Search

Managing the Risk Within: Employee Theft and Crime Coverage

Katie Vorderstrasse
Dec 30, 2025
5 min read

"Where large sums of money are concerned, it is advisable to trust nobody” is a quote attributed to mystery writer Agatha Christie. She recognized the corrupting power that money can have on people. While many in this world are honest and trustworthy, the reality is that there are people who seek to exploit businesses, individuals, and organizations for their own financial gain. As public entities, CIS and its members have a fiduciary responsibility to protect public funds from those with ill intentions. This article explains how crime coverage can offer some financial protection for cities and counties that fall victim to employee theft, as well as practical risk management strategies that can be implemented to safeguard public funds.

A municipal fraud scheme that came out of Dixon, Illinois, in 2012 should serve as a cautionary tale for all cities and counties. The fraud, which was documented in a film titled “All the Queen’s Horses,” occurred in a city with a population of approximately 16,000, where an employee stole more than $53 million of the city’s funds over a 22-year period. The scheme lasted so long without detection due to a lack of internal financial controls. Following a federal investigation by the FBI, the employee pleaded guilty to one count of wire fraud and admitted to engaging in money laundering. “While the city was suffering, the defendant was living her dreams,” the Assistant U.S. Attorney told the judge during the sentencing hearing.

Think it can only happen somewhere else? During the 2024-25 policy year, CIS saw an increase of more than 100% in both the number of crime claims and the cost of those claims when compared to a five-year average. It could happen anywhere, but there are steps that can be taken to mitigate the risk in your organization.

Establish Financial Control Policies

Develop a written policy that incorporates internal controls into financial processes and procedures. The policy should be designed to prevent and detect financial fraud and express the organization’s commitment to transparency and accountability. Communicate openly with employees about the policy and the expectations.

Segregation of Duties

Divide financial processes among different individuals so no person has control over the entire financial process, ensuring a built-in system of checks and balances. Below are examples of segregation of duties:

Accounts payable: One person enters invoices; another approves payments.
Accounts receivable: One person makes deposits; another records them.
Purchasing: One person creates purchase orders; another approves payments.
Asset acquisition: One person approves payment; another receives the asset.
Asset disposition: One person has physical custody of an asset; another manages the asset inventory and asset reconciliation process.

These are just a few examples of internal controls, but they show how involving more than one person in financial processes can reduce the opportunity for employee dishonesty and protect an organization’s financial resources. The LOC Municipal Handbook has additional information about implementing internal financial controls in Chapter 12.

For smaller entities, it can be challenging to have segregation of duties in financial processes due to limited staffing. That doesn’t mean it’s not possible! If an accounting department is small, you can involve an employee from another business unit. Consider involving a city councilor, mayor, or county commissioner in these processes, if needed. Many leaders will appreciate the commitment to transparency and would gladly be involved in processes that support the financial health of the organization.

Rotation of Duties

Periodically rotating the people involved in specific tasks is another way to reduce risk related to financial processes. In the Dixon example, the fraud was discovered when the employee perpetrating the scheme was away on vacation, and another employee opened the mail and noticed an unfamiliar account. Before that time, the mail had only been opened by a single employee, creating an opportunity for concealment.

Thorough Documentation and Recordkeeping

Purchases should have corresponding documentation to substantiate payments. All bank accounts should be reviewed and reconciled monthly. Any inconsistencies identified should be investigated and resolved.

Routine and Timely Audits

Oregon law requires local governments to file annual financial audit reports based on requirements from the Oregon Secretary of State. These annual audits serve many valuable purposes, but one important function is that the audit process can identify operational deficiencies, detect fraud, waste, and abuse. It’s important for entities to stay current on their annual financial audits to realize these risk management benefits.

Did you know the CIS Property Coverage Agreement has a requirement for members to be in compliance with the annual audit obligations per ORS 297.425 and ORS 297.435 in order to have crime coverage?

The policy language states coverage will be suspended if more than 90 days past the anniversary date of compliance. Coverage can be reinstated at such time as the member 1) is in compliance with ORS 297.425 and ORS 297.435, and 2) the member has provided documentation to the Trust confirming no unresolved irregularities or deficiencies.

Don't be surprised by an unexpected denial of coverage by letting your annual financial audits fall behind.

Review Insurance and Bond Coverages

Sometimes, despite internal controls and risk mitigation efforts, losses can still occur. CIS is here to support members through those financial impacts. For members with property coverage through CIS, there is an automatic $50,000 of crime coverage included. Additional excess crime limits are also available for purchase. Crime coverage is a form of property insurance designed specifically to address theft of money and theft by employees, which are commonly excluded from other property insurance policies.

Though CIS does not sell bonds, another avenue that cities and counties may be able to recover from a financial loss associated with employee dishonesty is through the purchase of surety bonds for the faithful performance of duties of key positions. The Oregon Revised Statutes address bond requirements for specific government positions in ORS 221.903 and ORS 210.120.

Each entity must evaluate its risk tolerance and budget for risk financing measures. CIS members are encouraged to review their bond and crime coverage on an annual basis with their agent of record to make sure the coverage purchased aligns with the risk appetite of their organization. Here is a resource that goes into more detail about bond and crime coverage to assist with that evaluation.

Conclusion

Nobody wants to think that their employees could be dishonest, but hoping it doesn’t happen and pretending the possibility doesn’t exist are not good risk management strategies. By implementing the recommendations in this article, you can do your part to protect public funds, manage risk, and maintain the public’s trust.

Want to learn more? View the resources below for additional information: