There are many types of insurance coverages available to a business owner to protect one’s business against many types of risks and perils. Many business owners, however, are unaware of various types of bonds available.
When your business has a Fidelity Bond, it protects against the risk management to handle issues with dishonest employees. Fidelity bonds are designed to cover losses incurred due to employee theft from your business or your customers. Here we look at fidelity bonds and how they can protect your business.
What is a fidelity bond?
Fidelity bonds are an excellent supplement for your business insurance. They protect you against employees who commit fraud, embezzlement, negligent acts, or other dishonest practices that directly impact your business.
What types of fidelity bonds are available?
For complete risk-management, you can choose from 3 types of fidelity bonds to cover all possible scenarios, including:
Business Services Fidelity Bonds
If your business requires that services are performed at the site of your customer, this is the bond for you. It provides protection against financial liability for the loss of customer’s or client’s money, securities and personal property caused by acts of misconduct or dishonest employees of the insured while on the client’s premises. This type of bond is usually carried by businesses like a janitorial service company, a contractor, a maid service, a dog walker etc.
Commercial crime fidelity bonds
Also affectionately called “employee dishonesty bonds,” these bonds are important for services where employees are entrusted with handling cash such as banks. However, it also applies to employees who assist with your accounting or who handle cash such as cashiers.
This protects your business from embezzlers. Just about any organization, including non-profits and churches, should consider dishonesty bonds.
Why do I need fidelity bonds?
There is no way of knowing if you will experience working with a dishonest employee. Because this can happen to any organization, your fidelity bonds provide damages should you lose out due to theft or embezzlement. Business insurance doesn’t generally cover you in these cases, so it is unwise not to have protection for these instances.
What are the benefits of fidelity bonds?
While fidelity bonds are an excellent risk management tool, they also have many other benefits, including:
- They offer a competitive advantage over companies that are not bonded
- They make clients feel more secure using your services, knowing you are bonded to protect their interests
- They allow you to offer support to hard-to-place-job seekers, such as those with a criminal past to help them re-enter the community
- They allow you to feel more confident hiring people without a job history, allowing you to train and mentor them
- You can feel safer sending staff out to offer services on your behalf
- You can feel safer working with new contractors
- They offer a sense of legitimacy to your business
One of the biggest benefits, however, is that they protect your company from losses related to theft and employee wrongdoing.
How can I help prevent losses?
Your fidelity bonds are an excellent tool to maintain control and reduce the risk of issues with cash, supplies and inventory. You can also take further precautions to make sure you are making smart hiring decisions and have stringent loss prevention policies, including:
- Always confirm employment records
- Call and speak to references
- Confirm certifications and degrees
- Do a professional background check for anyone entrusted with accounting, cash, or any form of payment
- Create a written policy outlining theft and fraud, and ensure all employees and contract workers understand and sign the policy
- Strictly enforce your theft and fraud policy
- Never give total control to any one person; separate each function including control over funds, cheque authorization, bank deposits, bank reconciliation, etc. to make it difficult for anyone to commit fraud or embezzlement
- Always have a check countersign policy
- Limit who can handle cash
- Create a paper trail for all transactions for both incoming and outgoing money
- Perform regular inventory and keep accurate records, including supplies
- Lock and limit access to supply and inventory storage areas
- Follow through by involving the authorities and press charges in cases of theft
These steps make it difficult for staff or contractors to participate in dishonest activities.
What is the difference between Fidelity and Surety bonds?
The main difference between Fidelity and Surety bonds are:
This is a contract that ensures your business is held responsible should you not complete any service within the agreed-upon terms. Your surety company will pay the customer on your behalf, and you, in turn, must pay that money back to the surety company.
In the case of fidelity bonds, it is your business protected from losses due to dishonesty.
Having both bonds provides added protection.
How do I buy fidelity bonds?
This is often your best route as you can arrange for business insurance based on your organization’s needs and then supplement your insurance with the appropriate Fidelity bonds. They can provide the ultimate coverage at the best rates.
Coverage is subject to policy wording, terms, conditions, and deductibles. Protection is limited to the perils, coverage, exclusions, and limits shown on the policy.