VICTORIA, British Columbia — A mistake that many employers make when addressing employee theft is to “forgive” the employee after he or she apologizes and offers to repay the money, employee theft experts say.

More often than not, that employee will steal again, and not reporting their first offense could void any fidelity coverage that an employer may try to tap to respond to a later incident, said Andrew Kautz, national claims manager for Central Risk & Insurance Management Services Ltd., a unit of Vancouver, British Columbia-based member-owned financial institution Central 1 Credit Union.

Speaking during a session Monday during the 39th annual Risk & Insurance Management Canada Conference in Victoria, British Columbia, Mr. Kautz said an employee who steals once and gets away with it likely will steal again, and the thefts gradually will get larger.

“Misplaced trust — that's really the issue,” Mr. Kautz said. “We have to have trust or we wouldn't drive a car, but we do verification of it” — for example, that other drivers are licensed and safe.

“It's the same in the workplace. You can never prevent someone from stealing, but you can catch it early,” he said, suggesting that employers use surprise audits as a form of verification.

“Bookkeepers are the best thieves,” especially in small and midsize companies experiencing rapid growth, Mr. Kautz said.

Unfortunately, in situations where a benevolent employer decides to turn the other cheek and forgive that employee, their fidelity insurer may deny them coverage if it happens again, he warned.

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“Too often employers give people a second chance, which could void cover if they do it again,” he said. “Prior dishonest acts generally terminate coverage as soon as the insured knows about it,” recounting a situation in which an employer filing a fidelity claim lamented, “This is the third time he's stolen from us, but we're sick of it.”

Ross McGowan, a partner at Borden Ladner Gervais L.L.P. in Vancouver, explained that the insurer's investigation will focus on coverage issue and, if there was prior fraud, that could be the reason used to deny coverage.

“Too often, employers give people a second chance, which could void cover if they do it again. There are shades of gray, where the employee is merely negligent, but they attempt to cover the loss to preserve employment. There, the original loss may not be covered, but the subsequent losses might be covered,” said Mr. McGowan, who also spoke during the session.

Under the terms of their fidelity policies, employers have “a duty to give timely notice to the insurer in writing on first discovery of loss,” he said.

They also have an “obligation to deal with the employee dishonesty, a duty to mitigate,” Mr. McGowan “If you suspect fraud and do not investigate, you could void your insurance.”