A Few Good Men Go Mad

Fans of AMC's series, "Mad Men" undoubtedly remember the grizzly suicide of  character Lane Price.  Lane, a seemingly honest and "good" employee, had embezzled $8,000 from the company account to cover a personal tax bill. When caught by Partner Don Draper, Lane was given the "opportunity" to resign without any legal ramifications.  Faced with the humiliation of being caught, Lane hung himself in the office.

Insurance junkies like me ponder the insurance ramifications of the embezzlement   Did Don contact his insurance agent to initiate a claim for employee theft? Did the firm have employee dishonesty coverage?  Did the agent recommend a fidelity bond?  But I digress.

Ask any business owner if his insurance program covers loss by theft and the answer will be a resounding "Yes."  Ask that same business owner if his insurance program covers loss by employee theft and the answer will be "It better."  Many just assume employee dishonesty is covered.

The sad fact is that employee theft is excluded under almost every business insurance policy. This invaluable coverage, often covered via a vehicle known as a fidelity bond, must be specifically added to the insurance program with an appropriate additional premium.

Today's media abounds with stories of embezzlement by "good" people at all types of businesses.  Here are a few real life headlines about "good men" gone "mad":

• Former University Athletic Director allegedly diverted as much as $150,000 from his department's budget for personal use
• Former State Agriculture Commissioner accused of misusing state funds
• Two employees of a College Preparatory Academy are accused of stealing and/or misusing $148,000
• Employee of an accounting firm is accused of stealing more than $100,000 from the payroll account of one of their clients
• The treasurer of a Youth Soccer Association was charged with theft of embezzling $64,800 from the organization

Like AMC's fictitious firm of Sterling, Cooper, Draper, Price, employee embezzlement can exist right under the owner's nose.  No business is immune from the possibility of employee theft.  The most trusted, long-term employee may be caught up in gambling debt, drug addiction, or large medical expenses.  That may be enough to turn a "good man", mad.

What can you do to keep your "good men" honest?

1. Implement anti-theft procedures and internal controls to prevent misappropriation of funds.  Controls are put into place to keep honest folks honest.
2. Create a culture of honesty in your organization.  Encourage all employees to be vigilant and report any "suspicious" behaviors.
3. Run credit and background check on new hires and at regular periods for all employees.

What if Don Draper had decided to forgive Lane Price?  Instead of firing Lane, what if Don had made a concession and let Lane remain with the firm?  He was a "good" employee, right? 

CAUTION to any business owner that has contemplated this type of decision before.  Since Don was aware that Lane had committed a dishonest act, any future dishonest act by Lane would not have been covered. 

A common exclusion in an employee dishonesty policy removes coverage for any acts committed after the insured first becomes aware of any dishonesty on the part of said employee.  In other words, if Lane later embezzled $25,000, the firm's employee dishonesty policy would not cover that claim.  

Prepare for the unlikely event that one of your "good men" may turn into a "mad man". Talk to your Trusted Choice agent about adding employee dishonesty coverage to your insurance program today..