Employee Dishonesty —Limit Your Exposure
This month, let’s tackle a subject that, although tough to accept, needs to be at the forefront of every business owner’s mind — employee dishonesty. You provide a safe, secure work place for your employees and, in return, you expect them to have the best interests of the business (and you as the owner) in mind. Most business owners think their employees would never steal from them. You hope they report their time worked accurately, use resources efficiently, treat customers and their property with care and respect, and do not take money or property that does not belong to them. Unfortunately, this is not always the case. According to the Association of Certified Fraud Examiners, U.S. businesses lose an estimated 7 percent of their annual revenues to employee fraud and abuse. That adds up to over $990 billion a year.
Car washes are especially vulnerable to these types of losses. A high percentage of a car wash’s transactions are potentially in cash, leaving little, if any, paper trail and making it very easy for an employee to take the money with virtually no proof it was ever there. There also tends to be cash on hand at all times for change machines and after collection times. Diligent risk management can reduce the likelihood of an employee-dishonesty loss at your car wash. Before you hire an employee, do criminal background checks and screenings on every potential candidate. Depending on your city, county, and state, this can cost anywhere from $25 to $100 per screening, but you can see how spending a little money pre-hire can help avoid a loss in the future. Calling references and interviewing can also give insight about a job candidate.
If you entrust employees to handle the business’s financial accounts, having a system of checks and balances or separation of duties can prevent fraud. For example, always require two signatures on checks, or require that you, the owner, be the only authorized signatory. Assign the duty of making the deposits to someone other than the person who keeps the books and writes the checks. There is also software designed to identify unusual vendor payments or someone that is getting an unusual number of payments.
Surveillance cameras, which may already be installed at the car wash as part of an overall loss-prevention program, can also be a deterrent of employee theft. Use common sense and keep valuables secure at all times. If a safe is available, use it for money and securities. Lock valuable items in a designated closet or supply room. And, finally, as the car wash owner, set the tone of strong ethics and let employees know that unethical, fraudulent behavior will not be tolerated and they will be prosecuted if the law is broken. Keeping detailed and updated records also help avoid employee dishonesty. If employees know accurate records are kept, there’s less opportunity to commit fraud, as it will be easier to detect.
What if this happens to me? Is this kind of loss covered by insurance? The answer is yes. Employee-dishonesty coverage may be included in your business owners’ or package policy. It is also referred to as crime coverage or may be called a fidelity bond. These policies cover theft of business property — which could be money, securities, and business personal property — by current and former employees, directors, members, and even volunteers. Some policies also cover forgery, credit card fraud, computer fraud, and funds transfer fraud. Some common exclusions to the coverage are your own criminal activities and accounting errors.
This coverage should always be considered when an employee is entrusted to handle cash, write checks, or has access to bank accounts and other valuable assets of the business. Most policies will have a deductible, and some will require criminal prosecution of the employee. Read your policy for specific coverages, deductibles, and requirements. Insurance regulations vary by state and all policies are different. Enquire with your state’s Department of Insurance or an insurance agent for specific questions regarding your coverage.
If you need to deal with employee dishonesty, it is most important to proceed with caution. Keep the investigation low-key, and do not make accusations or suspicions known until you have supporting documents. Contacting legal counsel and law enforcement (if a criminal act was committed) at the beginning of the investigation is recommended to protect yourself during the process. Also contact your insurance carrier, as they may be able to assist in the investigation and guide you in obtaining the documents necessary to turn in a claim.
Most employees have good intentions and act ethically when handling business assets. Be sure, however, to arm your car wash with proactive risk management and insurance coverage to protect it from employee fraud if it should ever occur.
Summer Cole is the car wash program director of Joplin, MO-based The Insurancenter. The Insurancenter has been insuring the car wash industry for over 25 years, and is the largest writer of car wash insurance nationwide.