How to Reduce Risk and Lower Fidelity Bond Insurance Costs

1. Every theft loss I’ve investigated had one thing in common: someone thought the control they skipped didn’t matter. A second signature was “overkill.” A background check felt awkward. The bank reconciliation could wait. Months later, the organization was explaining to a carrier why six figures vanished through wire transfers authorized by a trusted employee. Fidelity bond insurance is built for those moments. It covers employee dishonesty and certain third‑party frauds, but underwriters price it with a clear expectation that insureds will manage their own house. The better you run your controls, the less you typically pay, and the stronger your negotiating position when losses happen. This guide lays out practical ways to harden your risk posture, prove it to insurers, and trim your premiums without starving your operations. It reflects what actually moves underwriters, what breaks in the real world, and how to implement safeguards with a modest budget. What fidelity bond insurance really covers, and why underwriters care about your controls At its core, fidelity bond insurance responds to losses from employee dishonesty. Think embezzlement, forged checks, fake vendors, payroll manipulation, and misappropriation of client funds if you handle them. Most carriers also offer extensions for ERISA plan dishonesty, money and securities, and in some cases social engineering, though social engineering may sit on a separate endorsement with its own sublimit and higher retention. Why do your controls matter so much? Because the line between an insurable loss and a preventable one often runs through your process map. Underwriters ask about segregation of duties, dual authorization thresholds, vendor onboarding, wire initiation, bank reconciliations, and background screening for a reason. These items correlate closely with claim frequency and severity. Improve the controls, and you generally see three things: fewer incidents, faster detection, and better documentation that accelerates claim payment when a loss does occur. Premiums reflect both exposure and posture. Exposure includes your number of employees, cash volume, wire activity, industry, revenue, and whether you hold client assets. Posture is how you control that exposure. Two retail companies with the same revenue can have very different rates if one runs tight cash counts and nightly reconciliations while the other relies on trust and a monthly true‑up. Start with a clean map of your cash‑touching processes You do not need a consulting firm to find your risk hot spots. The best diagnostic is an honest walkthrough with the people who actually move money. Follow a dollar from origin to bank: sales receipt, deposit, posting, reconciliation. Do the same for payables: invoice receipt, approval, accounting entry, payment initiation, authorization, and bank release. For payroll: onboarding, time capture, rate changes, approval, and distribution. Note where a single person can both create and approve, where logs are silent, where tasks pile up during vacations, and where manual workarounds live in someone’s head. The goal is to identify points where the same person can initiate and complete a transaction without an independent checkpoint. Underwriters call this “custody and control.” If one person holds both, your premium and retention typically rise. If you remove the combination or layer in oversight, you can document an improvement that carriers will price. Segregation of duties without adding headcount Smaller organizations often assume segregation requires more staff. It usually requires better use of the staff you have and a willingness to make certain steps non‑negotiable, even if they slow someone down. A simple example: accounts payable. One person can enter vendor bills into the accounting system, but someone else should approve payments in the bank portal. If you have only one finance employee, give them entry rights but not release rights, and assign release rights to a manager in another department. Protective friction is your friend.

2. For payroll, keep onboarding and rate changes separate from payroll processing. HR collects documents and verifies identity, but it should not add bank accounts or alter rates in the payroll system without a second set of eyes. Most payroll providers allow role‑based permissions and an approval queue. Turn those on. Treasury workflows need dual control as a rule. Wire templates require two approvals, wires require at least two approvals, and the approving user should be distinct from the initiator. If a bank relationship manager tells you this is optional, decline the shortcut. You will be asked about it on every renewal application, and your answer will affect the quote. Background checks and duty rotations that actually uncover problems I have seen more than one fraud erupt from a rushed hire in a position with access to cash or system permissions. Do background checks for anyone who will have authority over financial transactions, banking portals, vendor creation, or system administration. The check does not need to be invasive. A criminal record search, identity verification, sanctions list review, and employment verification for the last few years are usually sufficient. Document your criteria in a policy, so the practice survives turnover. Duty rotation is a simple but underused control. Two weeks of uninterrupted vacation, mandated once a year for finance roles, forces a handover of recurring tasks. If someone is manager‑proofing a fraud by hoarding knowledge and never taking time off, this is where it cracks. Build diary notes and written procedures so the handover is possible without heroic effort. It sends a cultural signal as well: no single person is above oversight. Vendor fraud and the high‑risk edges of accounts payable Vendor fraud is a frequent source of losses that end up on a fidelity bond or its social engineering extension. The pattern is familiar. A fraudster emails accounts payable pretending to be a known vendor and asks to change bank details. Or an insider sets up a fake vendor that looks like a real one. Tighten vendor onboarding first. Capture a W‑9, verify tax ID, and obtain bank information through a secure portal, not email. Confirm changes to banking details using a phone number from your system of record or a public directory, not the contact info provided in the change request. Underwriters will ask if you perform out‑of‑band verification. Make sure the answer is yes. Require a second person to approve any new vendor or change in vendor master data. Track the number of new vendors by month and spot anomalies, such as a spike in vendors created by one user. It takes five minutes to build a report in most ERP systems. Review it monthly and initial the review. That signed page, or its digital equivalent, is what you hand an underwriter as proof. Bank reconciliations that mean something A bank reconciliation that consists of a spreadsheet someone signs once a month is not a control. A good reconciliation ties every transaction in the general ledger to a bank record and flags exceptions in the same period they occur. Daily or

3. weekly reconciliations catch ghost transactions early. For smaller entities, weekly is plenty. The person who reconciles should not be the one who releases payments. Where that is unavoidable, have a manager review the reconciliation, not by skimming the cover page but by spot‑checking cleared items and tracing a few samples to source documents. Pay attention to stale items. Old outstanding checks, deposits in transit that never clear, and recurring small adjustments are where fraud hides. If your recon includes a suspense account that grows each month, you do not have a reconciliation, you have a rolling question. Use your bank’s security features to full effect Carriers love to see positive pay and ACH filters. Positive pay means your bank only pays checks that match issue files you send. ACH filters restrict debits to approved originators or notify you for approval before release. These tools convert after‑the‑fact discovery into before‑the‑fact prevention. If your bank charges fees for them, compare that cost with even a minor fraud investigation. It is not close. Enable out‑of‑band multifactor authentication for all wire and ACH approvals. App‑based or token‑based factors beat SMS codes. Limit the number of administrators in your banking portal, and audit entitlements quarterly. The few times I have been called after an account takeover, the root cause involved an unused but highly privileged account that no one remembered existed. Device and identity hygiene, even for non‑technical firms Fraudsters seldom walk in the front door. They get in through a compromised email account or a laptop that boots without a password. Basic cyber hygiene carries weight with fidelity underwriters, especially where social engineering coverage is under discussion. Mandate unique passwords and a password manager. Turn on single sign‑on where possible, and enforce MFA on email and financial systems. Keep antivirus and endpoint detection active, not just installed. If you have no IT staff, use a managed service provider and ask them for a quarterly attestation that endpoints are patched and MFA is enforced. That single piece of paper ends a lot of underwriting debates. Teach employees to slow down on payment requests that mention urgency, secrecy, or a CEO traveling. A two‑minute call back to a known number is the cheapest control in finance. Underwriters will ask if you require verbal confirmations for out‑of‑pattern payments. Build it into your SOP, not your folklore. Documentation that proves the control, not just the intention You can have excellent controls and still pay higher premiums if you cannot demonstrate them. Underwriters give credit for evidence: a policy document with effective dates, a system screenshot showing dual‑approval settings, a sample vendor verification log, a bank screenshot of positive pay enabled, or a monthly reconciliation report initialed by a reviewer. A short control inventory helps. One page per critical process, listing the control, the owner, the frequency, and where proof lives. I have walked carriers through a 10‑page packet like this and watched 10 percent fall off a quote. It removes doubt and reduces the perceived chance of a nasty surprise. Calibrating limits, retentions, and endorsements to your risk Buying more than you need wastes budget. Buying less leaves you exposed. The right approach is to size your bond with a blend of math and judgment. Start with potential single‑loss scenarios. For employee theft, ask how much one person could move before detection under your current controls. If a clerk can initiate and release wires, the number might be several months of payables. If dual authorization and daily reconciliations exist, the practical single‑loss number is lower. For retail or hospitality with high cash volume, look at peak holiday periods. For fiduciaries or firms holding client funds, size for the largest client account you could touch, then add a buffer. Retention selection is part of the pricing lever. Raising your retention from, for example, 10,000 to 25,000 can trim premium more than you expect, especially for accounts with frequent but small claims in the industry. Only do this if you have a reserve or credit capacity to absorb that first layer without straining cash.

4. Coverage extensions deserve careful reading. Social engineering coverage is often sublimited at 100,000 to 250,000 with specific conditions like call‑back verification. If you cannot meet those conditions consistently, the endorsement may not respond when needed. Either upgrade your process so you can attest to compliance, or save the premium and invest it in controls. Claims history is a story, not a scarlet letter A prior loss does not doom your pricing. Carriers look for response quality. Did you discover the issue through a control, or did a bank call you? How quickly did you isolate accounts, freeze access, and notify stakeholders? What permanent changes did you implement within 30 days? If you can show a tightened process, updated SOPs, and training logs, many underwriters will price the post‑loss risk as lower than before, not higher. Resist the urge to quietly fix the issue without documenting it. Underwriting thrives on artifacts. Meeting minutes, new policy versions, bank correspondence confirming controls turned on, and system audit logs form a narrative of control maturity. Bring that packet to renewal. The human side: culture, pressure, and small temptations Fraud often starts small. Someone covers a timing difference, borrows from a deposit to fix a mistake, or pays a personal bill from company funds with the intention to reimburse. Pressure, opportunity, and rationalization form the classic triangle. Controls remove opportunity, but culture defuses rationalization. Talk openly about fraud risk without blaming. Make it clear that controls protect honest employees from suspicion and temptation. Rotate tasks. Require documented approvals even if the request comes from the top. When leaders follow the rules they impose, employees believe those rules matter. When leaders bypass processes because they are busy, processes die. Whistleblower channels work. A third‑party hotline, even if used twice a year, is worth it. Assure anonymity and non‑retaliation, then act on tips. Underwriters take comfort when they see a hotline contract and a board or owner who reads the reports. A practical roadmap for trimming premium over two renewals If you want to move the premium needle, you need a 6‑ to 12‑month plan and proof of progress. Keep it simple and focused on what carriers value most. Turn on dual authorization for wires and ACH, enable positive pay and ACH filters, and document the settings with screenshots. Add a call‑back protocol for any new payee or bank change, referencing numbers you already have on file. Implement a two‑person process for vendor creation and changes. Use a standard form, verify bank details out of band, and keep a monthly log of changes with initials by the verifier. Tighten bank reconciliations to weekly with a manager review. Create a short checklist for the review, including spot checks and aging of outstanding items, and archive each completed checklist. Complete background checks for finance and system admin roles. Document the policy, note the vendor you use, and save the confirmations with dates. Build a one‑page control inventory and a binder of evidence. Review it quarterly, update items as processes evolve, and take fresh screenshots after any system change. At your next renewal, present the binder. Ask your broker to include a cover letter summarizing the improvements and their dates. If you can show six months of clean logs and reconciliations, most underwriters will sharpen terms. If you also consider a slightly higher retention, the combined effect can deliver meaningful savings. Technology choices that reduce risk without bloating budgets Not every solution requires new software. That said, a few targeted tools pay back fast in risk reduction and underwriting credit. Bank portals already contain strong controls. Use them fully. Your accounting system or ERP probably supports approval workflows, audit trails, and role‑based access. Assign permissions by role, not by person, and review those permissions quarterly. For smaller shops, a mid‑market accounting platform with built‑in approval and audit features can replace a stack of spreadsheets and email approvals that no carrier will trust.

5. Email security deserves attention if you are adding or renewing social engineering coverage. Domain‑based message authentication, reporting, and conformance (DMARC) plus sender policy framework (SPF) and DKIM keys make it harder for outsiders to spoof your domain. Your IT provider can enable these in a day. The difference in phishing success rates is dramatic, and carriers increasingly ask whether these controls are in place. ERISA fidelity bonds and employee benefit plans If you manage retirement plans, ERISA requires a fidelity bond equal to at least 10 percent of plan assets, up to a certain cap per plan, with certain asset types requiring higher limits. This ERISA bond is separate from your commercial crime or fidelity bond, though some carriers package them. Auditors will check your ERISA bond annually. Keep the schedule current as plan assets grow. If you hold non‑qualifying assets like limited partnership interests, confirm whether you need 100 percent bonding for that portion. Underinsuring here invites auditor findings and forced catch‑up purchases at poor terms. Working with your broker so your controls translate into price Good brokers do more than forward applications. They position your risk to the market. Share your control inventory, policies, and evidence early. Invite your broker into a 30‑minute walkthrough of your payment process. They will translate your practices into underwriting language and head off requests that waste your time, such as generic control questionnaires that do not fit your operations. Market timing matters. If you start 60 days before renewal, you have time to answer follow‑ups and pit multiple carriers against each other with a crisp narrative. If you start two weeks out, underwriters default to caution and pad the price. When an upgrade pays for itself It is fair to ask whether these controls cost more than they save. The math usually favors action. Positive pay and ACH filters might run a few hundred dollars per account per year. Background checks are tens of dollars per hire. A payroll system upgrade that adds dual approval and audit trails might be a few thousand per year. A single avoided fraudulent wire or a 5 to 10 percent reduction in your fidelity bond premium can cover those costs several times over. Add in the avoided disruption, the management hours not spent on a claim, and the reputational capital you preserve with clients, and the return is obvious. One midsize distributor I worked with paid roughly 14,000 annually for their fidelity bond. They enabled positive pay, added dual approval for wires, instituted vendor callback verification, and shortened their bank reconciliation cadence from monthly to weekly, with a documented review. Six months later, at renewal, they presented six pages of evidence. The carrier reduced the premium by about 12 percent and increased the social engineering sublimit without a rate hike. Total annual savings were close to the cost of the new bank services. Edge cases and trade‑offs worth noting There are cases where the textbook answer is wrong for your reality. A family‑owned firm with two finance employees may simply lack the headcount to separate every duty. In that case, shift the second approval to an owner or an operations manager. It slows payments, but it buys underwriting credit. If the owner travels often, designate a backup approver and document the triggers for when they step in. Some industries, like staffing and construction, run on speed. Introducing new approvals can delay cash flow. In those environments, focus on upstream controls: verified vendor masters, preset payee lists at the bank, and strong reconciliation discipline to catch misdirected funds within days, not weeks. International operations complicate call‑backs and bank controls. If your overseas banking partners lack ACH filters or positive pay, lean harder on internal approval workflows and independent verification through known contacts. Consider centralizing cross‑border wires through a single treasury hub with stronger Swiftbonds solutions controls rather than letting local teams operate independently. Bringing it all together Lowering fidelity bond insurance costs is not a mystery. Insurers price a blend of your exposure and your control maturity. Reduce the ways money can move without independent eyes, prove that you did so, and keep proof current.

6. Where you cannot separate duties, add friction and independent review. Use your bank’s security tools. Train people to distrust urgency around money. Keep a simple binder that shows, not tells, how you operate. Then ask your broker to tell that story to the market with time to negotiate. You buy fidelity bond insurance for the bad day you hope never arrives. The work you do now makes that day less likely and less expensive, and it often pays you back at renewal.