Nonprofit Accounting Basics

Employee Bonding

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

When you need to bond your employees

It is usually a requirement to bond employees that handle cash or other ready assets (stock certificates, etc). The regulations for employee bonding can be found at the Federal Employees Retirement System (FERSA) website under the following sections: 2582.8478-1 through 2582.8478-4.

Types of Bonding Insurance

Employers can use the fidelity bond to protect themselves from theft. There are three basic types of fidelity bonds that you can apply for. Of course, the more specialized your coverage is, the more you'll pay.

Name Schedule Fidelity Bond
You designate a set amount of coverage for a list of employees that you provide for the insurance company. Each time you hire a new employee, you have to contact the insurance company to have that person added to the list, if you choose to do so. Collection under this coverage hinges on absolute proof that an employee did in fact steal from you.

Blanket Position Bond
Under this type of bond, you specify coverage for a position rather than the individual. Each employee of a business is covered, and new employees are added automatically. Coverage is offered for each employee up to the maximum set out in the insurance policy. Blanket position bonds don't require proof of the individual responsible for the theft.

Primary Commercial Blanket Bond
Like the Blanket Position Bond, this bond covers each employee in the company. This type of coverage does not accommodate each employee, but rather treats the employees as one unit. In other words, it does not matter if one or five people were involved in the crime, you will be able to claim the same amount.

Where to get fidelity bonds

Fidelity bonds are available through insurance companies. Ask your insurance broker for advice on the type coverage you should get.

Other important info

Before you have your employees bonded, it is absolutely essential to use all of the tools available to you to do background checks. This can include anything from checking references to conducting aptitude testing. "Some of them will determine the propensity of someone to defraud the company."