Page 29 - Insurance Times July 2021

part of the risk management process, and there should
be continual improvement of controls.

Y Ultimately, the internal control system should be
embedded within the culture and operations of an
organization.

Let us understand weak internal controls with a help of a
case study:

Case is of no process of Pre-Employment
Screening in a company
Y A finance house needed an extra junior accountant for
a short period of time. The company went to a
reputable agency and employed an appropriately
Y Clear policy declarations on business ethics and anti- qualified person.
fraud, with clarifications about tolerable behavior in risk Y The company relied on the agency's screening policy
prone situations. which had failed to uncover a series of discrepancies in
Y A method through which supposed fraud can be the accountant's personal history, including a false
informed. address. The accountant removed a company
Y An extensive audit procedure which focuses on areas chequebook from his work place and used it to make a
of risk. series of high value purchases on his own behalf.

Y Organization who are seen to be dedicated through Y The matter came to light when a routine enquiry was
their actions. made with the finance house to verify the issue of one
Y A code of ethics or an anti-fraud policy is not adequate of the cheques. By this time the short-term accountant
to prevent fraud though. Ethical behavior needs to be had left the organisation. He could not be traced and
rooted within the culture of an organization. the matter was referred to the police.
Y To demonstrate commitment, resources should be C) Insurance Fraud Controls through Fraud
allocated to communicating ethics and values to all
employees, suppliers and business partners, and Detection:
providing training programs where necessary.
Y Promise from senior management and 'attitude at the
top' is key.

How to establish a Sound Internal
Control Systems in any Organization: Fig. 6 - Fraud Controls through Fraud Detection
Y An internal control system includes all those policies and
procedures that taken together, support an Fraud Indicators: Warning Signs
organization's effective and efficient operation. Y It is unlikely to eradicate all fraud.
Y Internal controls typically deal with factors such as Y No system is completely fraud proof, since many
approval and authorization processes, access restrictions impostors are able to evade control systems put in place
and transaction controls, account reconciliations, and to stop them. However, greater care paid to some of
physical security. the most common indicators which can provide early
Y Internal controls to minimize fraud should, where warning that something is not quite right and increase
possible, address fraud red flags. the likelihood that the impostor will be discovered.
Y Warning signs have been defined as organizational
Y Wherever new internal control procedures are
announced, they should be documented clearly and indicators of fraud risk.
simply. Internal controls should be frequently revised as Y Warning Signs can be classified under four Risks:

The Insurance Times, July 2021 29