PREVENTING FRAUD. Take-and-Use Guidelines for Chubb Crime Insurance Customers

Transcription

1 PREVENTING FRAUD Take-and-Use Guidelines for Chubb Crime Insurance Customers

2

3 PREVENTING FRAUD Take-and-Use Guidelines For Chubb Crime Insurance Customers Prepared for The Chubb Group of Insurance Companies by Jacob Blass President, Ethical Advocate

4 Contents Insurance s Critical Role... 1 The Facts about Fraud... 2 Barriers to Preventing Fraud... 5 What You Can Do To Stop Fraud... 6 How Ethical Advocate Can Help... 8 About the Company Your Next Step About the Author... 11

5 Insurance s Critical Role Regardless of size, all organizations are vulnerable to workplace fraud. Fraud can take many forms including embezzlement, forgery, theft of inventory and other assets and computer crime and can continue unchecked for years. The financial impact can be devastating. As a leading provider of crime insurance (sometimes known as fidelity bond), the Chubb Group of Insurance Companies believes the most cost-effective way to deal with fraud is to prevent it. Certainly insurance helps recoup some monetary losses from fraud but other losses can never be recovered losses from adverse publicity, disrupted operations and time spent with law enforcement officials and others. However, the consistent application of sound risk management practices can minimize opportunities for fraud, helping to spare an organization the financial loss and damage to its reputation that can result from a determined employee s fraud scheme. We asked Ethical Advocate to prepare this guide, Preventing Fraud, to help our Crime Insurance customers develop loss prevention strategies designed to reduce exposure to fraud. Although we believe Preventing Fraud is a good starting point for companies that want to improve or review their loss prevention strategies, it is not a substitute for expert advice. We encourage you to seek appropriate professional advice for any specific issues that arise when you are designing, implementing or reviewing loss prevention strategies. 1

6 The Facts About Fraud In business, fraud has become a common occurrence. Some 45% of all companies experience fraud at any given time. The 2010 median fraud incident in privately held companies is $231,000, for publicly traded companies it is $200,000 and the typical company loses 5 percent of its revenue to fraud. 1 TYPE OF VICTIM ORGANIZATION Private Company Public Company Government Not-for-Profit $231,000 $278,000 $200,000 $142,000 $100,000 $100,000 $90, $109, $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 MEDIAN LOSS Who Commits Fraud In 2010, more than 86% of the people who committed fraud had no previous record of fraud activity. 2 CRIMINAL BACKGROUND Never Charged or Convicted Prior Convictions Charged but not Convicted 85.7% 87.4% 6.7% 6.8% 7.7% % % 20% 40% 60% 80% 100% PERCENT OF CASES 1, 2 Association of Certified Fraud Examiners, 2010 Report to the Nation 2

7 In 2010, almost 60% of fraud was by company management. 3 Managers Commit: 41% Executives and Owners Commit: 17% POSITION OF PERPETRATOR Employee Manager Owner/ Executive 16.9% 42.1% 39.7% 41.0% 37.1% % % 10% 20% 30% 40% 50% PERCENT OF CASES The percentage of employees who say their business has a weak ethical culture increased to 42% in Where cultures are weaker, misconduct is more prevalent. 4 Where Cultures are Weaker, Misconduct is More Prevalant CULTURE STRENGTH Weak Weak Leaning Strong Leaning Strong 29% 46% 67% 90% 0% 20% 40% 60% 80% 100% EMPLOYEES WHO OBSERVED MISCONDUCT IN PREVIOUS 12 MONTHS 3 Association of Certified Fraud Examiners, 2010 Report to the Nation National Business Ethics Survey, U.S. Census Bureau 3

8 And, an astounding 45% of U.S. workers (62 million workers!) observed misconduct in the workplace. 5 There are more than 138 MILLION AMERICANS in the workforce over the age of 18: 45% of U.S. workers observed misconduct (62 million Americans) National Business Ethics Survey, U.S. Census Bureau 4

9 Barriers to Preventing Fraud Two imposing barriers prevent company employees from reporting fraud: 1) people are afraid; and 2) internal reporting processes are broken. In most companies reporting mechanisms are within the company. In those situations, an overwhelming number of employees are reluctant to report a fellow employee they suspect of fraud. They re even more reluctant to report managers. Among their greatest fears are termination and retaliation. Employees are also concerned about suffering retribution or being ostracized by co-workers. Few employees trust internal reporting mechanisms. Studies show that people rarely perceive internal reporting mechanisms as being truly anonymous. Yet employees must have anonymity to feel safe enough to report fraud even when not reporting could lead to great company loss. Internal Reporting Mechanisms Are Incomplete Many employees who report fraud do so before or after work hours and on weekends in order to do so privately and not use company technology. That means the typical 9 a.m. - 5 p.m. internal reporting mechanism doesn t capture many fraud reports. There s also a language barrier. Most internal reporting mechanisms are not multi-lingual even though 59.5 million people in the U.S. speak a primary language other than English. 6 To reduce or prevent fraud, it s important to have multi-lingual, 24/7/365 coverage. Another way internal fraud reporting programs are incomplete is in communication. Most companies with internal reporting lack ongoing, anonymous communication mechanisms between the incident reporter and the reviewer. Ongoing communication is essential for getting as much information as possible , American Community Survey 5

10 What You Can Do To Stop Fraud Employees in organizations with strong ethical cultures and formal fraud prevention programs are less likely to witness misconduct than employees in organizations with a weak culture and no formal programs. Experience and research have enabled Ethical Advocate to identify many ways companies can reduce or prevent fraud while protecting the company s most valued assets. You can create and maintain a strong ethical culture by investing time, rigor and effort in the following steps: Create deeply held values backed by consistent actions Your organization s values tell employees what is and isn t permissible. However, values are just words on paper unless you back them up with a strong ethical culture that doesn t tolerate unethical acts. Set the tone at the top Leaders must lead. It s critically important to employees and your organization for company leaders to be ethically driven. They must walk the talk, not just talk the talk. Empower employees Employees must know they can directly create and influence your organization s ethical culture and potentially save its money and reputation. Identify and eliminate weaknesses Identify at least three aspects of your organization s culture and ethics that you want to change. Build a specific plan on how to implement that change and follow through. Communicate Consistent and clear communication about your organization s ethics and values will help create and maintain an ethical workplace. Your messages should include: Expected behaviors (i.e., conducting business in a legal and ethical manner) 6 Unacceptable behaviors (illegal and/or unethical behavior)

11 Examples of and recognition for people or events that exemplify your organization s culture and values Create touch points Identify where your organization connects with employees: new employee orientation, company-wide meetings, technical training, employee letters, bulletin boards, websites and publications. Then determine how each of these touch points can serve as an opportunity to train and reinforce ethics and compliance messages. Emphasize values and ethics in recruiting and hiring Communicate the values, ethical commitments and professionalism you expect from every job candidate. Test for those values before you hire. 7

12 How Ethical Advocate Can Help The 2010 report from the Association of Certified Fraud Examiners found that the type of solutions offered by Ethical Advocate can lower fraud losses by 59%. 7 One major way we accomplish that is by using the most effective, proven tool to reduce fraud: anonymous hotlines. Anonymous Hotlines An anonymous 24 hour a day, 7 days a week, 365 days a year hotline outside your company is the most effective tool for employees to use to report fraud and other illegal conduct. The latest Association of Certified Fraud Examiners 8 figures below show there are many effective fraud prevention tactics. In this recent study, hotlines are number one. Fraud Control Tactic Median Amount Saved Management Certification of Financial Statements $ 50,000 Independent Audit Committee $ 60,000 External Audit of Internal Controls $ 75,000 Management Review of Internal Controls $ 80,000 Hotline $ 145,000 Why Ethical Advocate s Hotline Works Ethical Advocate s anonymous hotline reporting has a built-in risk analysis component that quickly and effectively enables you to understand your organization s risk exposures. Its unexcelled case management allows you to stay on top of all incidents. And when an incident is submitted, your designated reviewers receive instant notification with 24/7/365, multilingual, worldwide coverage. Security You Can Depend on Ethical Advocate passed a rigorous, external data security audit based on the credit card industry s stringent standards. This places Ethical Advocate s security level in the upper echelon of all websites. Ethical Advocate will work with you to customize an unlimited number of reporting categories tied to your divisions and locations to address your specific risk factors. 7, 8 Association of Certified Fraud Examiners, 2010 Report to the Nations 8

13 Reporting Service Free for One Year Chubb has been a leader in providing insurance to privately owned companies since Chubb s Crime Insurance offers some of the broadest coverage features available. Now, where permitted by law, Chubb customers gain access to optional services from Ethical Advocate: Anonymous online employee reporting service free for one year Online plus a call center discounted 50% for one year 50% reduction in set-up fee 25% discounted rate for subsequent years 9

14 About the Company You can reduce fraud and its effects on your company. Ethical Advocate is a leading provider of enterprise risk solutions with the expertise to provide Chubb Crime Insurance customers state-of-the-art fraud prevention and reduction hotline solutions. Ethical Advocate s customer service has been scored at the highest level. It had a near perfect client rating score of 96 in Dun & Bradstreet s 2008 Past Performance Evaluation, where a company s clients anonymously evaluate it, placing it in the highest echelon of all companies for client satisfaction. Ethical Advocate is based in the United States and all services, including the call center, are delivered via U.S.-based personnel. Your Next Step Speak with an Expert We hope this booklet helps raise your awareness about the risks of fraud and how you can manage those risks. Although the booklet provides general guidance, it s not a substitute for expert advice. Be sure to consult experienced professionals for guidance on fraud prevention. You can reach the author of this booklet, Jacob Blass, by calling or through at jblass@ethadv.com. 10

15 About the Author Jacob Blass is the President of Ethical Advocate. Under his leadership Ethical Advocate is ranked within the highest echelon for customer satisfaction by Dun&Bradstreet. He was the President/CEO of four healthcare companies; has consulted to companies internationally on the integration of values, purpose and goals; has served on the Boards of numerous organizations; and was a founding member of National Hospice Workgroup think tank. Ethical Advocate 1818 MLK Jr. Blvd. Ste 258, Chapel Hill, NC info@ethadv.com 888 ETHICS 6 11

16 Chubb Group of Insurance Companies This document is advisory in nature. It is offered as a resource to be used together with your professional insurance and legal advisors in developing a loss control program. This guide is necessarily general in content and intended to serve as an overview of the risks and legal exposures discussed herein. It should not be relied upon as legal advice or a definitive statement of law in any jurisdiction. For such advice, an applicant, insured, or other reader should consult with their own legal counsel. No liability is assumed by reason of the information this document contains. For promotional purposes, Chubb refers to member insurers of the Chubb Group of Insurance companies underwriting coverage. Form (Ed. 4/12)