Employee/volunteer theft are more prevalent than many realize
Sports and recreation organizations can have significant assets at risk from the traditional employee or volunteer embezzlement and the modern perils of electronic fraud. Most sports organizations are not properly insured for these exposures and don’t have adequate risk management controls in place.
The Commercial Crime policy form (ISO CR 00 20 05 06 and CR 00 21 05 06) offers the following coverage parts that may be individually purchased:
Employee Dishonesty Provides coverage for employee theft of money, securities, or other property such as equipment. Employees are defined as regular employees, temporary workers, leased workers, trustees of employee benefit plans, interns, managers, directors, or trustees.
If applicable, it is critical that sports and recreation organizations request special endorsements to extend coverage to theft from volunteers, non-compensated officers and members of specified committees, specified directors and trustees on committees, partners, LLC members, computer software contractors, agents, brokers, or independent contractors.
It is also important to purchase Employee Dishonesty coverage on a blanket basis that protects against theft from all employees or others in a designated class as opposed to specified employees or others who must be individually named on the policy. Sports and recreation organizations experience a high rate of personnel turnover. It’s not uncommon for an organization to fail to update the list of specified employees.
Forgery and Alternation Provides coverage for forgery or alteration of a check, draft, or promissory note drawn against the insured’s accounts.
Money and Securities Provides coverage for theft, disappearance, or destruction of money and securities from either inside the premises/banking premises or outside the premises. Coverage may also be extended to robbery or safe burglary of other property.
Computer Fraud Provides coverage for financial loss due hacker access effecting a fraudulent transaction. An example of computer fraud occurs when company A sells services to company B. An employee of company B hacks into the computer of company A and changes the bank routing and account numbers. The next time a payment is made for services, the funds are fraudulently transferred to the employee instead of company A. According to a 2008 survey by Computer Security Institute, the average financial loss due to computer fraud was $289,000.
Electronic Funds Transfer Fraud Provides coverage for financial loss due to a hacker access to a financial institution, accessing an online account, and circumventing normal online authentication controls to affect a fraudulent wire transfer. An example of this type of fraud occurs when a hacker gains bank account and password information by planting a Trojan virus in an email attachment sent to a company bookkeeper. When the attachment is opened, a keyword logger is launched that secretly obtains account and password information. The hacker accesses the online banking system and completes a fraudulent electronic wire transfer. According to a 2008 survey by Computer Security Institute, the average financial loss due to funds transfer fraud was $500,000.
Money Orders and Counterfeiting Provides coverage due to loss by good faith acceptance of money orders that are not honored or counterfeit money.
Traditional Crime Risk Management Controls
Many smaller organizations are not run as serious businesses and as a result don’t have strong risk management controls to protect against employee and volunteer dishonesty. The key to preventing insider dishonesty is separation of duties so that no single person has total control over any one process or audit procedure. Below are recommended controls:
- Require a countersignature on all checks or on checks over a certain amount.
- The person who reconciles the bank account should not be authorized to deposit or withdraw funds.
- If credit cards or debit cards are used, authorized users should not be tasked with reviewing the monthly statements.
- Keep detailed inventory records of all equipment and require a log to be maintained when equipment is assigned or checked out.
- Create an audit committee to review all financial records, account statements, and to take an inventory of all equipment.
- Collect checks instead of cash during fundraisers.
Electronic Crime Risk Management Controls
Pfishing scams, Trojans, key loggers, and similar techniques allow hackers to gain access to online banking transactions and to circumvent standard online authentication controls. Internal controls such as antivirus software, firewalls, and employee training are critical but don’t offer 100 percent protection. Computer Fraud and Electronic Funds Transfer Fraud coverages are strongly recommended.
Get a Quote
Contact Sadler Sports & Recreation Insurance at 800-622-7370 for a Crime Insurance quote. We have an existing Crime Insurance program available for smaller, locally-based organizations for as little as $175, which includes coverage for Employee Dishonesty, Forgery and Alteration, and Theft of Money and Securities. Larger sanctioning and governing bodies will be asked to complete an application that outlines your financial risk management practices and we will be able to provide a proposal within several days in most cases.