Honesty doesn’t always pay, but dishonesty costs: Why prevention is better than cure for agencies
Many businesses think they understand what professional indemnity insurance protects them from – claims made against them, usually by clients dissatisfied with work that has (or has not) been done.
Honesty doesn’t always pay, but dishonesty costs
But they may not realise that some wordings contain enhanced cover, which protects them more widely than this.
Take dishonesty, for example, when a company experiences dishonesty, it can be one of two types: either theft by an employee from the company itself, or from one of its clients.
Say for example you have someone in your accounts team who deals with all your client and supplier accounts. They could set up a separate account and transfer small sums of money to that account.
It sounds as if it should be simple to spot, but when you’re talking about small incremental amounts for seemingly routine transactions over a number of months – or maybe years – it can go into tens or hundreds of thousands.
If you’re turning over £1m a year, will you really notice an invoice for an extra printer cartridge – that somehow gets paid into a different account?
These things start small, but over time they usually get bigger, that’s theft by an employee from the business itself.
Employees can do something similar to steal from clients – if you’re an agency supplying staff, products or services to a larger business, it’s not impossible for a clever employee to issue additional invoices – that get paid into their account. This kind of theft is, arguably, worse – not only has money been taken, but also the agency loses its reputation in the eyes of its client.
One form this dishonesty can take is that of the non-existent employee. An employee that does not actually exist can be added to the company payroll and payments (such as salary or expenses) redirected to someone else’s bank account. Alternatively, invoices can be raised for non-existent work and charged to clients, with payments redirected elsewhere.
Unfortunately, we’ve had to deal with these kind of claims before, and again the devil is in the detail – check the wording on your policy. Many will give cover for first and third-party dishonesty, but not all of them do and it’s a useful extra to have.
Clearly, prevention is better than cure, so we would always want to be sure good policies and procedures are in place to minimise the chance of this happening – such as two signatories when issuing cheques or authorising payment by Bacs.
That might seem additional hassle, but could save a great deal of pain in the long-term.
For more insight and comments from media and marketing professionals visit: http://www.hiscox.co.uk/business-blog/
Sam Newman, head of emerging professional indemnity and charities, Hiscox
Web: www.hiscox.co.uk/drum
Twitter: @hiscoxuk