Insurance – not the best policy?

By Betsy Cribb

Practically nobody who becomes a crime victim expected it to happen. But people who suffer at the hands of embezzlers are often especially surprised, says Rockbridge County Sheriff’s Deputy Tony McFaddin.

“Embezzlement, by its nature, is a crime that’s done by a person that you have trust in,” McFaddin said. “You have to trust them to let them in to look at your financial documents and have access to your records and personal life …. And they use that [trust] against you to get away with it until that moment when it finally stacks up against them and they’re caught.”

Will Harris, president and owner of North Fork Lumber & Log Homes in Goshen, knows a thing or two about having his trust violated.

Harris has been embezzled from twice, losing, by his calculations, upwards of $638,000 to two former employees.

Harris says that while he remains a trusting person, he now has his own system of checks and balances in place so that he won’t be a victim again.

“I would encourage any employer that has anybody working in their office to make them take a week off,” Harris said, “because [if] anything is [wrong, it’s] probably going to show up in a week. You can’t cover it.”

Gregg Amonette, a partner in the Lexington insurance agency Emrey and Amonette, agrees.

“If a rotten employee goes on vacation and somebody else has to come in and look at the books, that’s an opportunity to maybe figure out what’s going on,” Amonette said.


Local insurance agent Gregg Amonette says insurance isn’t actually the best protection against embezzlement. 
The Rockbridge Report

Harris said business owners should play a bigger role in monitoring their companies’ finances.

“Open your own bank statements – look at the canceled checks, because the checks tell the story,” Harris said.

Special Agent Accountant Susan Jones, who works for the Virginia State Police, said oversight is the key to preventing embezzlement.

“There should be an additional person reviewing all of the banking information, as well as payroll …,” Jones said. “Cash should never be counted by one person alone in a room. There should always be multiple people with their eyes on the cash.”

The Rev. Skip Hastings, minister at Collierstown Presbyterian Church, learned that lesson the hard way when Marilyn Dudley, a congregation member who served as treasurer of three church committees, managed to steal nearly $160,000 before she was caught.

“Marilyn would take Wal-Mart bags with cash and stick them in the back of her car, saying that she would count it later, [that] there was so much money that she didn’t want to have it exposed here,” Hastings said. “[Church volunteers] were saying, ‘That’s a little odd taking the money from here and taking it home.’ And we were concerned about that, but we just went on being a caring, trusting community.”

In addition to oversight, Jones said, insurance is an important protective measure — because once the money an embezzler takes is gone, it’s usually gone for good.

“A lot of times [small businesses] don’t have insurance because they can’t afford it or just don’t think of it,” Jones said.

Before he was the victim of embezzlement, Harris never thought he needed insurance.

“When my insurance agent asked me … ‘Do you want employee theft insurance?’ I said, ‘Is that like tools and stuff?’…. He said, ‘No, it takes care of things like money.’ And I said, “Well I never have any extra money so I’m not worried about anybody stealing from me. And Pat [Truslow] was stealing me blind.”

Dick Emrey, Amonette’s partner at Emrey and Amonette, said that attitude among business owners is common.

“The phones don’t ring off the hook when an article about the Marilyn Dudleys hits the paper,” he said.

Amonette said business owners are more concerned with other liabilities.

“People want to spend as little as possible to insure against the big stuff …. If somebody gets [injured at] their business, [the business owner’s] risk is almost unlimited. It could be hundreds of thousands or millions of dollars, so it’s not hard to talk to people about millions of dollars in liability coverage,” he said.

“But when you think about employee crime, it’s absolutely a finite number. They can only steal as much money as you have.”

Even so, Amonette said, most business owners have insurance policies that protect them against employee dishonesty — but the coverage is usually limited.

“Nobody has ever said to me, ‘I don’t want [employee dishonesty insurance],’ because it is cheap,” Amonette said. “They go, ‘yeah, okay, throw it in there.’ But if you said, ‘You really need a $300,000 limit; that’s going to cost an extra hundred bucks a year, they go, ‘No.’ They meet the minimum.”

In many cases, businesses are required by law to meet that minimum because of government retirement regulations.

“In a small business or a big business, usually, the big pot of money is in the retirement plan,” Amonette said.

When business owners have those plans on behalf of their employees, they are required under the federal Employee Retirement Income Security Act to have insurance that covers at least 10 percent of those total assets.

Amonette said he’s never had a client ask for more than that statutory amount.

“They never say, ‘Gee, if the minimum requirement is 10, give me 20 percent. Never,” he said. “They’re like, ‘I’m going to meet the statutory requirement, and that’s that.’”

But Amonette seems to think that’s okay.

“The best insurance against embezzlement is good bookkeeping and an audit,” Amonette said. “It’s not buying insurance policies.”

Krysta Huber and Happy Carlock contributed to this story.