Securing Your Balance Sheet Fidelity/Crime Insurance. Presenter: Mary da Costa, Manager, Corporate Insurance

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1 Securing Your Balance Sheet Fidelity/Crime Insurance Presenter: Mary da Costa, Manager, Corporate Insurance

2 DISCLAIMER The following presentation is for general information. In all cases the terms of the bond wording shall apply. Claims examples are actual reported Canadian cases. No representations are made that these are payable claims, as all claims are decided upon their own merits.

3 ACFE Report to Nations 2014 Association of Certified Fraud Examiners 2016 Survey estimated a typical organization loses 5% of revenues each year to fraud. The median loss caused by fraud was $150,000. Additionally, 23.2% of the cases surveyed involved losses of $1 million or more. The average amount of time from when the fraud commenced until it was detected was 18 months. Tips are consistently and by far the most common detection method. Banking/financial services, government/public administration, and manufacturing industries have the greatest number of cases reported, while mining, real estate, and oil & gas industries had the largest reported median losses. Approximately 75% of the frauds surveyed were committed in one of seven departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance.

4 INSURING AGREEMENTS Employee Dishonesty Coverage for losses due to the fraudulent act by one or more employees, provided the employee acted with the manifest intent to cause the Insured to sustain a loss AND to obtain financial benefit for either themselves or others, exclusive of salaries and employee benefits. The majority of fraud claims fall under this basic insuring agreement.

5 INSURING AGREEMENTS Money Orders & Counterfeit Paper Currency Coverage for losses due to acceptance in good faith of counterfeit money orders or counterfeit Canadian or US currency. Depositors Forgery Losses due to forgery or fraudulent alteration of the Insured s own cheques by a non-employee.

6 INSURING AGREEMENTS Computer and Transfer Fraud optional coverage - Computer Fraud - Non-employee fraud using a computer system to transfer property from inside the premises or financial institution to a person or place outside such premises. - Computer Virus Fraud - Computer virus which causes the Insured in good faith to transfer, pay or deliver property or establish credit or given any value to an account. - Funds Transfer Fraud - Non-employee fraud to cause a financial institution to transfer Money or Securities from the Insured s account to a third party without knowledge of the Insured. - Voice Computer Fraud - Telephone Toll Fraud

7 Insuring Agreements Extortion optional coverage - Threats to Persons - Loss of property due to a threat to do bodily harm to a director, Employee, Partner or relative or invitee of the Insured. - Threats to Property - Loss of property due to a threat to do damage to the Premises or Property of the Insured. Both insuring agreements are restricted to Canada and USA only.

8 INSURING AGREEMENTS Loss Inside or Outside the Premises/Robbery & Safe Burglary Coverage for loss of Money and Securities due to disappearance, destruction and theft while on Insured s premises. Includes loss of other property due to Safe Burglary or Robbery. Damage to the Insured s premises from break-in is included. Coverage for loss while Money, Securities and other property is being conveyed by a Messenger (Employee or partner of the Insured), armoured vehicle company (excess coverage only), or within the home of a Messenger.

9 Insuring Agreements Pension or Employee Benefit Plan Employee dishonesty extension to Fiduciaries of Pension or Employee Benefit plans as defined. Client Coverage optional coverage Employee dishonesty extension for employees causing a direct loss of Client property (not in collusion with a Client s employees). Expenses Restoration Expense caused solely by a covered Computer Incident. Claims Expense for reasonable expenses to help prepare a proof of loss.

10 Insuring Agreements Social Engineering Fraud optional coverage For select accounts that qualify subject to satisfactory review of supplemental application and adequate internal controls. Loss resulting from the Insured having transferred, paid or delivered any Money or Securities as a direct result of a Social Engineering Fraud committed by a person purporting to be a Vendor or an Employee of the Insured to instruct other Employees to transfer Money or Securities. Social Engineering Fraud means the intentional misleading of an Employee through misrepresentation of a material fact which is relied upon by an Employee believing it to be genuine. Limits start at $50,000 with $10,000 deductibles and go up to $250,000 with $50,000 deductibles. Loss Control Information available on our website at theguarantee.com.

11 UNDERWRITING Underwriting Information Application form and Supplemental form if optional coverages desired Financial Statements Corporate organization chart of all companies to be insured Limits and coverages desired Underwriting Considerations Nature of business to be insured and how effectively operated Number of Class A and total employees, number of locations Loss experience and loss prevention measures Financial condition and size of operations Character of principals and regulatory history

12 LOSS PREVENTION What can be done to help prevent against crime losses: Complete Application great risk management tool. Review internal controls with auditors, internal accountants and senior management. Set up procedures to ensure that sensitive areas are under dual control and supervision. Know your employees a noted change in habits (not taking vacation days), past bankruptcies, addiction problems, living beyond their apparent means could be red flags.

13 LOSS PREVENTION What can be done to help prevent against crime losses: Carefully check bank statement for any unauthorized amounts separation of duties is key. Request bids for tender on larger contracts for supplies and services. Get estimates from more than one supplier. Have more than one employee involved in the bidding process to ensure transparency. Reduce cash exposure by encouraging payment by credit card, cheque or debit.

14 LOSS PREVENTION What can be done to help prevent against crime losses: Verify instructions via pre-arranged contact information prior to making changes to banking information. Train your staff to be on alert for the latest phishing attacks, how to recognize scams don t click on that link! Beware of the bank scams. Beware of the from the boss which is urgent and goes against your company s protocols, especially if the boss is not reachable to confirm the instructions. Empower your employees to know when to say No!

15 CLAIMS EXAMPLES Typical Claims Employee Fraud Stealing cash/property/securities Fraudulent invoices Cheque forgery Kickback schemes Non-Employee Theft Break and enter theft from safe/cash box Mysterious disappearance lost bank deposit bags Depositors Forgery Insured s cheques altered Computer Fraud Social Engineering Fraud

16 Commercial Bookkeeper of an engineering company defrauded her employer of $1.4 million over a 5 year period by fraudulently issuing cheques to herself and credit card companies. She had sole signing authority up to $5,000. Accountant for an oil and gas well servicing company altered wire transfer instructions and diverted over $700,000 to his own bank account. Senior manager of a development company created fictitious companies and over many years invoiced over $10 million for services never rendered. Branch manager of a mining operation in South America reported more employees to head office than were hired - $4.3 million loss involving kickbacks to a local employment contractor.

17 Non-Profit Organizations The office manager of a junior sports team was convicted of stealing approximately $1 million over a 10 year period by writing cheques to herself for amounts greater than what was posted and destroying the cancelled cheques. The treasurer of a fraternal organization disappeared with the proceeds of the sale of property valued at $1 million. The Insured only had a $100,000 bond in force. The secretary of a theatrical group fraudulently obtained wire transfer instructions to withdraw $120,000 from her employer s bank account. The bank only alerted the Insured after an unusually large amount of money was withdrawn.

18 Public Entities A 20 year municipal employee was caught stealing $1,000/week of coins from vending machines for the past 4 years totaling over $200,000. The theft was discovered when it was found that the deposits were double the normal amount when the employee took sick leave. A public utility found that one of its employees was inflating contract prices and getting kickbacks from contractors involving amounts over $1 million. A school administrator was caught using the school debit card for personal use at various casinos totaling over $18,000.

19 The Guarantee A leader in providing Fidelity Bonds since 1872 Financial strength, longevity and dependability $25 million capacity for both commercial and financial institutions Professional in-house claims handling Local autonomous underwriting authority Responsive service with quick turnaround time Stable market Flexibility to offer customized coverages AM Best Rating: A (Excellent)

20 Corporate Insurance Our Products Directors & Officers Fidelity/Crime Fiduciary Liability Office Package Miscellaneous E&O coming soon Surety Contract Commercial Transportation Personal Insurance Guarantee Gold Public Entity Credit

2. COVERAGE REQUESTED DESIRED COVERAGE: (PLEASE CHECK THE COVERAGE REQUESTED) LIMITS REQUESTED Employee Theft Forgery or Alteration Theft Inside Premi

2. COVERAGE REQUESTED DESIRED COVERAGE: (PLEASE CHECK THE COVERAGE REQUESTED) LIMITS REQUESTED Employee Theft Forgery or Alteration Theft Inside Premi PLEASE ENSURE THAT THE FOLLOWING ARE PROVIDED WITH THE APPLICATION: Latest audited annual report Auditor s letter to Management, if available 1. GENERAL INFORMATION 1. Name of Organization or Legal Entity