Presentation to the Pittsburgh Chapter of Certified Fraud Examiners 8/8/12

1. Protection for your clients from Fraud
An overview of the insurance coverages available, risk
management techniques and the claim process.
August 8, 2012
Presented By:
Todd Whiteman
Vice President Property/Casualty

2. Overview
Fraud
- Definition: Crime of obtaining money or some other benefit by deliberate
deception
- Who can commit fraud? Employees, Board Members, 3rd parties, Clients
- Types of fraud: Employee dishonesty, computer fraud, funds transfer,
forgery, alteration, money orders, counterfeit currency and
theft
- Expenses: Crisis Management, Investigative Costs and Public Relations
- Coverages: Can be purchased as a separate “Bond” often called a Fidelity
Bond, as a separate Crime policy or as part of the Property
Policy or Directors & Officers Policy
2

3. Employee Dishonesty
Employee Dishonesty
-Definition: Theft by an employee or group of employees
- In 2000 employee dishonesty cost US business over $50 billion dollars. In
2010 that number was estimated at $2.9 trillion globally –according to a
report by the Association of Certified Fraud Examiners
- Includes theft of money, securities and property
- Options available include scheduled policies for an individual or location,
blanket for all employees and locations or by specified position
- Can include theft from clients, 401k funds, employees and executives
- The limit of coverage is per occurrence meaning all acts involving the same
person/group of persons and coverage is triggered when the loss is realized
- Coverage can also be extended to cover Volunteers and Interns as employees
3

4. Employee Dishonesty
Types of Employee Dishonesty
- Embezzlement – Employees taking cash directly or forging signatures on
checks and depositing in their own accounts
- Expense Account Padding – charges for personal items, meals and expenses
or inflation of the cost of legitimate expenses
- Non Existent Vendors – setup of fake vendors and invoices for those vendors
in order to pay themselves
- Inventory and Property Theft – items stolen for personal use, outside sale or
scrap sale for value of material
4

5. Additional Exposures
Computer Fraud and Funds Transfer
-Theft by an individual via computer hacking and password theft
- Access gained to bank accounts online via username and password resulting
in a wire transfer
-Routing information changed on a legitimate payment to a different account
Theft
- Definition: theft by a person or persons who are not employees
- On Premises (coverage for theft of money at your location)
- Off Premises (coverage for theft of money outside your location for deposit)
5

6. Additional Exposures
Money Orders & Counterfeit Currency
- Fake checks that may or may not be on actual bank check format
- Fraudulent or Modified Money Orders
Forgery & Alteration
- Checks drawn and signed by someone not authorized to do so
- Forgery of existing checks, drafts or promissory notes
Unauthorized Business Card Use
- Personal use of business credit cards
- Theft business credit cards
6

7. Risk Management
Prevention
Policies and Procedures
Segregation of duties (different person responsible for money coming in and
money going out as well as check writing authority and auditing)
Mandatory 2 weeks vacation annually
Multiple signers on checks
Annual audit by a 3rd party / accountant
Background Checks on new hires
7

8. Coverage
Insurance Policies
Fidelity Bond – covers policyholders for losses that they incur as a result of
fraudulent acts by specified employees.
Crime Policy – covers policyholders for losses that they incur as a result of
employee dishonesty, embezzlement, theft, forgery, computer fraud,
counterfeit currency etc. This policy is designed specifically for these
coverages and is typically the most comprehensive and can provide much
higher limit options.
Property / Package Policy – same as above but included in a “Package” that
also includes Property & Liability. Base limits are available and can be
increased depending on options available from the insurance carrier.
Directors & Officers Policy – provides coverage to the organization, it’s
Directors and Officers and it’s Employees for a wide range of suits. Many
carriers will provide crime options as separate coverages and with separate
limits on this policy.
8

9. The Claim Process
Turning in the claim and what to expect
Most importantly, remember this is most likely the first claim like this that
your client has ever had – there will be a lot of questions and concerns. Also
many individuals take employee dishonesty and fraud claims as a personal
attack and are often defensive in the beginning of the process
Step 1 Fact Finding – an initial overview of the situation including what,
when, where and how need to be reviewed. Every detail does not need to be
determined as that could take considerable time, but much information can
be discovered immediately.
Step 2 Contact Attorney – some firms will have in-house counsel, most will
not but they should contact them for assistance. In no way should this
counsel act at this time, only provide guidance.
9

10. The Claim Process
Turning in the claim and what to expect
Step 3 Protect The Organization and Mitigate The Claim – review all accounts,
remove the individuals access or do anything else that will protect the
organization from further harm.
Step 4 Contact The Authorities – this would be done after discussion with the
attorney regarding the specifics of the claim. There are times were an
attorney may advise against contacting the authorities.
Step 5 Contact Insurance Agent – all information gathered up to this point
should be shared with the insurance agent. The agent will advise the next
steps including turning in the claim to the insurance carrier. It may be best at
this juncture to turn in a notice of potential claim depending on the situation
as it is possible there will be no actual claim in the end.
10

11. The Claim Process
Turning in the claim and what to expect
Step 6 Duties In The Event Of Claim – Review the terms and conditions of all
policies available including requirements for coverage. Many policies require
the police are notified and provide time frames for various steps. (See
attached examples)
Step 7 Ongoing Claim – at this point all parties will have been properly
notified and all will be working together to gather data as each party sees fit.
This process can take quite a bit of time, possibly years depending on the
specifics of the claim. At this time other parties may be brought in to assist
including accountants and fraud examiners
Step 8 Claim Closed – the client will be reimbursed for any out of pocket
expenses that are covered and all parties involved will have received payment.
11

12. Directors & Officers
Directors & Officers
Often overlooked in the initial stages of a fraud claim is Directors & Officers
insurance. It is recommend that any time there is a claim made against an
organization or a situation that arises that is of concern to the board, the D&O
policy must be thought of and the insurance agent advised of the situation for
the following reasons:
Definition of potential claim in the policy
Reporting period and reporting conditions
Often, claims for lack of management supervision, lack of proper procedures
or inaction or poor judgment by the board are uncovered during the fraud
investigation which may result in a D&O claim. Most likely the D&O coverage
will not cover the theft or fraud, but will provide coverage for the suit against
the organization or the board including defense costs.
12

13. Contact Information
Todd Whiteman
Vice President Property Casualty
Nonprofit Insurance Specialist
Enscoe Long Insurance Group, LLC
80 Emerson Lane, Suite 1305
Bridgeville, PA 15017
412-206-0364
twhiteman@enscoelong.com
www.enscoelong.com
13