Restoration Insurance: Crime Insurance – Phantom Vendor
Last week we showed how susceptible small businesses are to employee-related crimes like theft and forgery. With an average loss amount of over $200,000, we recommend that restoration contractors purchase some sort of crime insurance policy.
We have found one of the best ways to explain the need for crime insurance to talk about some of the claims similar companies have had. So the following is a real-life example of a crime claim that happened to another company.
Description of Event
The head of accounting of a construction firm approved payments to several vendors with made-up names that were very similar to real vendors the company worked with. For example, he approved checks for ABC Company, a legitimate consulting firm the company worked with, and ABC Inc., a phony consulting firm he made up. After more than two year, another employee finally noticed the slight difference in the two names and the accounting employee’s scheme was discovered.
In this particular case, the employee actually took over $500,000 from his employer.
As you can see, even with the proper controls, dishonest employees can still find ways to make off with significant money from their employers. It is for cases exactly like the one above that we recommend looking at a crime policy.