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Aims & Agenda Aims Understanding the prevalence of crime in the workplace What can YOU do to mitigate this exposure? Agenda Industry Statistics Common Scenarios Real Losses Profile of a Perpetrator Prevention and Detection – a Risk Manager's Perspective (Lois Fuchs) Commercial Insurance Questions
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Fighting Crime in theWorkplace
Catch Me If You Can
• https://www.youtube.com/watch?v=hFj3OXVL_wQ
Aims & AgendaAims
Understanding the prevalence of crime in the workplace What can YOU do to mitigate this exposure?
Agenda Industry Statistics Common Scenarios Real Losses Profile of a Perpetrator Prevention and Detection – a Risk Manager's Perspective (Lois Fuchs) Commercial Insurance Questions
Crime Exposures• Cost to industry: typical organisation loses 5% of
annual revenue to fraud: global estimated USD2.9 trillion per annum
• Recession fuelling rise in crime: loss as a proportion of income has risen 20% in the last year
• Severity: approximately 25% of all reported losses cost US companies more than USD1million
• Difficult to detect: average length of fraud losses prior to detection is 24 months
• Time served: largest frauds are committed by longest serving employees
Common Scenarios• Theft (by employees or third parties): cash / stock• Billing: employee creates a fictional vendor and bills employer for non-existent services• Bribery and corruption: employee processes inflated invoices for supplier and takes a kickback• Premises and transit: robbery/burglary/hold-up• Payroll: employee claims overtime for un-worked hours or adds ghost
employees to the payroll• Information: employee or third party steals confidential customer or
product information
Real Losses• Case Study 1: Milton Morris, senior manager in charge of trucking at SC
Johnson conspires with suppliers to overpay them in return for back-handers. Scam goes undetected for 10 years. Company obtains judgement against the perpetrator and trucking companies in excess of USD 200m.
• Case Study 2: Chia Teck Leng was sentenced to 42 years in jail, one of the longest jail term meted out for the largest case in commercial fraud in Asia to date. Chia was a finance manager at Asia Pacific Breweries when he forged documents to swindle banks out of S$117 million over four years to feed his gambling addiction.
• Case Study 3: Singapore Airlines' employee Teo Cheng Kiat, who embezzled S$35 million from the airline over 13 years. He was convicted in 2000 and jailed for 24 years for the crime.
Profile of a Perpetrator• Age/seniority: middle management aged 41-50 commit more than a third of internal
frauds – more authority and more access to company resources. Also responsible for the largest losses
• Tenure: longer-term employees commit the largest frauds• Department: accounting department employees commit disproportionate number of
crimes (30%). Senior management (18%), operations (16%) and sales (11%) staff also feature strongly
• Background: 87% or perpetrators have never been charged or convicted and 82% have never previously been punished or terminated
• Motivation: domestic financial difficulties/stress including divorce, gambling, drugs. Pure jealousy combined with rationalisation ("I work just as hard as the CEO why shouldn't I have the benefits which he/she enjoys"?)
• Red flags: living beyond means, financial difficulties, divorce/family problems, close association with vendor, refusal to take vacation, complains about lack of pay
Prevention and Detection – A Risk Manager's Perspective
Prevention• Internal/external audit• Anti-fraud training• Dual controls for cheque
signing/wire transfers• Employee vetting
Detection• Tip or complaint (including
whistleblower hotline)• Surprise audit• Linguistic software• Red flags
Commercial Insurance Covered
Indemnifies the insured for direct financial loss i.e. first party loss caused by:• Employee dishonesty• Theft by a third party• Counterfeiting or forgery of a negotiable instrument by a third party• Computer crime by a third party• Trigger: losses discovered during the policy period.
Commercial InsuranceNot Covered
• Unauthorised trading• Liabilities to third parties• Loss caused by directors or major shareholders• Consequential loss (e.g. computer downtime)• Pure inventory loss• Theft of trade secrets or confidential information
Morage Fraud video to prep for training lab
• Fraud video: https://www.bing.com/videos/search?q=fraud&&view=detail&mid=E75B5B7D4398397C1532E75B5B7D4398397C1532&FORM=VRDGAR
Questions?