Chubb Report Highlights Employee Theft Concerns

September 14, 2004

A new survey from the Chubb Group of Insurance Companies has found that three in five privately held companies report that it is likely that an employee will steal company funds or equipment this year.

“Executives at 60 percent of the companies surveyed anticipate that employees may steal funds or equipment from the company,” said Chubb’s bulletin, “while 34 percent say employees may steal funds from a client.”

According to The Chubb “2004 Private Company Risk Survey,” 39 percent of private companies report that an employee stole company funds, equipment, inventory or merchandise during the past few years. Nine percent of the companies surveyed report that an employee stole funds from a client.

“Employee crime is one of the biggest and costliest problems facing private businesses today,” stated Lisa McGee, a vice president of Chubb & Son and Private Company Customer Group manager for Chubb Specialty Insurance. “As a provider of crime insurance, Chubb has seen how the theft of funds or equipment can have a devastating financial impact on a company, especially a small private firm.”

In addition to the likelihood of employee theft, Chubb’s survey also found that “Nearly a third of the executives surveyed said employee theft has the potential to inflict financial or other serious damage to their firms. Prior studies support this claim. In its 2002 Report to the Nation, the Association of Certified Fraud Examiners (ACFE) reported that the average organization loses 6 percent of its total annual revenues to fraud and abuse committed by its employees. Small businesses are the most vulnerable. According to the ACFE report, the average scheme in a small business causes $127,500 in losses. The average scheme in the largest companies costs $97,000.”

The Chubb survey also shows that many private companies appear to be responding to the growing threat of employee crime. Thirty-six percent of the companies surveyed plan to conduct a risk assessment of executive protection-related exposures, including crime, this year. 68 percent of the companies conduct employee background checks. Still, despite the fact that more than a third of the companies reported employee thefts in recent years, less than one-fourth said they purchase crime insurance.

“If private company executives are looking for ways to reduce crime, employee background checks are a good place to start,” McGee continued. “But background checks should be coupled with an exhaustive program of internal controls to help reduce employee theft and fraud.”

Private company executives were also asked about their experiences with workplace violence and kidnapping, ransom demands and extortion. Executives at nine percent of the companies reported that an employee was harmed in a violent incident in the workplace or while conducting business. The percentage nearly doubles (16 percent) for larger companies with annual revenues over $1 billion. More than two in five executives surveyed said they anticipate that an employee will be harmed in a violent incident in the workplace this year.

While only three percent of the companies reported that an employee or family member was kidnapped in the past few years, five percent said someone had tried to extort money from the company by threatening to harm its products, facilities or employees. Twenty-three percent of the executives said they think their company may be the target of an extortion attempt this year.

Impulse Research Corp., a market research firm in Los Angeles, conducted the survey. The firm interviewed the chief executive, financial and other top officers at 300 privately held companies.

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