Three in five privately held companies report that it is likelythat an employee will steal company funds or equipment this year,according to the Chubb 2004 Private Company Risk Survey, sponsoredby the Chubb Group of Insurance Cos.

“Employee crime is one of the biggest and costliest problemsfacing private businesses today,” said Lisa McGee, a vice presidentof Chubb & Son. “As a provider of crime insurance, Chubb hasseen how the theft of funds or equipment can have a devastatingfinancial impact on a company, especially a small privatefirm.”

Executives at 60 percent of the companies surveyed anticipatethat employees may steal funds or equipment from the company, while34 percent say that employees may steal funds from clients. Duringthe past few years, 39 percent of private companies report, anemployee has stolen company funds, equipment, inventory, ormerchandise. Nine percent experienced employees' stealing fundsfrom clients.

Nearly one-third of the executives surveyed said that employeetheft has the potential to inflict financial or other seriousdamage to their firms. In its 2002 Report to the Nation, theAssociation of Certified Fraud Examiners lent support to thisbelief, noting that the average organization loses 6 percent of itstotal annual revenues to fraud and abuse committed by itsemployees.

Many private companies appear to be responding to the growingthreat. Among the survey respondents, 36 percent said that theyplan to conduct risk assessments of executive protection-relatedexposures, including crime, this year. Employee background checkswill be conducted by 68 percent. Despite these statistics, however,Chubb noted that less than one-fourth said that they purchase crimeinsurance.

Private company executives also were asked about theirexperiences with workplace violence and abduction, ransom demands,and extortion. Executives at nine percent of the companies reportedthat employees had been harmed in violent incidents in theworkplace or while conducting business. The percentage rises to 16percent for larger companies with annual revenues over $1 billion.More than two in five executives surveyed said that they anticipatethat employees will be harmed in violent incidents at work thisyear. As many as 23 percent said that they think their companiesmay be targets of extortion attempts.

The Chubb survey also assessed a company's chances of being suedby an employee. During the past few years, responded 26 percent ofthe executives, their companies had been sued by employees orformer employees, while 22 percent reported having had employeesfile discrimination or harassment complaints with the EqualEmployment Opportunity Commission or state agencies. The executivespredict that those figures will increase, with 44 percent sayingthat it is likely that an employee or former employee will suetheir companies in 2004, and 50 percent saying that it is likelythat an employee will file a complaint with the EEOC this year.

“Companies that do not prudently manage these risks leavethemselves and their directors and officers vulnerable,” McGeesaid. “In particular, smaller firms, which are less likely to beable to withstand the financial shock associated with a lawsuitfrom an employee or retiree, should consider loss control measuresand possibly insurance.”