Graphic Business News

Insuring against employee dishonesty

By: Mawuli Zogbenu

“There is no art to find the mind’s construction in the face..... William Shakespeare”

With the proliferation of financial institutions and other business sectors that require the direct or indirect use and handling of money, it has become very important for businesses to guard themselves against the likelihood of  their investments going down the drain in fictitious ways masterminded by none but some of their own employees.

Just get a copy of the Daily Graphic and its sister brands and you will be amazed at the number of disclaimers being published almost on a daily basis. Though not all the disclaimers may impute criminal motive, fact is that, a chunk of them are associated with financial improprieties.

Sadly though for the ‘culprits’, most of these published ‘Disclaimers’ come with their photographs, often young persons who may have been dismissed for misdemeanour. A typical disclaimer reads as:

“The general public is hereby informed that ‘Ms Koikoi’, whose picture appears above, is no longer an employee of ‘Tokpakpo Limited’. Anybody who transacts business with her on behalf of the company does so at his or her own risk.”

“The Tsiafo Divisional Police has issued a bench warrant for the arrest of ‘Mr Koikoi’, a former employee of Tokpakpo Ltd, for stealing an amount of GHC200,000 belonging to his employers.”

Even though these publications may well generate huge revenue for the publishers, I am inclined to believe that the publishers would rather have preferred using the limited spaces in their newspapers for more important developmental issues such as sanitation, agriculture, education, business, housing etc. as their core mandate.

Background check on employees
Undoubtedly, doing background checks on employees before engaging them is useful in curbing the menace of in-organisation crime as job seekers are often considered on the bases of their competence and character / integrity.

Unfortunately, after recruitment, some individuals, who believe in the “everybody eats from his workplace” cliché, tend to acquire criminal tendencies, which often leads them into committing various crimes against the organisations that put food on their tables, mostly by exploiting the obvious weaknesses in the organisation’s control systems.

Obviously, when presented with loose organisational systems, even the most “angelic” may be tempted to unscrupulously exploit the system.

To mitigate the losses arising from these dishonest conducts of some employees, insurers have almost invariably emphasised the need for a policy called the Fidelity Guarantee (FG) Insurance.

What does Fidelity Guarantee do?

The Fidelity Guarantee policy indemnifies employers against financial losses, arising from the dishonest conduct of an employee, relative to his or her job schedule. Similar to the general insurance principles, the policy premises that an employer will be compensated for direct financial loss(es) resulting from an employee’s dishonesty.

The policy does not indemnify employers against consequential losses, but rather pecuniary (financial) losses on account of forgery, embezzlement, fraudulent conversion and diversion by employees with the view to providing protection against losses arising out of the dishonesty of an individual acting in a fiduciary capacity such as an accountant, cashier, storekeeper, salesperson etc.

Policy scope
The cover takes care of the loss(es) suffered by the employer by reason of any act of fraud and / or dishonesty involving money or wares of the employer on the part of the employee occurring on or after the date of commencement of the policy, while still in the service of the employer.

The policy may cover either an employee or group of employees, and usually has 12 months duration. However, in the event of death, dismissal or retirement of the employee, within the 12 calendar months, the employer may still be entitled to a claim.

Policy requirements
Just like many other insurance policies, the following specific requirements need to be met by employers to enable them to purchase a Fidelity Guarantee Policy:
•    Existence of control systems and employees’ supervision mechanisms.
•    Employees’ bio-data (including their character profile).
•    Details of how guaranteed employees keep record.
•    A former employer’s reference report
•    Employees’ completed application form, etc.
Types of Fidelity Guarantee Insurance
Typically there are four (4) types of FG Insurance as follows:
•    Individual Employee Cover: This type of FG policy provides cover for individual employees for a stated sum assured or the quantum of money to expect in the event of a loss.
•    Collective Cover: This policy provides cover for a group of employees.
•    Floating Cover: Policy shows a single amount, representing the insurer’s liability in respect of both an individual and multiple individuals who would be individually named in the policy schedule.
•    Blanket Cover: Taken for a group of ‘money-sensitive’, without showing their individual names. Typical cover is for blue-chip companies which have sound ethical practices.

Claims and the employer’s responsibility 
Apart from Common Law, essentially employers have a responsibility to establish a code to guide the conduct of employees, especially those whose job schedules expose them to the tendency to be involved in such improprieties.
Moreover, when a loss arises in relation to an FG Policy, the employer is required to take immediate steps against the defaulting employee for the recovery of cash or goods, without prejudice to other disciplinary actions (including a report to the police and the publication of disclaimer in the media).
Arguably, employee-related crimes are usually sophisticated and difficult to establish (similar to establishing marital infidelity), but the burden of proof ultimately lies with the employer. Thus, the employer bears the cost of enquiries, accounting and audit, as well as submission of detailed documentations and evidences to the insurer, usually after a forensic audit. The following are, therefore, required for a claim:
    Completed claim form
    Forensic audit report
    Other documentation as may be required by the insurer

Some policy exclusions
Insurers may repudiate an FG claim if:
    The loss was noticed during stock-taking and those stocks were not covered;
    At the time of the loss, any other policy existed to cover the same loss;
    The employer does not submit valid and reliable proof of loss to the insurer;
    The loss is not a result of dishonesty but accountancy errors;
    The loss did not occur in the course of official duties;
    The guaranteed employee leaves employment, but later re-engaged, without the prior notice of the insurer and;
    The loss is not relative to monies or goods belonging to the employer.

The way forward
The effects of the activities of some unscrupulous employees, especially in recent ‘get-rich-quick times’, need no over-emphasis. For employers to have the fortitude and effectively concentrate on their core business of providing essential products and services, it is imperative to consider a Fidelity Guarantee Insurance so that they may get reparation for losses arising from employee dishonesty.