News & Insights

Managing the risk of employee crime

Published 04 March 2020

Employee crime can take on many different forms. From a retail employee stealing items of stock to a finance employee fraudulently paying invoices to themselves, employee crime is a risk that takes a surprisingly large toll on businesses of all sizes.

According to KPMG, employee crime costs businesses between $2 billion and $4 billion each year and can strike at any time.

Protecting your business from employee crime doesn’t need to be an onerous task. Engaging with your staff and putting the right policies and procedures in place, alongside the right insurance coverage, can go a long way to ensuring that your business is safe.

How to avoid the risk of employee crime

The best way to decrease the risk of all forms of crime within your business is to have the right risk management in place to limit the opportunity of crime taking place in your business.

For different industries and business types this will mean different things but some commonalities remain true for everyone.

Firstly, it all starts with your people

If you hire, and train, the right people then you already supporting a reduction in risk. Before employing people, start with comprehensive background and reference checks and then use  internal training and development to help your staff spot suspect behaviour both internally and externally.

It also comes down to the relationships and interactions between managers and their staff. If you treat your employees with respect, listen to their concerns or ideas, and generally treat them the way you’d like to be treated this provides for positive working relationships and reduces the likelihood of staff making an axe to grind against a business, person or situation that can lead to criminal activity.

The second important area to focus on is policies and procedures

Creating and monitoring an anonymous whistle-blower or tip line also gives your staff a chance to alert the business if they see anything that might be suspicious - this also provides a good link between your people and the procedures you need to use to keep your business safe.

For a business that carries stock, reducing employee crime related to stock loss can be improved by ensuring that stock is locked when it is in storage and closely monitored through stock-taking exercises. For finance departments, this can mean double sign-off on transactions or splitting financial tasks between different members in the team.


Policy and procedures


For some businesses that engage sales staff it can be important to ensure that you have gift policies in place to ensure that your staff aren’t placed in a difficult position of accepting a gift that could be misconstrued as a bribe and lead to a criminal ‘favour’ further down the road.

Performing regular audits on your policies and procedures will also give you an overview of how you are performing and help you identify any blond-spots your business may have.

Even with the best risk management practices in place, businesses are still vulnerable which is where management liability insurance can provide peace of mind.

How can management liability insurance help protect against employee crime

As an umbrella policy, management liability insurance covers a broad range of risks that relate to running a business – including crime from either employees or external parties, their investigations and the amount of cash or stock that is lost as a result.

The most common example of employee crime is theft. We have seen clients receive claim pay-outs of $250,000 related to employee theft and the investigations around the crime.

"Employee crime costs Australian businesses between $2 billion and $4 billion annually."

Source: KPMG

Another common insurance claim is fraud perpetrated by a lone employee. An example we have seen previously saw an employee create a new invoice for a fake supplier, funneled into their own accounts, and make several payments of four figures over a prolonged period of time before detection.

The investigation into the missing funds and the missing funds themselves were covered under the management liability policy the employer had taken out.

Employees may also collude with an external or internal party to perpetrate a crime and both areas are also covered by a management liability policy. We have seen claims arise from sales staff negotiating discounts with external clients on the promise that the discount saving is then paid to the sales person.

Employee fraud is not the only area of crime covered by a management liability policy. External fraud is also covered which can manifest in different ways.



The most common recent example of external fraud takes the form of social engineering, which is a growing type of cyber crime. A small business client that we work with was recently duped by a sophisticated email fraud which tricked a member of staff into changing the bank account details of a supplier before paying an invoice for goods.

The bank account used belonged to a third party with a total loss of more than $60, 000. Following an investigation, it was found that hackers had accessed the firms IT system weeks previously and had waited for the right time to make their move.

After the investigation was complete, all losses related to the external fraud including the money that was taken, investigation costs like forensic accountants and IT professionals, were covered under the management liability policy taken out by the client.

Employee crime is a complex area to manage. Even with the best procedures in place, issues can still arise but businesses can use insurance to bridge their risk gap and give them the confidence to focus on what they do best.

Talk to a specialist

To find out how management liability could help your business or to ask any other questions about your insurance and risk management, contact your Gallagher broker.


Connect with an expertchevron-right


Further reading

How management liability insurance could help your business

How to manage, and avoid, an unfair dismissal claim

To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.
Complex influences are impacting some directors and officers’ liability cover
Professional & Financial Risks | Report

Complex influences are impacting some directors and officers’ liability cover

18 May 2022
On-Demand Webinar: What Business Leaders Need to Know About Management Liability Insurance
Professional & Financial Risks | Webinar

On-Demand Webinar: What Business Leaders Need to Know About Management Liability Insurance

18 February 2022
D&O state of the market report Q1 2022 ‒ January 2022
Professional & Financial Risks | Report

D&O state of the market report Q1 2022 ‒ January 2022

18 January 2022