Fraud Defined
Fraud is a deliberate, deceptive/intentional act for unlawful gain! losses are estimated to approach $450 billion in the year 2001. Although the growth of this loss is pegged at up to 10% per year, when US economy (coupled with a worldwide slow down) hits the skids of recession, this loss rate substantially increases.
Since the second quarter of this year, the insurance industry has seen a substantial increase in all types of claims. Normally, fraud is fueled by greed, however, in economic hard times fraud is fueled by need as well as greed. Whether it be check kiting, fraudulent personal/property insurance claims, embezzlement from individuals as well as businesses, misappropriation/theft of company assets, etc. insurers and businesses are feeling not only the effects of economic hard times, but a disproportionate increase in all forms of fraud.
Now is the time to take more extraordinary steps to protect yourself and/or your business!
Insurance Claims
There is a scary relationship between fraudulent insurance claims and unemployment. Layoffs and business scale-backs of all forms cause an increased filing of fraudulent claims. Here are some clues/indicators to spot insurance fraud:
The claimant is disgruntled or about to be fired or laid off.
The claimant is a seasonal worker and his/her term is about to end.
The claimant takes more time off than the injury seems to warrant.
The claimant is having financial difficulties.
The accident occurs late Friday afternoon, and when the employee returns on Monday.
There are no witnesses to the accident.
The accident occurs just before a strike or near the end of a probationary period.
The medical diagnosis is inconsistent with treatment.
The claimant is nomadic with a history of short-term employment
The accident occurred in an area where the claimant would not normally be.
And what about bad checks?
The Association of Certified Fraud Examiners (ACFE), Austin, Texas (the premier fraud investigative organization) estimates that check forgery in the United States alone accounts for more than $27 million in business losses everyday!
From within an organization, it is critical to setup systems to deter fraud.
As relates to accounting, one of the most critical rules to employ in this regard is to eliminate the opportunity for an employee to have total control over any transaction from beginning to end. Duties should be segregated! This does not necessarily require the hiring of additional employees. Detection should be the primary mission of anti-fraud efforts, and managerial oversight of tasks is critical. There are also other rules to follow; destroy old deposit slips, don’t allow the bookkeeper to handle both revenues and disbursements, reconcile checking accounts monthly, bank statements and cancelled checks should be sent to separate address not accessible to accounting employees. All supplies of checks, deposit slips and other banking documents should be locked up with access minimized.
Check fraud from without requires similar proactive steps. Here are some obvious rules to employ:
Decline starter checks, counter checks and be suspicious of low number checks. Accept only preprinted personalized checks.
Employ vendors’ services which enable the input of checking account numbers to determine if there are account problems.
Take special notice of check writers who are in a hurry or present an unpleasant attitude.
Accept only checks that are filled out in your presence.
More than ever, now is the time to be on the alert!
Now more than ever, it is not a question of whether fraud will occur but when! Adopt a zero-tolerance policy toward fraud and prosecute the fraudsters. When fraud does occur, send a message to employees and other businesses as to how you intend to vigorously deal with it and the perpetrators. Investigate and proceed against individuals civilly or criminally. Report fraud to police and prosecutors and employ experts such as Certified Fraud Examiners (CFE) to tighten the noose and deter.
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