dishonesty & Fraud” Review
Every year, review your limits, test your internal controls with a simulated fraud attempt, schedule a surprise audit, and confirm your claim documentation is ready.
Bottom line: A $25,000 BOP sublimit won’t cover a six-figure theft. Upgrade your coverage, tighten your controls, and be prepared before a dishonest act threatens your business.
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#InternalControls, #LossPrevention #Prevention
Carl Slicer, CEO, BestHire, LLC
📞 Tel: 860-872-0055 | 📠 Fax: 860-870-8005
📧 CSlicer@BestHire.com
🌐 www.BestHire.com
📬 PO Box 842, Vernon, CT 06066
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