Can Your Firm Lose 5% of it Revenue?

According to a report recently published, the average organization loses 5% of their revenues each year through fraud.  Can you company afford to lose so much this year?

The 2014 Report to the Nations on Occupational Fraud and Abuse (the Report) is published by the Association of Certified Fraud Examiners.  The Report compiled survey responses received after asking over 34,000 fraud examiners for information related to losses at corporation that occurred through fraud.  1,483 responses comprise the analytic foundation for the Report.

The Report outlines a number of key findings and statistics.  Here are a few of the highlights that are relevant to risk management at your company:

  • -The median loss caused by fraud was $145,000.
  • -The mediation duration of the fraud was 18 months
  • -“Asset misappropriation” was the leading cause of fraud and occurred in 85% of the cases
  • -Organizations that had an employee hotline to report fraud were more likely to catch the fraud early
  • -Smaller companies suffered a large amount from occupational fraud
  • -Collusion of employees allowed them to skirt around internal controls

As a start-up, you may not have any revenue or employees that can steal from the company.  But this will not always be the case.  As a company grows and employees are hired, it is important to place safeguard in place and these should be considered even now.  Theft by employees can cause a firm to miss earning targets, lose key investors and cause time to be wasted as the mess is cleaned up.

Companies can safeguard themselves in two primary ways: internal controls that prevent fraud and secondly, through insurance.

Internal controls can be as simple as dual signatures on checks and as complex as an IT infrastructure that independently monitors all transactions and flags abnormal behavior.  restricting access to checkbook and company credit cards should be done by all firms.  It is also wise to have an independent accountant review or audit the financial statements periodically to prevent an employee from creating fake entries.  Finally, having a hotline for employees to report suspected fraud can lead to discovery of unwanted actions as can a vigilance on behaviors that may indicate theft such as large purchases by an employee who does not have a high salary.

Even with these safeguards in place, employees still steal from the company and are usually caught after some time.  For this reason, insurance is necessary.  Fidelity insurance (also called crime insurance or employee dishonesty insurance) will reimburse a company when monies are stolen by employees.  The insurance company then litigates against the thief while you are freed to go back to building your company.

Fidelity insurance should be purchased as company revenues grow and as financial transactions are delegated to employees rather than being handled by owners/officers.  The premium is reasonable, often less than $1,000 a year for a small firm.  Limited coverage can often be negotiated into a business owners package policy.

Contact us to discuss whether this insurance makes sense for your company.

Verizon Report on Data Breaches

Verizon just released it’s annual report on data breaches. Their report covers 1,367 data breaches and over 63,000 security incidents from 2013. Among it’s finding as that 34% of losses come from “Miscellaneous Errors” and 24% come from “Insider Misuse”. That means a third of the incidents are caused by general, unintentional negligence and another quarter are the result of someone on the network doing something they shouldn’t be.

These finds track insurance company underwriting guidelines. When cyber liability was first offered those seeking the insurance completed dozens of pages of information that was often followed by an hour long risk management interview with the IT department. For smaller businesses those applications have shortened considerably, with many small businesses able to buy cyber by certifying they have never had a breach. This shows that insurance company data also supports that most claims are caused by human error, not by a lack of controls or procedures.

The findings reinforce that even the most careful companies can face a network security incident, by purchasing insurance startups and established enterprises are protected against the costs of quickly responding to ever increasing regulations regarding the loss of private data. Contact an expert broker today to discuss the costs and benefits of insuring your enterprise.

Social Media Risks

Start-up companies in all industries are relying on social media in some form. Whether it’s Facebook, Instagram Twitter, Linkedin and any of the other emerging platforms – every industry is embracing social media to some extent. Standard general liability policies include coverage for many media liability perils. However, the risks that come with post information online were not considered  when the policies were written twenty to forty years ago.

Risks include:

  • Libel
  • Sending messages seen as spam, prosecuted under the Controlling the Assault of Non-Solicited Pornography And Marketing (CAN-SPAM) Act
  • Disclosing non-public information about a publicly traded company, prosecuted by the US Securities and Exchange Commission
  • False advertising, prosecuted by the Federal Trade Commission
  • Creating misleading content for search engine optimization, prosecuted by the Federal Trade Commission
  • Discrimination in hiring from looking at someone’s social media, which is subject to several federal and state regulations
  • Unauthorized distribution of third party material, a violation of the Digital Millennium Copyright Act
  • Deleting information once on social media, which can lead to allegations of destroying evidence and can violate several federal laws

Many regulated industries can be subject to additional oversight, like the Gramm–Leach–Bliley Act that requires financial institutions to safeguard customer information.

Contact an expert broker today to discuss better protecting your startup against emerging risks.

Insuring Dating Sites

Even with reports that 1/3 of couples who marry meet online, dating sites continue to be extremely difficult and expensive to properly insure. In our litigious society dating sites are the perfect target for unfounded lawsuits – which makes insuring those costs extremely expensive. The $1.5B lawsuit from a Florida model against over the use of her picture in fake profiles caught headlines and likely brought defense costs that soared well into the six figures. However, lawsuits like the $10M case filed (again against from a woman who was stabbed by a man she met on the site are the most expensive.

Risk Management for dating sites has become a double edged sword. Efforts to screen clients and offer safety assurances to members make it tougher to defend lawsuits. The $10M stabbing case was defended under the Communications Decency Act, which protects publishers from liability for content published by third parties. If dating websites advertise or agree to perform robust background checks, attorneys will have a much easier time arguing that they are responsible for the safety of the ensuing date. The largest dating sites are investing heavily in protecting customers but are very hesitant to advertise the protections they are putting in place.

Dating websites should address liability and insurance issues as soon as possible and construct a proactive plan to manage risk while supporting growth. The prices charged to adequately insure a site are unaffordable for all but the largest providers. However, this shouldn’t stop those providing these services to start exploring options and managing risks within the constrains of the current insurance market. Coverage is available for operations of all sizes. Private equity firms perform extensive due diligence, having a formal risk management and insurance plan in place helps startups obtain the higher valuation possible. Contact an expert tech insurance broker today to start the process.

Wage and Hour and Employment Law

Employment law has increasingly been in the news. Harassment, discrimination, unpaid wages and hostile work environments are leading to owners and managers being sued with serious consequences for organizations. It is important for a start-up firm to understand their responsibilities, the law and ways to protect themselves from this risk.

Legal Liability

The first item a new firm needs to understand is when the company has employees, the company has certain legal responsibilities. Legally, each state requires that the moment an organization hires an employee, workers compensation insurance must be purchased. Penalties for non-compliance with state statutes can be as high as $1,000 every DAY of the violation. This is why many start up companies hire only independent contractors or else give everyone an ownership stake – rather than compensation. Only having owners or contractors will not require workers compensation insurance to be purchased. But when you do make that first official hire – make sure workers comp is in place.

Employment Practices Liability

Beyond the legal requirements, firms are being saddled with large and expensive lawsuits because of improper employment practices. Harassment, discrimination and abuse can take many subtle forms. Many new firms hire younger workers who many feel that their jokes or actions are innocent and do not understand the laws surrounding workplace interactions. It is important to make your start-up a place where everyone is aware that harassment and discrimination are not tolerated, and the company has a written policy stating it. Also advisable is to have any complaints be addressed quickly and judiciously. If your company is interested in insuring against these types of allegations, Employment Practices Liability Insurance (EPL) would be for you.

Emerging Topic

Another hot topic today is unpaid interns. Especially common in the entertainment industry, many tech firms and start-ups are also offering unpaid internships as a way of vetting potential hires. With limited capital, this may seem like a perfect way of doing business. It does, however, come with risks. Recent court cases have awarded thousands of dollars to unpaid interns who were found to have been performing actual employment functions – rather than intern duties. The courts set a six-item test to determine whether unpaid interns should have been paid. If the intern violates even a single test, they should have been paid and can sue to collect damages:

1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2) The internship experience is for the benefit of the intern;
3) The intern does not displace regular employees, but works under close supervision of existing staff;
4) The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5) The intern is not necessarily entitled to a job at the conclusion of the internship; and
6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
As your start-up grows and matures, employment issues will inevitably arise. Contact us to discuss when to purchase insurance as well as additional risk management tips to help avoid lawsuits before they start.

PyCon Conference Fallout

Sex jokes at the Pearl software developer conference PyCon last week have lead to the blogger who outed the crude jokesters being fired.

If you are not familiar with the situation an overview is here and the companies’ statement is here.

The situation brings up a common issue in the Red Bull fueled/male dominated start-up space… how to deal with appropriate limits in a workplace that is trying to push boundaries. In many situations, especially when both parties share an employer, there is no easy solution. encourages all companies to purchase employment practices liability insurance to protect against the costs of litigation. Most insurers offer free help lines for employers in difficult situations.

Case Studies

Single Programmer Competing on Large Contacts

A single programmer had finally secured his first last contract and realized large companies have very stringent insurance requirements. Working with his broker he was able to make a case to scale back the coverage requirements to only those truly necessary. Saving money and winning the contract.

Early Investors Concerned

A start-up mobile application creator had outgrown it’s angel funding and sought venture capital funding, realizing the risk of future litigation they purchased directors and officers liability. When the third round of funding came around the original investors filed suit to stop their dilution – by putting the correct coverage in place prior to the transaction and insurance company handled their defense so the founders could focus on the core business.

Larger Competitor Tries to Bury Start-Up

A start-up cloud software developer had a product so cutting edge a large competitor sued for patent infringement and libel over an interview touting the companies better product. Although the case was baseless insurance covered over $100,000 in legal bills to keep the lawsuit from wrecking the budding company.






Dating Website Sued for Life-Threatening Match has been sued for $10M by a woman who was assaulted and later hospitalized by the man she was set up with on the website.  She claims that did not warn her that dating through the website could be dangerous.  While does utilize disclaimers on their site, they are being argued as not being enough. would like to remind its clients and all start-ups that claims happen.  This case highlights that even a disclaimer cannot prevent a lawsuit from being filed.  The associated defense costs can be in the tens of thousands of dollars, even if a matter is dismissed quickly.  It is important to buy the right type and amount of insurance necessary to protect your firm.  Contact us to discuss how to best protect your firm.