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It's all about money - Specialised Forensic Accounting Services
Newsletter – December 2009
Welcome to the thirteenth edition of the Flint Forensics Pty Ltd semi-annual newsletter. This newsletter is to help keep you informed of the latest developments or topical issues for further discussion and consideration. It is a free service provided by Flint Forensics Pty Ltd.
Index
The true cost of fraud is impossible to determine precisely. This is due in part to the fact that many frauds are not discovered, and many that are discovered, are not reported. However, based on the experiences of fraud examiners and other anti-fraud professionals, it is possible to estimate the losses due to fraud.
In 1996, the Association of Certified Fraud Examiners released its first “Report to the Nation on Occupational Fraud and Abuse.” The first of its kind, it estimated that $400 billion a year was lost to fraud.
In 2001, the Association of Certified Fraud Examiners again surveyed its members about their experiences and released the results in the “2002 Report to the Nation on Occupational Fraud and Abuse.” In 2004, the Association again released the results of its survey of members in the “2004 Report to the Nation on Occupational Fraud and Abuse.” The most important findings of the Report are summarised below:
- The study covered 508 occupational fraud cases that caused over $761 million in losses.
- Certified Fraud Examiners estimate that 6 per cent of revenues would have been lost in 2004 as a result of occupational fraud and abuse (this is the same result that we obtained from our studies in 1996 and 2002).l Applied to the US Gross Domestic Product, this translates to losses of approximately $660 billion in total losses.
- The median loss for all cases in the study was $100,000. Fifteen per cent of the frauds in the study caused losses of at least $1 million, while one in five cost at least $500,000.
- All occupational frauds fall into on of three categories: asset misappropriations, corruption, or fraudulent statements.
- Over 92 per cent of occupational frauds involve asset misappropriations. Cash in the targeted asset 87 per cent of the time.
- Corruption schemes account for 30 per cent of all occupational frauds and they cause over $250,000 in losses, on average.
- Fraudulent statements were the least commonly reported frauds (7.9 per cent) but they had the highest median loss at $1,000,000.
- The most common method for detecting occupational fraud is by a tip from an employee, customer, vendor, or anonymous source. The second most common method is by internal audit.
- Organisations with fraud hotlines cut their fraud losses by approximately 50 per scheme. Internal audit, external audits, and background checks also significantly reduce fraud losses.
- They typical perpetrator is a first-time offender. Only 12 per cent of occupational fraudsters in this study were known to have prior convictions for fraud-related offenses.
- Small businesses are the most vulnerable to occupational fraud and abuse. The average scheme in a small business causes $98,000 in losses. This was higher than the median loss experienced by all but the very largest organisations.
Source: Encyclopedia of Fraud 2005 Edition
Agent Fraud Against the Company
Agents and policy brokers commit fraud against the company by participating in bribery, claims fraud schemes, or kickback schemes.
In a common claims scheme, agents establish bogus companies to sell health insurance to individuals at group rates, costing the company thousands in lost premiums. Some agents simply sell a phony policy and disappear with commissions. Agents write a policy knowing the client has pre-existing conditions that would prevent acceptance for coverage. A broker may add ineligible family members, girlfriends, or associates to a group policy by representing them as employees. The agent is compensated with a kickback.
Agents can also write a fictitious application and, after the contestable period, submit a phony death claim. The agent, by investing a couple of thousand dollars, could receive $50,000 or more in misappropriated claims. A company is particularly vulnerable to this scheme if the perpetrator has knowledge of the underwriting procedures, such as the limits under which insurance can be written a medical exam and what items are submitted on a death claim.
The most prevalent insurance fraud by agents is embezzlement. Agents may falsify request for loans against existing policies and direct the proceeds to personal accounts. This act can impact customers too, whose accounts are debited for the loan and who may be pursued for repayment.
Agents can move policyholders into new policies or to new companies in order to generate extra commissions. Both customers and insurance companies may pay the cost in the form of commissions. However, in some cases, companies themselves encourage agents to prod customers into products produced by the company, its subsidiaries, or partners.
Source: Encyclopedia of Fraud 2005 Edition
I have available a series of instruction forms which also have guidelines as to what information may be required for specific tasks. This is a valuable resource and I can only stress the importance of requesting the right information the first time to make the financial assessment the most efficient and effective as possible and make the claims experience more enjoyable. Please feel free to review these at your leisure.
You can either print them out or simply unprotect the document by using the password "FLINTFORENSICS" and save the document to your desktop.
If you need to expand on your instruction, when you refer matters, simply delete from page 2 and details further.
The last six months some templates have been added to downloads to make life easier in the claims assessment process. Here are some common templates used in the various services provided as follows:
- Wages Statutory Declarations (PDF, 187 KB)
- Child Support Agency Authority (PDF, 230 KB)
- ATO Lodged Tax Return Request (PDF, 75 KB)
- Accountant Authority (MS Word, 28 KB)
The template list will continue to be updated, but if you would like to make a suggestion, please forward an email. At the end of the day, we are all working on the same team.
In the next edition, look forward to more.
Talk to you soon,
Bruce Flint
Managing Director
FLINT FORENSICS PTY LIMITED - Assessment of Economic Loss, Expert Witness, Financial and Other Investigations, Income Protection Risk Management, Regulatory Investigation and Assessment, Training and Valuations
PH: 02 9584 1474 FAX: 02 9584 1475 MOBILE: 0409 18 4598
VISIT OUR WEBSITE: http://www.flintforensics.com.au/
WE AIM TO PROVIDE PROFITABLE SOLUTIONS
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