What does crime insurance cover for a nonprofit?
Crime insurance covers loss of money, securities, and other property from specified dishonest acts. The core insuring agreement is employee theft, which pays for money or property stolen by an employee. Around that sit several other agreements that matter in practice: forgery or alteration of checks, theft of money and securities inside the premises, theft outside the premises including deposits in transit, computer fraud, funds transfer fraud, and money orders and counterfeit currency.
Two of those deserve emphasis. Funds transfer fraud covers a fraudulent instruction to your bank to transfer funds. Social engineering fraud, which covers a situation where your own employee is deceived into sending money to a criminal, is usually a separate endorsement with a lower sublimit, often $50,000 to $250,000. That distinction matters because the deceived-employee scenario is the more common one, and a policy with strong funds transfer coverage and no social engineering endorsement leaves the frequent loss uninsured.
- Employee theft of money, securities, and property
- Forgery or alteration of checks and financial instruments
- Theft inside the premises and while in transit to the bank
- Computer fraud and funds transfer fraud
- Social engineering fraud, usually a separate endorsement with its own sublimit
What is the difference between a fidelity bond and employee dishonesty coverage?
In common usage they describe the same protection, and funders often use the older term. A fidelity bond historically was a surety instrument guaranteeing an employee's honesty, while modern employee dishonesty coverage is written as an insurance policy. When a grant agreement requires a fidelity bond, a commercial crime policy with an employee theft insuring agreement almost always satisfies it, and a certificate naming the required amount is what the funder needs.
One important distinction does exist. Retirement plans subject to federal pension law require an ERISA fidelity bond, which is a specific instrument covering plan officials who handle plan funds. The requirement is generally 10 percent of plan assets handled, with a minimum of $1,000 and a maximum of $500,000, or $1,000,000 for plans holding employer securities. An ERISA bond has no deductible and must name the plan as insured. A commercial crime policy does not automatically satisfy it, and this is one of the most frequently missed compliance items on nonprofit audits.
Boards should confirm both are in place: commercial crime for the organization, and an ERISA bond if the organization sponsors a retirement plan.
Do grants and government contracts require crime coverage?
Increasingly yes. Federal pass-through funding, state contracts, foundation grants, and United Way style funders commonly require a fidelity bond or crime coverage at a stated amount, often the greater of a fixed figure or a percentage of the grant. Requirements of $100,000 to $500,000 are typical, and larger government contracts can require more. Failing to carry it can delay a reimbursement or, in the worst case, put a grant at risk.
Beyond compliance, funders increasingly ask about internal controls in the application itself. A nonprofit that can answer clearly about dual signature requirements, monthly bank reconciliation review by someone outside the finance function, board review of financial statements, and an annual audit or review presents better to both funders and insurers. The same answers drive both outcomes, which is a good reason to formalize them once.
Set the limit against exposure rather than the funder minimum. A reasonable starting point is three to six months of operating expenses, or the largest amount that could plausibly be diverted before discovery, whichever is higher. An organization with a $4,000,000 budget carrying a $100,000 crime limit because a grant asked for that number is underinsured by a wide margin, since the schemes that go undetected the longest are also the largest.
Are volunteers and board members covered?
It depends entirely on the definition of employee in your policy, and nonprofits need that definition broadened. Standard commercial crime forms define employee to include natural persons the insured compensates and directs, which covers staff. Many forms extend automatically to volunteers, but many do not, and volunteers in nonprofits frequently handle cash at events, count donations, and serve as treasurers.
Ask for the definition to include volunteers, board members, unpaid officers, temporary and seasonal workers, interns, and independent contractors who handle funds. Also ask whether the definition covers former employees for a period after termination, typically thirty days, since discovery often happens right after a departure. Organizations that use a bookkeeping service or a fiscal sponsor should confirm whether third-party service providers are covered or specifically excluded, since an outside bookkeeper with access to accounts is a genuine exposure that many forms exclude by default.
- Verify volunteers, board members, and interns are inside the definition of employee
- Confirm coverage for temporary staff and contractors who handle funds
- Ask about coverage for outside bookkeepers and fiscal sponsors
- Check the discovery period, since most crime policies are discovery-based
What internal controls do insurers expect?
Underwriters ask a short list of questions and price on the answers. They want to know whether bank statements are reconciled monthly by someone who does not have check-signing authority, whether two signatures are required above a threshold, whether the board or a finance committee reviews financial statements at least quarterly, whether an annual audit or independent review is performed, who has access to online banking and whether dual approval is required for transfers, and whether background checks are conducted on staff and volunteers who handle money.
Small organizations often respond that segregation of duties is impossible with three staff members, which is a fair point and does not end the conversation. Compensating controls work. A board treasurer who receives the bank statement directly and unopened, reviews it, and initials it creates independent oversight at zero cost. Positive pay through the bank stops altered and forged checks. Requiring dual approval for any electronic transfer above a modest threshold, such as $2,500, catches most funds transfer schemes. Rotating who opens the mail and logs incoming checks disrupts the most common small-organization scheme, which is skimming donations before they are recorded.
One more control matters and costs nothing: mandatory vacation for anyone handling funds. Many long-running schemes require constant maintenance and unravel when the person is away for two consecutive weeks and someone else covers the desk.
Get a Coverage Review
Two questions for your next board meeting: what is our crime limit, and does the definition of employee include volunteers. Grandbay Financial Services reviews nonprofit programs, sizes crime limits against budget and exposure, and confirms grant and ERISA bond requirements are actually satisfied. Schedule a review at calendly.com/grandbayfinancial.
This article is for general information and is not a substitute for policy language or professional advice.
Frequently Asked Questions
This article is for general information and is not a substitute for policy language or professional advice.