Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-16
b. Armed robbery can be reduced
7. The National Crime Prevention Coun-
cil suggests a number of ways to
make your workplace safer:
a. Requiring identification from de-
livery or repair persons or
strangers seeking confidential in-
formation.
b. Calling police if you notice any-
one suspicious.
C. Theft
1. The cost of theft can add 2-3% to the
Chapter 16 – Risk Management, Insurance, and Crime Prevention
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b. Theft by employees.
REAL WORLD EXAMPLE 16.7
At the grocery checkout, one well-known Houston matron
was found to have shoplifted steaks and luncheon meat in her
purse.
2. Shoplifting is a major problem for re-
tail establishments.
a. Professional shoplifters, not am-
ateurs and kleptomaniacs cause
the greatest problems.
b. Amateurs may be thrill seekers,
3. Employee theft
a. Employee theft is the single most
expensive form of crime in this
4. Who steals?
a. Employees who think their in-
come is too low steal more often
than others.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
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b. Employees who slipped through
c.. Those who steal tend to be
young, full-time employees oper-
ating alone.
{There is another theft, uninten-
tional, by employees. In the
1990s, The Atlanta Ritz Carlton
5. Techniques for preventing theft:
a. Wide-angle and one-way mirrors
to observe employee or cus-
tomer behavior.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-19
f. Security audits, such as unan-
nounced spot checks of critical
activity areas, such as cash reg-
isters, employees’ packages, car
trunks, lunch pails, and waste
disposal holding areas.
REAL WORLD EXAMPLE 17.8
Contractors face special challenges in risk management,
such as the theft of a concrete mixer in this example.
D. White-Collar Crime
1. WHITE-COLLAR CRIMES are those
committed by managerial, profes-
sional, and technical employees.
a. Such crime includes falsification
of accounts, fraudulent access-
ing and manipulation of com-
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-20
b. White collar crime adds 15-20%
to the price of products.
c. Piracy of information and tech-
2. Ways to minimize white-collar crime
a. The Economic Espionage Act of
1996 made theft of business-re-
lated intellectual property a
crime.
b. Some deterrents are audits,
{Jim Monaghan, Sr, A New Orle-
ans bar owner, insisted that he
could always tell when there was
cash theft. He said it was not
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-21
d. Ralph Nader suggests 12 re-
forms for cracking down on cor-
porate crime:
(1) Track the extent and cost of
corporate crime.
(5) Restore the rights of de-
frauded investors.
(6) Democratize corporate gov-
ernance.
f. Proper Identification helps to cut
down bad check loss, and many
states have passed bad-check
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-22
g. Because credit cards are fre-
quently stolen, additional identifi-
cation should be required at
{Another decision you will need to
make is, what will your policy be
on theft? Call the police with in-
tent to prosecute shoplifters?
E. Document Security
1. As shown in Chapter 16, Information
is a vital factor in managing and con-
2. Records with confidential information
should be stored in bank lockboxes,
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-23
safes, ore restricted areas, with au-
thorized access only.
3. A list of authorized personnel should
IV. SAFEGUARDING EMPLOYEES WITH PRE–
VENTIVE MEASURES
Learning Objective 6.
Describe how to safeguard employees with preventive
measures.
A. Within a business, various types of acci-
dents and health problems occur, causing
potential losses. Safeguards can be insti-
tuted to reduce human suffering as well
as cost to a company.
C. Employees must work safely, not be care-
less while driving an automobile or han-
dling equipment. Since most accidents
occur because of human error, proper
procedures should be stressed.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-24
LEARNING OBJECTIVES REVISITED
1. Define risk and explain some ways of coping with it.
● There are two types of risks:
○ Pure risk is uncertainty as to whether some unpredictable event that can result in loss
2. Explain what insurance is and show how it can be used to minimize loss due to risk.
● Insurance is provided by another company that agrees, for a fee, to reimburse your com-
pany for part of a loss.
3. Discuss some guides to be used in choosing an insurer.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
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● You should consider an insurer’s:
○ Financial characteristics
4. Show how crime prevention can reduce risk and protect people and assets.
● In addition to being insured against losses, businesses should also take steps to prevent
crimes.
5. Discuss some techniques for safeguarding against theft.
● Theft includes shoplifting by outsiders and employee theft.
● Security measures to reduce shoplifting include:
○ Wide-angle and one-way mirrors
6. Describe how to safeguard employees with preventive measures.
● A small firm has a special responsibility to protect employees.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-26
KEY TERMS USED IN THIS CHAPTER
The Affordable Care Act, established 2010, is a comprehensive health care reform act that requires every
American to be covered under a health care insurance plan, in essence improving affordability
and quality.
Business Insurance describes the use of life and disability insurance to solve financial issues of
businesses and business owners.
Risk assumption, or self-insurance, is setting aside funds to meet losses that are uncertain in size and fre-
quency.
Risk avoidance is refusing to undertake an activity where the risk seems too costly.
Risk management is the process of conserving earning power and assets by minimizing the shock from
losses.
NOTES FOR DISCUSSION QUESTIONS
1. What is meant by risk management?
2. Distinguish between pure risk and speculative risk as they apply to small businesses.
Pure risk is uncertainty as to whether some unpredictable event that can result in loss will occur.
3. Discuss four ways small firms can cope with risk.
Four ways of coping with risk are:
(1) Risk avoidance: refusing to undertake or abandoning a venture in which the risk seems too
costly.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
4. What are some considerations in determining a small business’s need for insurance?
In order to determine the need for insurance, small business owners should ask themselves ques-
tions such as the following: What will happen to my company if:
(1) I die or suddenly become incapacitated?
5. What types of insurance are commonly carried by small businesses? Describe each type of cover-
age.
Some of the major types of insurance coverage are fire, casualty, liability, workers’ compensa-
tion, employee health and life, business continuation life, and fidelity and surety bonds.
The various coverages are as follows:
(1) Basic fire coverage insures only for losses from fire and lightning and those due to tempo-
rary removal of goods from the premises because of fire. It can be supplemented by an ex-
(5) Product/service liability insurance protects the company against lawsuits by customers in-
jured on company property or due to the company’s product.
(6) Workers’ compensation provides for payment to employees who suffer job-related illness
or injury.
Chapter 16 – Risk Management, Insurance, and Crime Prevention
6. What criteria should you use in choosing an insurer?
Insurers should be compared on the basis of financial stability, specialization, flexibility in cover-
7. Discuss some methods a small business can use to reduce the chances of being robbed.
In order to reduce the chances of being robbed, the small business owner should have an aware-
8. What is meant by white-collar crime? What are some ways to minimize it?
White-collar crime is a general category of crimes committed by employees, such as removal of
cash, falsification of accounts, fraudulent computer manipulation, external accessing of the computer,
ils, and fidelity bonding.
9. What are some methods used to safeguard employees?
Safeguards should be instituted to reduce the probability of employee injury. These preventive
NOTES FOR CASE QUESTIONS
CASE 16.1: Beware of “Softlifting”
1. How severe do you perceive this problem to be? Why are why not?
This question will be answered individually. However, point out that “softlifting” costs software
Chapter 16 – Risk Management, Insurance, and Crime Prevention
2. Are you aware of any organizations that have participated in “softlifting?” If so, do they deserve
to be caught and punished, in your opinion?
Students can relate their experiences, if any. Whether the culprits deserve to be caught and pun-
3. How can a small business owner prevent employees from making bootlegged copies of software
programs for themselves?
4. You have a small business with five computers. Your old software is obsolete and must be re-
placed, but your business is struggling financially. Would you risk buying one copy of the soft-
ware and installing it on all five machines? Explain why or why not.
The temptation is enormous to buy “five for one,” and illegally copy the program. Encourage stu-
CASE 16.2: Koi and Lilies – A case of Employee Theft
At one time, Koi and Lilies was a profile in this text. When the author decided to update it, it was
discovered that this business had closed and reopened, and the reason was more of an example than the
profile, so it became a case. An example for thought.
1. What could Kathy Bernard have done to prevent theft?
CASE 16.3: When Inventory and Sales Don’t Balance
1. What are some ways Jeff can improve security?
Some possible tactics:
Chapter 16 – Risk Management, Insurance, and Crime Prevention
16-30
2. How can Jeff detect whether an employee is stealing?
Jeff can begin conducting security audits, such as unannounced spot checks of critical activity ar-