Carwashes are prime targets for criminal behavior, making them particularly susceptible to burglary, robbery, vandalism or internal theft by an employee, the last of which is commonly labeled “employee dishonesty.” The first three are often considered crimes of opportunity that can strike at any time without warning. Employee dishonesty, on the other hand, is often a premeditated act that is likely to go undetected for an extended period, creating an unexpected economic expense when discovered.

Most carwashes are small businesses struggling to survive among a flurry of regulatory hurdles that come out of nowhere. Couple that with the unpredictability of the weather, and there’s not much reserve funding available to recover from these criminal acts without jeopardizing the profitability of the business.

To develop a successful prevention plan, it is important to first understand the difference in exposure each transgression generates. The following article is intended to provide a definition of each exposure, some suggested preventive measures to implement and tips to properly fund for these claims through an insurance vehicle.

Burglary

Burglary is unlawful entry to commit a felony or theft, even if no force is used to gain entrance. Preventative measures carwash operators can take include:

• Utilizing suitable locks
• Discouraging any loitering 
• Leaving cash registers open, empty and visible after closing hours
• Using exceptional lighting wherever possible, especially in target areas
• Limiting outdoor shrubs and landscaping that can provide cover for thieves
• Utilizing video surveillance, covering as many angles as practical 
• Employing local and central station alarm systems
• Maintaining signage announcing security systems and limited cash on premises
• Offering to wash law enforcement vehicles as often as possible
• Properly securing all ladders stored outside.

Coverage is available through most insurance packages for claims resulting from burglary. Here are some things to consider:

• Always double-check your policy limits. Often, coverage is automatically provided with minimal limits, providing a false sense of security and resulting in an amount inadequate for your business’ needs.
• Many insurance companies require that there be evidence of forcible entry to trigger coverage.
• Some carriers will only pay for loss of money from machines that are equipped with money counting devices.

Related: Wash Wisdom: 10 tips to prevent your carwash from being burglarized

Robbery

Robbery is defined as stealing or taking anything of value by force, violence or threat. Preventative measures that carwash operators can take include the following:

• Implementing a “buddy system” when handling cash and securities
• Utilizing a safe whenever practical
• Using exceptional lighting wherever possible, especially in target areas
• Utilizing video surveillance, covering as many angles as practical
• Employing local and central station alarm systems
• Performing background checks
• Handling and counting money in a locked office out of the sight of the public
• Making frequent deposits to limit cash on premises 
• Varying deposit routes, times and employees making the drop off
• Implementing a robbery awareness training program
• Never allowing an employee to put himself or herself at risk to prevent a robbery
• Keeping in mind that most thieves look for isolated conditions and easy access/exit.

The greatest risks for loss in this scenario are cash, checks and securities. This is a separate coverage section in the insurance policy and must be addressed accordingly. Be certain you select this option and be sure that you are comfortable with the limit you choose as well.

Vandalism

Vandalism is an act involving deliberate destruction of or damage to public or private property. Preventative measures you can take include:

• Following the steps for preventing burglaries. (The cost of damage during a break-in is often greater than the resulting money appropriated.)
• Utilizing video surveillance covering as many angles as practical.
• Using exceptional lighting wherever possible, especially in target areas.
• Increasing law enforcement traffic to your property.
• Maintaining signage announcing surveillance systems are in use.

Employee dishonesty 

Employee dishonesty is any false act by an employee that causes a loss to the employer. Prevention measures include:

• Performing background checks on all employees with access to finances
• Establishing a system for double-checking transactions
• Maintaining a written policy describing employee responsibilities, standards of honesty, general security procedures and specific consequences for deviating from these practices
• Utilizing video surveillance covering as many angles as practical
• Implementing a “no-tolerance” policy
• Employing good, sound accounting procedures.

An employee dishonesty coverage form will reimburse the employer for loss, up to a specified limit, sustained by the employer by reason of dishonest acts of an employee. This can be written on a blanket basis, which covers any employee, or on a scheduled basis, covering only the employees listed. Keep in mind that the burden of proof for these claims falls on you, the insured.

Is this type of loss really a serious problem? Yes, and here’s why:

• Victims are usually small- to medium-sized businesses that are the most vulnerable.
• Losses due to technology are increasing and making it more difficult to detect. 
• The Association of Certified Fraud Examiners (ACFE) reports that organizations in the U.S. lose about five percent of their revenue to fraud yearly.
• The median loss in the ACFE’s 2012 study was $140,000.
• The U.S. Chamber of Commerce reports that one-third of all employees admit to stealing at least once during their employment. 

The following is an example of a $244,000 employee dishonesty claim.

An employee altered company deposit slips after they were approved by the owner of the company. The employee would prepare two deposit slips: one putting funds into the company’s account and the other putting funds into the employee’s bank account. The embezzlement continued uninterrupted for three years because the employee handled both bookkeeping as well as deposit activities for the company. As a result of the sizeable loss incurred by the company, the employer was forced to lay off several of its valued employees.

Although it can be difficult to prove an employee dishonesty loss, had the company had dishonesty insurance coverage, the results could have been very different.

I would like to offer a few tips that you may want to keep in mind when considering adding an employee dishonesty policy to your current insurance plan.

Many of the property and casualty package policies available automatically include some coverage for this loss. However, they often have very low limits and may prove to be inadequate for your needs. Keep in mind that in most cases, crime losses happen over an extended period of time. Months — and even years — can pass before a loss is detected. Remember that it’s important to consider future assets and earnings when determining a coverage limit.

Also, be advised that there is often a difference in coverage provided by a crime form versus an employee dishonesty policy. In most cases, the crime form offers employee theft insurance, which is not as broad as employee dishonesty. It is important to have this conversation with your insurance professional to assure that you fully understand how you’re protected.

Moreover, make sure that you know if the limit applies to all employees. For instance, are leased employees covered? How are temporary employees included?

Finally, be aware that some insurance companies specialize in this type of product and may offer pricing and coverage advantages that warrant writing this on a separate policy. When included in a package, there is a chance the limits are inadequate and other coverage limitations may apply. Additionally, other types of crime exposures can be added to a standalone policy, including, but not limited to: loss of money on and off the premises, forgery or alteration and computer fraud.

Don’t underestimate the need for an employee dishonesty policy. Experience has shown that, frequently, it is the most-trusted, tenured employees who steal. It is often a one-time deal that spirals out of control as these employees try to conceal the original act, but the business incurs significant losses along the way. An uncovered loss can have a disastrous impact on your business. 

Crime. We all know it exists, but all too often we think it only happens to the other guy. Be smart. Be protected.

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Mike Benmosche, CIC, is the national carwash program manager for McNeil & Co. McNeil & Co., with over 25 years in business, has become a nationwide leader in specialized risk management and insurance, specializing in the professional carwashing industry. For more information, please visit www.mcneilandcompany.com.