Dave Sutherland 2015-03-03 02:20:34
Financial Crimes: Insurance Fraud The insurance industry is highly susceptible to fraud. As a practice, insurance companies accumulate liquid assets in the form of insurance premium payments, which are set aside as reserve funds. The reserve funds are later used to pay loss claims. This steady stream of cash flow is tantalizing to the would be criminal who sees the perceived deep pockets of the insurance companies as an opportunity. Some time ago, our firm was engaged by a local fire department in an arson-for-profit case. As background, this type of case included, among other issues, an insurance fraud property scheme, wherein the defendant allegedly hired an individual to set fire to the defendant’s personal dwelling. The criminal investigator provided us with preliminary documentation, which we evaluated. According to the Association of Certified Fraud Examiners, “Insurance Fraud Handbook,” there are several red flags of potential insurance fraud, which are as follows: • The claim is made a short time after inception of the policy, or after an increase or change in the coverage under which the claim is made. • The insured has a history of many insurance claims and losses. • Before the incident, the insured asked his insurance agent hypothetical questions about coverage in the event of a loss similar to the actual claim. • The insured is very pushy and insistent about a fast settlement, and exhibits more than the usual amount of knowledge about insurance coverage and claims procedures, particularly if the claim is not well documented. • In a fire loss claim, property considered personal or sentimental to the insured and that you would expect to see among the lost property (such as photographs, family heirlooms or pets) is conspicuous by its absence. • Documentation provided by the insured is irregular or questionable. Based on our analysis, we found that some, but not all, of the above itemized red flags were present in this case. Of course, the existence of one or more red flags does not indicate that a fraud has occurred. They are an indication that further investigation is warranted. Attorneys need to be aware that allegations of insurance fraud, as described above, are often a complex and lengthy process. They are further complicated by the fact that the evidence being relied upon is circumstantial and can be voluminous. Attorneys may choose to engage a financial forensic expert to be a witness at trial. We performed an analysis of the defendant’s financial condition leading up to the fire, as of the date of the fire, and prospectively after the date of the fire. This was done in order to determine whether or not the defendant’s financial condition was deteriorating prior to the fire and what economic benefit may have been or was realized as a result of the fire. This type of analysis is inherently complex as it considers various aspects of the defendant’s financial situation, which includes their earned income, expenditures, net cash flow, debt, investments, assets, etc. If the information obtained from the analysis is not formulated and presented in a meaningful way, the trier of fact may feel the financial forensic expert’s conclusions and opinions appear arbitrary. To complicate the process further, the opposing attorney may choose to call their own financial forensic experts, which happened in this case. Not surprising, the opposing expert witness arrived at widely different conclusions and opinions regarding elements of the case, which were based on assumptions included in their analysis. In the end, the judge decided our expert testimony was more persuasive and found the defendant guilty. As criminal cases involving allegations of insurance fraud often involve financial issues that may be complex, a financial forensic expert can provide the attorney with the knowledge, skills, training and experience necessary to distill the financial issues down to their salient points and provide, if necessary, testimony at trial that is persuasive to the trier of fact. Dave Sutherland is a certified public accountant/certified in financial forensics, certified fraud examiner, and a certified law enforcement auditor. He has been involved in criminal and civil investigations since 2002 and has been in practice since 2009. He is a manager at Epps Forensic Consulting PLLC specializing in financial investigations, forensic accounting, litigation support, fraud examination and law enforcement consulting services. Dave co-teaches with Joe Epps on the topic of white-collar crime investigations through Rio Salado Community College. He periodically teaches for the Association of Certified Fraud Examiners on fraud-related topics. He also teaches Financial Forensics in Law Enforcement a two-day training program for law enforcement officers. For more information, please call (480) 595-0943 or please visit www.eppsforensics.com.
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