Businesses, regardless of their size or structure, are wise to invest in various insurance policies to mitigate operational risks. However, the realm of insurance itself is not without its own risks.
It's possible to overspend on unnecessary policies or opt for inexpensive coverage that proves inadequate in times of need.
One particular risk tied to insurance is fraud. Individuals, whether within your organization or external to it, may manipulate policies to defraud your company. This article dives into three prevalent forms of insurance fraud and offers best practices for businesses to counteract these threats.
1. Premium diversion
According to the website of the U.S. Federal Bureau of Investigation, this is the most common form of insurance fraud. It occurs when an employee or insurance agent fails to submit premium payments to the underwriter. Rather, the person steals the funds for either personal use or to cover other business expenses.
It might seem like there’s not much you can do to stop an unethical insurance agent from committing this crime. But you can reduce the odds of running into a fraudster by performing a thorough background check on any insurance agent or broker that you choose to work with.
Internally, if possible, segregate the duties of the employee who submits premium payments from the person who accounts for those funds. Don’t allow one employee to control the whole process. In addition, educate all staff members about the danger of premium diversion and the consequences — such as termination and prosecution — of committing it or any type of fraud. Implement a confidential hotline so employees can report suspicious activities.
2. Workers’ compensation schemes
Under one of these scams, an employee exaggerates or fabricates an injury or illness to receive workers’ compensation benefits. For example, a worker might mischaracterize a relatively minor injury suffered at work as a major one. Or an employee could submit a claim for a condition that isn’t related to work.
To help prevent false workers’ comp insurance claims, develop required reporting processes for employees. Staff members should provide detailed information about incidents and any medical treatment they received. Your insurer should be able to provide comprehensive forms and suggest industry-specific measures to ensure employees provide truthful, relevant claims information.
Also, conduct regular audits of workers’ comp claims. Doing so may uncover patterns of fraudulent activity — even long-running schemes. For instance, if one employee repeatedly submits claims but is known to engage in physically demanding or dangerous activities outside of work, it may be appropriate to scrutinize those claims.
3. Health insurance scams
Here, a perpetrator might add a fictitious employee to your company’s plan or use a stolen or “synthetic” (mixture of real and false) identity to enroll a nonexistent dependent. The fraudster then pockets whatever reimbursements come in.
To reduce the risk of such scams, establish strong plan verification procedures. These might include background checks on all participants, including submissions of required documentation such as Social Security and driver’s license numbers. Additionally, conduct regular plan audits to reconcile those enrolled with current payroll records and department headcounts.
Just a few
Unfortunately, these are just a few of the types of insurance fraud that can strike your business. Any one of them can cost you real money, slow down productivity as you deal with the mess, and hurt your reputation in the marketplace and as an employer. Contact your Rudler, PSC advisor at 859-331-1717 to assist you in tracking your insurance costs and establishing internal controls that help prevent fraud.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Max Epplen, Staff Accountant and Matthew Topmiller, CPA.
If you would like to discuss your particular situation, contact Max or Matt at 859-331-1717.
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