Fraud…an inside job
When people have access to other people’s money there is an inherent fraud risk and sooner or later, history says that someone will take advantage of an opportunity.
There has been a fundamental shift in recent times; where previously fraud was generally committed by an individual and often for small amounts, dishonest employees are increasingly colluding with external accomplices to defraud their employers.
The schemes these fraudsters concoct are becoming more sophisticated and difficult to identify. Research shows that it’s taking more than two years to identify many instances of criminal activity.
Not even large insurance underwriters, with all of their formal compliance programs, are immune. A case in recent headlines told of a senior claims officer who set up a law firm and through it invoiced her employer company for $17M of bogus legal work. It was reported that “discrepancies” had been identified when the person was on maternity leave. A devastated company spokesperson said, “This person worked for us for many years…she was a trusted employee…I could not believe the betrayal by a loyal employee”. Fortunately, the employer firm had insurance protection and the money was recovered.
A recent survey identified that less than 5% of businesses have insurance against criminal activity. However, the reality is that very few businesses can confidently say they are immune to internal fraud.
Smaller businesses are considered more vulnerable, mainly due to the lack of resources to adequately and regularly check all operations and the common practice of using one or two people to be responsible for all accounting issues.
Often, when a minor fraud or theft goes unnoticed, the perpetrator feels more confident and the incidents and amounts involved start to escalate.
Business operators can take steps to minimise the chance of these incidents:
- Ensure there is definite segregation of duties so that no one employee handles all points of a transaction.
- Investigate anything and everything that appears unusual or suspicious.
- Screen all new employees for prior history before hiring them.
Estimates suggest that fraud accounts for 40% of all identified crime…or to put it in dollar terms, it amounts to $8.5billion p.a.
You can have a policy that protects your business from internal fraud. Contact City Rural Insurance Brokers for more information.