At ICW Group, we’re constantly on alert for the latest schemes and scams bad actors look to perpetrate upon our workers’ compensation policyholders. Understanding prevention is always less costly than recovery. We regularly update our fraud detection models and adjust our defenses as those looking to commit fraud adjust their techniques.

Likewise, it’s prudent to review your exposures to fraud and consider potential solutions periodically. Here are eight ubiquitous types of fraud that businesses are exposed to, along with practical steps to protect against each threat:

1. Payroll Fraud

What it is: Employees falsify timecards, manipulate pay rates, or continue receiving pay after termination (ghost employees).

Protection:

  • Use automated time-tracking software.
  • Regularly audit payroll records.
  • Separate payroll duties from HR responsibilities.

2. Vendor or Billing Fraud

What it is: Employees create fake vendors or collude with external vendors to submit false invoices.

Protection:

  • Verify new vendors with background checks.
  • Implement a multi-person approval process for purchases.
  • Conduct periodic audits of vendor payments.

3. Check and Payment Fraud

What it is: Forging signatures, altering checks, or issuing unauthorized payments.

Protection:

  • Use positive pay services from your bank.
  • Reconcile bank statements promptly.
  • Limit check-writing authority.

4. Cyber Fraud and Phishing

What it is: Hackers trick employees into revealing passwords or financial info via email or malicious websites.

Protection:

  • Train staff on identifying phishing attempts.
  • Use multi-factor authentication.
  • Keep software and firewalls up to date.

5. Financial Statement Fraud

What it is: Manipulating financial records to mislead investors or hide losses.

Protection:

  • Hire an independent CPA for financial audits.
  • Enforce strong internal controls and ethical standards.
  • Use board oversight for key financial reporting.

6. Expense Reimbursement Fraud

What it is: Employees submit fake or inflated expenses for reimbursement.

Protection:

  • Require original receipts.
  • Use automated expense reporting systems with approval workflows.
  • Randomly audit expense claims.

7. Return or Refund Fraud

What it is: Customers or employees abuse refund policies or return stolen items for cash.

Protection:

  • Set clear return policies with time limits.
  • Require receipts and photo ID for returns.
  • Monitor refund patterns.

8. Identity and Data Theft

What it is: Theft of sensitive customer or employee information for fraudulent use.

Protection:

  • Encrypt sensitive data.
  • Restrict access to confidential information.
  • Monitor systems for unusual activity.

There is no single solution that will protect you or your business. An effective response to combatting fraud requires multiple steps, such as implementing layered security and access levels, conducting regular audits, segregating financial responsibilities, and staff training.   

Ensuring you partner with an insurance carrier trained and staffed to detect, deter, and defeat insurance fraud is critical to reducing your business’s overall fraud risk. Current and future policyholders are encouraged to visit ICW Group’s website for additional resources on how we can partner with you to fight fraud.