Policy Spotlight: Employee Dishonesty Coverage
Your insurance policy includes Crime coverage, which is also referred to as Dishonesty coverage. Paul Stephens, Vice President, Marketing and Risk Management Services for Church Insurance, says that it’s necessary for religious organizations to take steps for absconding, or embezzlement, prevention.
To reduce the risk of embezzlement, institute controls to make sure no one has too much influence over your organization’s finances. Paul suggests safeguards such as the following:
- Separation of duties – Break up financial processes so multiple volunteers or employees are responsible for different steps along the way. “If one person is collecting money, another person or persons should re-count and deposit it,” Paul says.
- Check signature levels – The treasurer may be able to sign checks up to a certain amount; larger checks would require a separate (or additional) signature.
- Annual audit – Have a qualified, financially knowledgeable outside party review financial transactions; it’s essential in preventing and/or detecting this type of risk.
Protect Your Treasurer
The controls Paul suggests help your treasurer and anyone else who is in a money-handling or financial position at your organization. “If you don’t have the proper controls in place, it’s not fair to your treasurer. Anyone could make an allegation against them, and they would have no process or best practices supporting their work,” he says.
The Perfect Storm
Paul shares an example of embezzlement that occurred at a small church. “When we discussed crime coverage, church leaders said they didn’t have enough money to worry about anyone embezzling from them.”
Then a new vestry member did a cursory audit, found anomalies, and called Paul to request that a forensic accountant be assigned to dig deeper into the church’s finances. It turned out that over the course of several years, an employee had stolen more than multiple times the policy limit at the time of the claim. “The loss was devastating to them,” Paul says.
He describes the situation as the “perfect storm” because one individual had total control over both the revenue and expense sides. The employee was even allowed to conduct the audit every year.
How Much Coverage to Carry
Paul says policies have suggested built-in limits, but clients can always buy additional coverage. A religious organization may consider following a rule of thumb for choosing a coverage limit, such as 5% or more of its total assets, or 25% of total annual revenue from all sources. “Look at the strength of the controls you have in place, and based on that—and what you have at stake—determine your limit,” Paul advises. Your Church Insurance representative can help you through this process.
For more information about crime coverage, contact your Church Insurance representative.