It starts with a few dollars missing here or an item or two there. At first, you may be too busy to notice or brush it off as a simple mistake or error. However, employee dishonesty may also be the cause, and if you ignore the loss, it may simply embolden the person to try again and potentially seek bigger targets.
The losses suffered through in-house theft can accumulate over time and often aren’t discovered until they reach alarming rates. By then, more damage has been done. Thankfully, employee-dishonesty insurance is designed to protect your self-storage business from such events. In truth, this coverage is as important as fire and flood insurance.
Business Risk
Employee theft ranks as one of the most underreported crimes in the United States. Estimates vary, but experts agree that billions of dollars are lost to it every year. Many victimized business owners suffer severe financial damage and, in the worst cases, bankruptcy.
While many dishonest acts are one-time or occasional, large losses are often caused by long-term, ongoing schemes by one or more staff members. It’s often the best and most-trusted people who are in the most advantageous position to use their knowledge of the company to steal from you. In one notable case, a self-storage owner treated a young employee like family, only to find out she’d been siphoning money from the business for years.
Unlike losses due to burglary and robbery, those caused by employee dishonesty are excluded under many commercial-property policies. Without specific coverage, your storage business is at risk. Employee-dishonesty insurance allows you to hope for the best in your staff while helping prepare you for the worst.
Why Dishonesty Occurs
The forces that give rise to employee dishonesty are as complex and varied as the individuals who perpetrate such acts. It’s beneficial to understand why staff engage in this behavior. It might help you recognize the signs of a potential problem and even enable you to prevent these situations from occurring. Though a complete analysis of the subject is beyond the scope of this article, here are three theft motivators you should recognize:
Opportunity. Even the most loyal employee might be tempted to steal if an opportunity arises in which they feel safe from discovery. Eliminating these openings and an atmosphere of complacency through proper loss-prevention controls can help remove such temptations.
Economic or emotional pressure. Personal hardships caused by chemical dependency, gambling debts or medical bills can create a situation in which an otherwise honest employee may become desperate enough to steal. Maintaining a good rapport with staff will provide clues about problems they may be experiencing.
Attitude. An employee who feels they’ve been passed over for a raise or promotion may turn to theft by way of a misplaced sense of retribution, trying to take back what they consider theirs. A combination of sound loss-control procedures and solid communication practices can reduce such situations.
Coverage Options
Now, let’s take a look at some of the commercial crime exposures facing a self-storage business and the coverages available.
Crime coverage. This protects you against losses from robbery, burglary, theft, embezzlement and other risks, and can be tailored to fit the size and scope of your business. In most cases, your business-property and liability-package policy can be endorsed to provide coverage against employee dishonesty. It can also cover the loss of money and securities from your premises, and the loss of other covered business property such as computers and cell phones.
One important point to remember about employee-dishonesty claims is the acts must be committed with manifest intent. That is, a loss resulting from an unethical act such as lying, due to the employee seeking personal gain. Without manifest intent, such claims would be disallowed.
Endorsements or riders. Consider also that money and security claims as well as business-personal claims aren’t the only losses that can be covered under employee dishonesty. Endorsements or riders are available to protect you against check forgery, credit card misuse and computer fraud. These supplement your existing protection and are available for an additional cost.
Protocols and Supervision
In addition to securing adequate insurance protection, the best available defense against employee dishonest includes implementing strict operating controls in combination with effective staff supervision. There are several steps you can take to help minimize the risks:
- Checks should be stamped "For Deposit Only" immediately upon receipt. They should be scanned or copied and filed securely.
- Invoices should be stamped “Paid” to circumvent the chances of the company paying the same invoice twice.
- If an employee maintains your books, ensure someone reconciles bank accounts other than the person who handles deposits and withdrawals.
- Institute an internal-audit system for all financial records and have an independent accountant perform a full audit annually.
- Security controls and procedures, such as installing surveillance cameras in your manager's office and other key locations, can also deter or prevent dishonest acts.
Implementing a loss-prevention program at your self-storage facility can reduce your risk of serious financial damage. However, for true peace of mind, your best bet is to purchase adequate employee-dishonesty insurance coverage, regardless of the size of your property. Contact a licensed insurance agent or broker to review the coverages available to protect your business from this type of theft.
Disclaimer: This article was written as a guideline to aid in minimizing risk at self-storage facilities. The information is intended to be of general interest and doesn’t address the circumstances of any particular individual or entity. Nothing in this document constitutes legal advice, nor does any information constitute a comprehensive or complete statement of the issues discussed or the laws relating thereto.
Jenny Bortman is vice president at Universal Insurance Programs, which has created and provided specialized insurance coverages to the self-storage industry for more than 20 years. For more information, call 602.222.8300.
