THE INSURANCE FIRM INTERNAL AUDITOR AS FRAUD-BUSTER

Authors by Hillison, William;Pacini, Carl;Sinason, David;Carson, James M;Marlett, David C

INTRODUCTION
To most people who work in the insurance industry, the word fraud evokes thoughts
of bogus claims and policy holder misrepresentations. Although these types of occurrences
have an enormous impact on insurers, another type of fraud that significantly affects
insurance company operation is internal fraud. Internal fraud is the use of ones occupation
for personal enrichment through the deliberate misuse or misappropriation of the employing
organizations resources of assets.
OBJECTIVES
This article

outlines the type of frauds that occur in the property and casualty

insurance industry, the assistance that insurance internal auditors can provide for
independent auditors, and the positive steps insurance internal auditors can take to prevent,
deter, detect, and report fraud.
LITERATURE REVIEW
The Wells Report also indicates that asset misappropriation was often perpetrated by
employees rather that management which is ultimately involve the fraud of cash or other
liquid assets. In the case of property and casualty insurers, the like hood of employees fraud
is augmented by the opportunity for employee collusion with company policyholders.
Besides that, external insurance company auditors, however, often are not positioned to
detect and report the occurrence of fraud. External insurance auditors lack the continuous
presence necessary for the establishment and implementation of fraud prevention and
deterrence program. Unlike other crimes, which may be witnessed fraud, by its very nature,
typically entails concealment by its perpetrators. Thus, the question arises as whom in a
property and casualty insurance company is in the best position to detect and prevent fraud.
Therefore, this article focuses on the role and responsibilities of one employee who can be
one of the insurers main lines of defense against fraud who is internal auditor. Therefore,
the internal auditors responsibility to detect fraud which is they should have sufficient
knowledge of fraud. The objectives is to be able to identify symptoms the fraud has been
committed includes the characteristics of fraud, and the types of fraud associated with the
activities. Furthermore, the internal auditor should be alert to situations such as control
weaknesses that could allow fraud. If significant control weaknesses are detected, internal
auditors should perform additional tests to detect other fraud symptoms. Otherwise, the

internal auditor should evaluate the symptoms that frauds have been committed and decide
whether further action is necessary or whether an investigation should be recommend.
CONCEPTUAL FRAMEWORK
In this article were states about the failures in insurer internal control that enhance
the opportunity for fraud. First is the lack of appropriate segregation of duties such as lack of
rotation or review of claims adjusters on long term claims. Second is the lack of appropriate
board or management oversight which is the lack of monitoring of underwriting policies and
procedures. Third is the lack of an appropriate system of authorization and approval of
transaction such the frequent instances of cash disbursements on insurance company loans
that have not yet receive all approvals or met all conditions for funding. Besides that, there
are some common type of fraud that employee usually does such as the situation of past
posting. For example, the employee becomes involved in an auto accident but at the time,
he does not obtain any insurance. After a few days, that person obtains the insurance, and
waits for some time, and then he reports the vehicle as being in an accident. After that, he
collects the damages. Therefore, it shows that he was using the past accident in order to
obtain insurance by alter the date of obtain insurances.
Therefore, in order to target all those frauds, this article was illustrates what else can
insurance firm internal auditors do in order to ensure this matter was overcome. So, the
internal auditor should increase use an analytical review which is make analyze several
years of insurer financial statement data using different techniques in order to obtain a clear
picture of the financial impact of any fraud scheme. Besides that, they should create and
maintain a fraud policy in order to guiding employees what they should do and dont and this
fraud policy should be clearly communicated to employees. In addition, the internal auditor
could conduct a Threat Analysis. The objective was to investigate insurers exposure to
fraud which is includes an assessment of what assets are held and how they could be
misappropriated. Moreover, they should do surprise fraud audits. These surprise audits was
gives fraud perpetrators less time to alter, destroy, or hide records and other evidence
CONCLUSION
In conclusion, much attention has been paid to the role of the independent auditor in
detecting fraud, but internal insurance company auditors are in the best position to prevent,
deter, and detect fraud. Property and casualty insurer management should be aware of the
situations and circumstances that increase the risk of insurer employee fraud. Besides that,
the potential employee fraud demands a sharpened focus by insurance firm internal auditors
and the use of effective, common sense steps to help reduce the occurrence of fraud.