What Is An Employee Dishonesty Bond?
Small and medium-sized businesses are vulnerable to fraudulent activities and run the risk of bankruptcy due to the actions of disgruntled or dishonest employees. Businesses need to protect themselves from these types of occurrences; one way to do this is with an Employee Dishonesty Bond.
An employee dishonesty bond also called a Commercial Crime Fidelity Bond, is a legal contract between a Principal, an Obligee and a Surety that protects the Obligee from unlawful actions of the Principal. The employee is the principal, the Surety is an insurance company, and the business is the Obligee. This bond protects the business from dishonest actions by employees like fraud, theft, embezzlement, forgery, etc.
How Does An Employee Dishonesty Bond Work?
An employee dishonesty bond is a type of fidelity bond. Fidelity bonds are bonds that protect against financial fraud or theft. This particular type protects businesses from fraudulent actions of their own employees.
For example, suppose a department store hires a clerk to handle the cash register and other financial transactions. The owners of the store would want to ensure that theft or fraud perpetrated by this employee does not leave them bankrupt. The owners will need to take out an employee dishonesty bond that guarantees that the business will be paid financial damages if the employee is found to have stolen or committed fraud against the business while under their employ.
If the employee is not involved in any of these activities, nothing is paid. But if the employee is caught engaging in any of the aforementioned activities, then the business can make a claim against the bond and if upon investigation by the Surety the claims are seen to be true, then the Surety pays the business financial damages the amount of the bond value. This bond only covers loss resulting from dishonest financial acts of employees. If, for example, a store clerk were to set fire to the store, the bond would not cover damages.
One thing to note about this bond is that it works like an insurance policy in that it is the business or employer who buys the bond and is protected by it.