Organizations have a responsibility to their clients to ensure that they are accountable in their operations; especially on issues pertaining financial transactions. The same yardstick is expected by clients who are dealing with insurance companies. The company’s financial information should be factual, and the transactions with the client should also be accurate. In the event that the company’s relations with the client are questionable, the business can attract thorough investigations for fraud and other financial crimes (Dorminey et al., 2012). Investigations for fraud involve assessment of documents that are produced in the course of dealing with the affected client(s). The investigations can attract criminal and civil cases, depending on the outcome. One such case is the one affecting Mr. Richard Hoyle, the founder of Hoyle Insurance, which was later sold to First Security Bank.
The type of Fraud being Investigated
Rick was being investigated for insurance fraud. This is the kind of fraud where the person being scrutinized obtains financial benefits that he is not entitled to. It can also occur in the event where the person being examined denies a client benefits that the client is entitled to (Dorminey et al., 2012). In the case, the person being investigated is said to have obtained money from the clients through fraud, explaining why he was also being investigated for grand theft and racketeering. There are three conditions that must be fulfilled for insurance fraud to be confirmed. The person perpetrating the fraud should have the motive, the act must be completed, the intent and the act should come together, and as long as the act is committed, the actual loss does not have to occur.
Reasons for Getting Away with the Crime
Realizing that insurance fraud is taking place is not an easy task, especially when an individual or company is good at hiding the information using forgery. In most cases where fraud is occurring, the person perpetrating the act are well-versed in producing records and accounting information that conceal the illegal activities. Without a person blowing the whistle in time, and without the relevant information to capture the fraud, the activities can go on for a long period (Wells, 2017). In the case affecting Rick, investigations started following complaints from a party who were not happy with their dealings with the company and a competitor. In the absence of such complaints, it was no wonder the fraud could go on for a long time without being identified. It is possible for such activities to continue for years until the relevant authorities are notified.
Deficiencies within the Internal Control System
Implementation of policies to prevent fraud is the most effective control measure to prevent occurrence and concealment. The policy should include control measures such as separation of duties and effective reporting procedures. Separation of duties ensures that no single employee should hold a position that will allow him to commit fraud and to conceal. To achieve this role, the company should make use of internal and external auditors who will be responsible for auditing the accounting activities and procedures to prevent the chances of concealment of fraudulent activities (Wells, 2017). Performance of regular audits is critical in ensuring that no fraud is taking place, and in case it is happening, it will be identified in time, and the relevant remedies assumed. Such aspect is what might be missing to have allowed the fraudulent activities to have gone on for so long without detection.
The Sarbanes-Oxley Act of 2002 (SOX) is the law that is meant to protect investments from fraudulent acts. The law was aimed at allowing financial disclosure from companies to offer protection against accounting fraud. The genesis of the law was the increase in accounting malpractice in the years leading to its passage in 2002. Two main sectors, Section 302 and Section 404, mandated the top managers of a company to ensure accuracy of all financial records, while the second one required that management and auditors come up with controls, internally, and report methodology in relation to the controls’ accuracy (Zhang, Zhu, & Ding, 2013). By not having the internal controls and auditing process, the company violated the dictates of the law, allowing for fraud to take place in the company without being noticed. While it is challenging and costly to come up with the controls, they are a necessary part of the act which should be observed.
The deficiencies in the internal controls could be addressed by the management hiring an internal auditor and contracting the services of external auditors once in a while to audit the accounting records of the company. A policy should also be designed and implemented in the company to ensure effective implementation of the internal controls. Included within the internal control should be a system for the management and dissemination of electronic records. The availability of such records makes auditing and disclosure easy (Sharma & Panigrahi, 2013). Hence, all the interested stakeholders are able to easily access the financial records to prevent the chances of fraud. In the event that fraud is perpetrated, it also becomes easy to identify and prevent the acts to go on for a long time without detection.
Conflicts of Interests and Possible Outcomes
Common professional affiliations and relationships were the basis for conflicts of interests in the investigation. The Idaho CPA made the call for the investigation of the fraud and other charges. The individual being investigated was among the clients of the Idaho CPA. At the same time, the person being accused was the CPA’s tax client, and the person carrying out the investigation was also a CPA. Investigating an individual affiliated with the profession by a professional within the same firm is a major conflict of interest as it would affect the outcome of the investigation. The conflict also affected the potential witnesses of the case (Cohen et al., 2012). The accountant of the insurance agent could not have been the expert witness in the case. The case was linking parties involved in the same profession, and any expert testimony would involve a conflict of interest.
The relationship between the person being investigated and the investigator, professional or otherwise, can affect the outcome of the investigation. The testimony of such a person might be rejected in the court of law by the jury regardless of the tedious process involved in collecting the evidence. Hence, the evidence presented by the forensic expert could be thrown out because of the conflict of interest. This could affect the overall outcome of the case regardless of the weight of the evidence (Cohen et al., 2012). Hence, it is necessary to establish the potential conflict of interest before commencing the investigation to prevent wastage of time and resources. Possibly, the case could have been taken up by investigators outside the Idaho CPA for a positive outcome.
The Motivating Factors and Criminal Opportunities
Insurance fraud occurs in an environment where there is a motive for deceptively getting the benefits. The person intentionally deceives to get the benefits or advantages that he is not entitled to. The financial benefit is the motive for committing the crime. The person knowingly commits the crime because of the financial motivations involved. The fraudulent outcome of the whole process drives the person to commit the insurance fraud (Wells, 2017). The insurer could perform the crime by getting higher premiums from the insured in order to get the financial benefits. It could also occur in the event where the insurer misrepresents financial information to avoid paying high claims and also get the benefits expected. In the end, the person committing the fraud has the financial benefits as the motivator.
The nature of accounting in the insurance company makes the environment conducive for the criminal or fraudulent activities. The accounting systems are hard to understand by the clients, which allow the opportunity for the insurers, the agents, or accountants to manipulate the information. The actors, having the monopoly of knowledge of the way the system works have the potential for providing deceitful information from the clients. They are capable of taking advantage to get benefits that they are not entitled to (Wells, 2017). Because of the wrongful information, the person perpetrating the crime has the potential of making false claims without the knowledge of the client. It is hard for the client to know what is going on, allowing the crime to take place for a long time without detection.
Patterns of Behavior
The behavior of the person committing the insurance fraud is consistent with the act he is perpetrating. While the reasons behind the crime might vary, one of the behaviors consistent with the crime is greed. In this case, greed is the basis for beginning the fraudulent activities, and it is the driving force in sustaining it (Coffee Jr, Sale & Henderson, 2015). The people who perpetrate fraud usually consider it as a low-risk, lucrative dealing, and the easiest to satisfy their greed. The need to get the quick financial benefits makes it comforting to the greedy individuals. It is a safe and profitable enterprise for financial criminals because they can easily perpetuate the crime without being detected.
Another behavior consistent with insurance fraud is dishonesty driven by the need to make quick money. Whatever the kind of insurance fraud perpetrated, it all involve dishonesty on the part of the perpetrator. It is also a form of theft because it involves use of deceptive means to get benefits that one is not entitled to. When the person gets higher premiums from the client, it involves dishonesty (Dorminey et al., 2012). The same applies to the environment where the person does not pay the accurate claims to the client. Deceiving the client amounts to stealing from him or her.
Evidence, in this case, will involve two forms, the information produced in the course of the dealing with the affected clients and the testimony of those affected by the crime in one way or another. Hence, the relevant evidence will be gathered from the records and accounting information obtained from the company. This explains the confiscation of computers, within which the information is stored, and other documents which could be important sources of information on the dealings of the company with the clients (Coffee Jr, Sale, & Henderson, 2015). Besides witnesses, including the clients, colleagues and previous investigators will provide important evidence to prosecute the case. There should be evidence from the sources to prove that the fraudulent activities had taken place.
One of the documents needed for the investigation is the policy document. The document details the relationship between the client and the insurance company. It gives the particulars on the premiums and the claims that the client is allowed to make from the company and the time period for the same. Another set of documents is the files with the relevant policy information which will be compared to the information on the policy document for accuracy. The information in the two records should match, and in case they are not, the fraudulent acts will be proven. Claim forms will also be needed to validate the claims made to the customers and match them against what the customers actually obtained. The accounts of the company will also be investigated. In case of audits, the investigator will obtain audit reports (Coffee Jr, Sale, & Henderson, 2015). With a warrant, the investigator should be provided with all the information to build a case.
Interviewing the Perpetrator
Following access to all the information necessary to build the case, it will be necessary to interview the perpetrator to get more facts for a strong case. Contradictions and inconsistencies is the approach that will be used in interviewing the suspect. The process will involve interviewing the person and asking him to define the finance and accounting transaction which he understands well (Coffee Jr, Sale & Henderson, 2015). He will be asked to describe his interactions with particular clients for the purpose of matching the information given during the interview to the information contained in the records which are already in the possession of the investigator.
The interviews should be carried out in the same environment where the confiscated documents are held. This is necessary for comparison between the information given by the interviews and what is contained in the documents. However, it should be noted that the investigation will not involve an arrest because the person being investigated is not a criminal yet, the outcome of the investigation will prove that. The individual will, nonetheless, provide critical evidence to build up the crime. On obtaining a subpoena, the person will come in for interviewing.
Being an important part of the investigation, a number of important questions will be asked to the person being investigated. The questions are listed below:
- State your full names for the record
- What insurance company or agency do you work for?
- For how long have you been working for the company or agency?
- Do you remember working with (name few clients affected in the course of the period for which the records are available to you)?
- What kind of insurance did (name the clients) obtain from the company or agency?
- Did you give the clients their policy documents?
- Do you remember the amount of premiums the clients were required to pay to the company or agency?
- What was the total amount of their claims?
- After how long were the claims required to be made?
- Has any of your clients come back to complain with regards to their policies?