Fraud Indicators

One of the benefits of working as an internal auditor for a global insurance company is that you aren't the only one looking for fraud. Claim fraud and other kinds of insurance fraud are extremely important parts of the risk profile of an insurance company, so there is usually a team of investigators on hand to look into these things.

The good news for IA is that you have access to and training on this team's knowledge base regarding fraud indicators, which has been developed over many years. Below I've included some selected indicators from our training that, if properly modified, could be useful to other industries as well.

Obviously, the presence of these sorts of things doesn't indicate a fraud. Nevertheless, they can suggest greater investigation is needed.

Indicators often connected with property or auto:

1. Insured contacts agent to verify coverage or extent of coverage just prior to loss.
2. Misrepresentations and fabrications by the insured.
3. Suspicious comments and acts of the insured.
4. Insured acquires services of an attorney or public adjuster immediately after loss.
5. Insured threatens suit or use of an attorney immediately after loss.
6. Unreasonable pressure from insured for quick settlement.
7. Loss inventory indicates unusually high number of recent purchases.
8. Insured cannot recall place and/or date of purchase for newer items of significant value, and cannot provide bank or credit card records to substantiate these items.
9. Insured is unusually knowledgeable with regard to insurance terminology and the claims settlement process.
10. Insured handles all business in person, thus avoiding the use of mail.
11. Insured is willing to accept an unusually small settlement rather than document all claimed losses.
12. Attorney’s representation letter is dated same day as loss or shortly thereafter.
    No lienholder on expensive late model vehicle.

Indicators often connected with theft

1. Receipts are consecutively numbered.
2. Receipt amounts are in whole dollars.
3. Receipts show no tax or tax is incorrect.
4. Many expensive purchases in short period of time.
5. Receipts for common items are from a far distance.

And, I'll toss in a couple of my own that have served me well when auditing operations and IT. Sometimes these don't indicate fraud, just a weak control environment:

1. Manager is reluctant to let the audit team speak with their staff, or won't allow it to occur without them being present.
2. Files are missing. One version has the file is shipped away or destroyed as a matter of procedure.
3. Dates on security updates or settings changes on systems are just before the audit.
4. Manager keeps a set of everyone's passwords, "as a back-up."
5. Key individuals are known for heroically never taking vacation.

I encourage comments to this post and hope others will add their own most useful fraud indicators.

Prescott Coleman, CIA, CISA