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Xpera Case Study Workplace Fraud

15 May 2015
Anonymous

Case Study

Workplace Fraud

Background

Fraud, in simple terms, is illegally separating people from their money. In comes in a number of forms, but the basic principle is the same – manipulation to illicitly gain financially. Xpera Risk Mitigation and Investigation helps companies and individuals combat fraud, including fraud in the workplace.

Employees or contractors will claim illnesses, injuries, damage to property of some other form of loss they do not have ...

A considerable portion of workplace fraud involves defrauding benefit providers. Employees or contractors will claim illnesses, injuries, damage to property of some other form of loss they do not have, or often try to get their insurance provider to provide coverage for something that occurred outside the coverage of their benefits package.

The Association of Certified Fraud Examiners (ACFE) has categorized fraud into three groups:

  • Asset misappropriation: Theft of something of value that belongs to your business. This can be done through deceptive billing, payroll, expense reimbursement, altering of checks, or point-of-sale issues. Company services may also be targeted, either in the form of time theft or personal use of company time/resources.
  • Fraudulent financial statements and records: Manipulating statements, either by hiding information or falsifying it.
  • Corrupt or prohibited practices: Side agreements, bribery, or rigging bids.

Source: chubb.com/businesses/csi/chubb5305.pdf

Fraud increases in times of economic uncertainty; people are pressured to make ends meet, and occasionally resort to illegal behaviour. Eighty percent of Certified Fraud Examiners estimate that fraud sharply increases during downturns or recessions, with only 2% claiming there is less fraud in these instances. Layoffs leave organizations more vulnerable to fraud, as employees who provide checks and balances may no longer be with the company

Source: acfe.com/uploadedFiles/ACFE_website/Content/documents/occupational-fraud.pdf

What are companies are doing to combat fraud?

Fraud is difficult to stop, but there are many things companies can do. It’s crucial to be proactive. Companies can apply policies and procedures to help identify and prevent fraud. This process begins by installing smart general accounting practices, as that’s a place where considerable fraud takes place.

The following are some rules that every business should consider:

  1. Do not allow one person to handle all financial matters. Hire an accountant, and ensure ledgers are reviewed on a regular basis. There should be strict policies and procedures in place which must be followed, safeguarding against fraud.
  2. Order your business logically. It’s important to manage your inventory, and physically place it so ongoing employee fraud will be difficult. How difficult would it be to defraud your company?
  3. Conduct thorough background checks of current and potential employees, especially on those who are dealing with valuables or finances. Review their credit history and perform a criminal record check; often a simple review of claims on their resume will yield interesting results.
  4. It’s surprising what information is available to staff in businesses both large and small. Record which members of staff have access to what information, especially in regards to client databases, which may include credit card information. It’s important to limit access to such data; even if employees can be trusted with this information, outside forces may coerce them into releasing it.
  5. Have a discreet or anonymous tip-line. It provides employees, clients, or customers with an opportunity to report any wrongdoing without fear of repercussions. Xpera provides a service, ConfidenceLine™, which helps employees report wrongdoing that may have previously gone unreported.

Xpera offers two additional services which can assist clients. We train staff in fraud prevention, and offer risk prevention services – which often involve sending undercover investigators posing as customers into workplaces to identify vulnerabilities, as well as auditing current controls to test for capacity and effectiveness.

The Xpera Process

Xpera Risk Mitigation and Investigation begins by gathering as much background information as possible. We develop an understanding of a client’s claim, situation, and the parties involved. To properly investigate fraud, we must develop a 360 degree view of a client’s concerns.

Our investigators draw upon their experience to know what we can and cannot legally and ethically ask

Xpera investigators begin every investigation with a research component. Often, our investigators conduct comprehensive online searches. Through this, we develop an understanding of the claimant and the suspect. Our investigators interview witnesses, perform an online review of social networking and web use, talk to relevant stakeholders, and follow up on any leads to prove or disprove guilt. To understand the claim, we review the benefit package provided to employees and offered by the supplier.

Our certified investigators conduct face-to-face interviews, whenever possible. Depending on the situation, professionals will provide differing levels of information and assistance. Our investigators draw upon their experience to know what we can and cannot legally and ethically ask, and how much information is public domain. After compiling the information, we work to confirm or disprove it. This often involves surveillance, additional interviews, research, and corroborating stories.

Xpera team of experienced professional investigators will collaborate with your firm on a case-by-case basis to limit your exposure to fraudulent or exaggerated claims.

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The Challenge

An employee for a manufacturing company claimed he couldn’t perform his job, filing for disability due to issues relating to arthritis and previous health concerns.

The employee went on disability and took considerable time away from work.

The manufacturing company’s insurer questioned the claim, and engaged Xpera Risk Mitigation and Investigation to review its validity.

The Solution

Xpera reviewed the employee’s background, and found he was operating a separate business, unrelated to his original employment. His separate business, an excavating company, was currently bidding on jobs and performing work.

Further investigation led to Xpera discovering he was conducting business under the table

If he was preforming strictly soft skills – talking with clients, working on a computer – it would not conflict with his claim. However, if he was performing hard skills – working in the field, any sort of lifting of physical work – it would be in direct violation of the employee’s claim. The employee also failed to notify the insurance company of this side business, yet another reason for the increased suspicion. At this point, he was not in direct conflict with his claim, but there were reasonable grounds to continue the investigation.

Further investigation led to Xpera discovering he was conducting business under the table – a major red flag for Xpera investigators. Through interviews and communications with people who knew the employee, Xpera found he had hired his family to work for the company. Investigators were put in contact with former co-workers, who had statements from his business and provided Xpera with valuable documentation to prove our claims.

The documentation outlined the makeup and organization of the company, right down to hours of service.

Xpera's corporate investigations are used to mitigate these risks and nullify the threats that have the potential to endanger your business and reputation.

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The Results

At the conclusion of the investigation, Xpera investigators presented their findings to the insurer. The decision to halt or continue coverage to the employee is entirely the insurer’s decision; while Xpera investigators are willing to provide advice, the decision ultimately sits with the insurer.

In this case, the insurer discontinued service, and the employee agreed to return to work.

As a result of a successful first investigation, Xpera was tasked with investigating the same employee again, shortly thereafter. He was going through a divorce proceeding, and there were suspicions he was attempting to minimize his income.

Xpera identified unrecorded income, and confirmed some of the work he performed separate from his manufacturing job. The investigators then presented this information to the insurance company, for their use.

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