Fidelity bonds are important for an agency to hold to protect itself against any financial loss that can result from dishonest acts by its employees. Three types of fidelity bonds are available to an agency: (1) public official bonds; (2) dishonesty bonds; and (3) faithful performance bonds. Public official bonds are required by state law to be held by certain public officials, such as the city treasurer. Dishonesty bonds offer the public entity protection from loss in the case of any fraudulent or dishonest act by an employee. Faithful performance bonds ensure the agency against an employee's failure to faithfully perform his or her duties. Dishonesty and faithful performance bonds usually have four conditions attached to the policies: discovery period; duties in the event of a loss; subrogation; and cancellation. Historically public official bonds did not have any exclusions; however, recently public official bonds may contain two exclusions--bank failures, and loss resulting from failure to collect taxes. Dishonesty and faithful performance bonds contain numerous exclusions. One example of a dishonesty or faithful bond exclusion is loss caused by an employee whose coverage has been canceled. (KDP)