Time for a specialist
Fidelity policies typically impose strict deadlines for providing notice to the insurer and submitting claims. If the deadlines aren’t met, a claimant could forfeit its coverage. But few organizations employ people with the necessary experience to properly investigate occupational fraud incidents and provide insurers with the right information on time.
Hiring an expert can increase the odds of satisfying insurer deadlines and maximizing recovery under a policy. Fidelity coverage usually includes reimbursement of investigation and claim preparation costs — which makes the decision to hire an expert practically risk-free.
Fidelity insurance claimants that fail to follow proof-of-loss documentation rules to the letter could delay or even preclude recovery. A company’s policy will detail the specific data it must provide.
But proof of loss typically requires, at a minimum, detailed accounts that include the names of the alleged perpetrators, their positions in the company, their dates of employment and whether they’ve been terminated. If the claimant knows of fraudulent or dishonest acts previously committed by the alleged perpetrators, it should be reported. Additional details that bolster a claim are information about the events surrounding the loss — including transactions, amounts, dates, names, addresses and phone numbers, as well as how and by whom the loss was discovered.
A thorough investigation
A fraud expert ensures that proper documentation is submitted by conducting a thorough investigation into the loss incident. First, an expert will closely review a company’s fidelity insurance policy. Familiarity with a policy’s requirements enables experts to align an investigation and resulting documentation with an insurer’s requirements.
Once those parameters are established, a fraud expert works with the claimant’s own investigation team to collect and analyze data. The expert also will conduct interviews with anyone who might have relevant information or insights.
Next, the expert quantifies the company’s loss and prepares documentation to submit to the insurance company. Such documentation can take the form of a formal report, spreadsheets, timelines or flowcharts. The insurer will use this information to evaluate the company’s claim, and the documents may also be used in subsequent legal proceedings — whether they involve the insurer or the perpetrator.
While preparing documentation, a fraud expert also can identify any potential weak points in a claim and explain to the insurer why the weaknesses aren’t as significant as they might initially seem. Finally, the expert might review reports from the insurer’s experts and draft responses to those reports, if appropriate.
Maximizing recovery from a fidelity insurance policy shouldn’t be your client’s only concern. Defrauded companies also need to consider why the losses occurred and whether they need to implement better fraud-prevention measures.
Occupational fraud often occurs in organizations that have failed to make and formalize internal controls — or that have become lax in enforcing them. For example, when members of management override controls for anything other than an urgent or unusual reason, they tacitly communicate to rank-and-file employees that the rules are made to be broken. A fraud expert can evaluate your client’s existing policies and procedures and the “tone at the top” and suggest improvements to minimize the likelihood that employees will find fraud opportunities.
DIY not advised
When occupational fraud occurs, companies often try to prepare and submit fidelity insurance claims on their own. This is a mistake. If your client hopes to recover the full amount claimed, this complicated process is best handled by an experienced forensic accountant.
Richard Gordon, CPA/ABV/CFF, CFE, CGMA joined Lindquist in 2014 as the Director of Forensic Services in the firm’s San Ramon office. In addition to being licensed as a CPA in California, Rich is a Certified Fraud Examiner (CFE) and is Accredited in Business Valuation (ABV) and Certified in Financial Forensics (CFF) through the American Institute of Certified Public Accountants (AICPA). He is a member of the AICPA’s Forensic & Valuation Services section, the Association of Certified Fraud Examiners, and the California Society of Certified Public Accountants’ (CalCPA) Forensic Services Section. Rich possesses vast forensic experience in the areas of family law, financial statement and tax fraud, contract disputes, economic damages, bankruptcy fraud, and embezzlement cases, in which he has successfully represented both prosecution and defense. Contact him at (925) 277-9100 with questions.