Employee Fraud in the Workplace

March 2017

Employee Fraud in the Workplace

According to the Association of Certified Fraud Examiners (ACFE), business losses can reach $400 billion annually as a result of employee-related fraud and embezzlement crimes. Often times, businesses aren’t financially able to absorb these large losses.

Facts about Occupational Fraud1

  • Occupational fraud schemes tend to be extremely costly. The median loss caused by the occupational frauds was $175,000. More than one-quarter of the frauds involved losses of at least $1,000,000.
  • Occupational fraud schemes frequently continue for years before they are detected. The typical fraud lasted two years from the time it began until the time it was caught by the victim.
  • Occupational frauds were most often committed by someone in the accounting department or from upper management.
  • Small businesses are especially vulnerable to occupational fraud. The median loss suffered by organizations with fewer than 100 employees was $200,000!

Common Causes of Employee Fraud

In order to prevent these crimes, it’s important to understand the factors behind them. What causes an employee to succumb to temptation and turn to crime?

  • Opportunity – Even the most honest employee can be tempted to steal if proper controls are not in place and if given the opportunity.
  • Pressure – Economic pressures caused by such things as drug or alcohol dependency, gambling problems, divorce, and serious illness can create a situation where an employee becomes desperate enough to steal.
  • Attitude – An employee who feels they have been treated unfairly may think that the company owes them something and they have a right to take it. This often occurs when someone doesn’t get a raise or promotion they feel they deserve or when the company starts layoffs and they think they are going to lose their job.

What is Employee Dishonesty Coverage?

Although a workplace can put precautions, such as a loss prevention program, into place to deter this type of crime from occurring, there is always an opportunity for theft, fraud, and dishonesty. Employee dishonesty coverage protects businesses against this. Dishonesty insurance offers a degree of protection to employers from deliberate acts of dishonesty including theft of money, assets, property, and information. It may cover property the organization owns or leases, property of others in the organization's custody, and property for which the organization has legal liability.

Coverage Basics

Insurance companies offer this coverage either as a separate policy or as part of a package policy. The amount of coverage depends on the scope of business operations. A business that handles large amounts of cash or securities will require very high limits, while a small business with few employees will require less.

The coverage will vary from one insurer to another. Employee dishonesty policies can cover all employees or specific named employees or non-employees. Examples of  non-employees include former employees, trustees, partners, directors, temporary employees, and seasonal employees. Some companies will extend coverage to certain other non-employees who may have the opportunity to commit theft, such as equipment support technicians, consultants, and vendors.

Some typical exclusions in an employee dishonesty insurance policy include math errors or omissions, accounting errors and omissions, vandalism, government seizure or destruction of business property, profit and loss restatement, theft by policy holder, and loss of income that would have been realized without a damage or loss to property, money, or security.


No business owner wants to believe that he employs dishonest workers, but the ugly truth is that sometimes long-time trusted employees commit these crimes. However, with the right insurance, the organization and its trustworthy employees will survive a large loss caused by the untrustworthy few.

Peel & Holland can provide you and your business with the insurance expertise you need to make sure you’re prepared for risks such as employee dishonesty. As the area’s leading independent insurance agency, Peel & Holland has the depth of experience and the breadth of resources to develop coverage that meets your needs.

1 Association of Certified Fraud Examiners, Inc.



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