In their recent cover article ‘Countering Fraud’ (December 2015) for Finance Focus, CFG highlighted the threat posed by fraud to the Charity sector.
Fraud can have a massive impact on the stability of a charity. ‘The Resilience to Fraud of the Charity Sector in England and Wales 2015’, published by PKF Littlejohn, suggested that charities consider the reputational and regulatory impact of fraud to be of more importance than the financial cost. They went on to say that promoting good institutional practice by creating a strong anti-fraud culture in a charity can help to improve a charity’s image as well as minimising monetary loss.
Insuring your charity against both internal and external fraud can go a long way to defending your financial position. Below we have taken a look at some of the ‘traditional’ cover built in to package policies along with the emerging, standalone covers that can safeguard your interests should your charity be a victim of fraud.
Built In Cover
The Money section of a Combined policy provides reimbursement following physical theft or loss/damage to money. The limits of cover provided vary from policy to policy, with limits between a few hundred to a few thousand pounds. Money cover can also provide some reimbursement if money is stolen by an employee or volunteer, however there is often a proviso that such loss is discovered within a few working days (typically 14 days, but this can vary).
While Money cover provides invaluable protection against smaller losses, it can still leave you exposed to the large scale costs of internal fraud.
Fidelity Guarantee (or Employee Crime) can be found within a Combined policy, however it is more likely to been seen within a Directors and Officers package (sometimes referred to as Charitable Trustee Indemnity and Management Liability). Fidelity Guarantee can insure your charity against losses caused by theft of money or goods stolen by an employee, director or volunteer. The discovery period is much longer than that provided by Money cover, and also provides a significantly higher limit of indemnity, usually around £25,000 to £250,000. Insurers often ask for increased care to be taken in the management of employees responsible for money handling and will take into account your pre-existing internal security checks when assessing your requirements. As Fidelity Guarantee is designed to respond to internal fraud, thefts made by third parties are not covered.
A more specialised standalone product on the market is the Crime policy, which is designed to protect your charity against both internal employee crime and external attacks. As well as helping to restore your funds, a Crime policy can help cover the costs of solicitors and other professional fees incurred in the prosecution of fraudsters. With limits of between £250,000 and £1,000,000, a Crime policy is specifically designed to meet high cost incidents involving fraud which can have a huge impact on your charity. A Crime policy can also respond to IT attacks, whether through Phising, SMishing and Vishing (frauds made via email, text message or phone calls) or by falsified or hacked online banking.
Going forwards charities will be increasingly exposed to fraud type losses as physical theft of cash or assets becomes less common. However, with its target of high exposure losses, Crime cover does not tend to be arranged by medium or smaller organisations and even larger bodies have displayed only a modest appetite.
Further IT defence is provided by a Cyber policy, which can be extended to provide cover in the event of cyber extortion. The policy will pay mitigation costs as well as meeting an extortion demand itself (where permitted). This policy is specialised, however if your charity depends heavily on your online presence or computer systems, it is policy that should be considered. Cyber cover also provides valuable protection in regard to plagiarism, virus transfer, privacy breaches and other incidents which could damage both your financial and public reputation.
D E Ford Insurance Brokers is a Chartered independent Insurance Broker specialising in the needs of charities. We are committed to the not-for-profit sector and have over 35 years’ experience in meeting the insurance needs of our charity clients.