Commercial Crime Concepts: Claims Examples

Accounting Fraud

An employee manipulated the company’s debit order and refund system by changing legitimate customer banking details and replacing them with her own bank account details and those of friends and associates.
The employee then processed fraudulent refund transactions and included them within payment batches containing legitimate payments. These payment batches were submitted to the Financial Director (FD) for approval under the company’s dual-authority banking process.
The FD approved the payment batches without independently verifying changes to beneficiary bank account details or confirming that the payments matched the supporting reconciliations. He relied on the employees’ representations and trusted that she had performed the necessary checks as the first approver in the payment process.
As a result, multiple fraudulent payments were made to the employee and her associates before the scheme was detected. An investigation confirmed that the employee had intentionally manipulated the refund process for personal gain, causing a direct financial loss to the insured.

40 fictitious payments totaling around R2 000 000 were identified, which had been made to two suppliers.
Subsequent investigations established that the suppliers did not exist and had been created by a senior employee to facilitate fraudulent payments while circumventing established administration and banking procedures.
The Financial Manager failed to adequately scrutinise the invoices and supporting documentation before authorising payment and didn’t question the legitimacy of the invoices. As a result, the fictitious transactions proceeded undetected.
The matter exposed several control weaknesses, including inadequate supplier verification, ineffective segregation of duties, limited review of payment approvals, the absence of bank detail verification systems, and overreliance on a trusted employee.
Key lessons for brokers and insureds include the importance of independent supplier onboarding and verification processes, robust payment controls, regular reviews of supplier master files, and enhanced scrutiny of transactions approved by senior personnel.

An employee at the insured’s silo complex colluded with a third party to unlawfully remove grain from the premises.
The employee allowed the third-party truck access through the main entrance and arranged for the vehicle to be weighed on the weighbridge. However, the vehicle’s entry weight was deliberately not captured on the insured’s stock management system.
The employee instructed other employees, who were unaware of the fraudulent scheme, to load grain onto the truck. The truck then proceeded over the weighbridge for its exit weight to be recorded. The implicated employee failed to capture the transaction on the system, ensuring that no stock movement was recorded.
As a result, grain was removed from the insured’s premises without any corresponding documentation or adjustment to stock records. An investigation revealed that the same truck had entered and exited the silo complex on multiple occasions over a period of time using the same method.
The policy did not allow a stocktake to be used as the basis for quantifying the loss. However, the insured was able to substantiate the loss through public camera footage showing the truck’s movements.

The insured reported a potential financial loss of approximately R10 million arising from transactions processed and approved over a period of nine years within ABC (Pty) Ltd.
These losses were identified across two subsidiary companies following a report received through the whistleblower hotline, which alleged that invoices had been submitted for payment in respect of services that had never been rendered.
It was established that the Managing Director had colluded with certain employees and external service providers to misappropriate funds from the insured.
It was revealed that many of the invoices had been unlawfully created by the implicated employee on a company laptop at the direction of the Managing Director.
Once approved by the Managing Director, the invoices were submitted to the Finance Department for final approval and payment, allowing the fraudulent transactions to continue undetected over an extended period.
Key lessons from this loss include the need for robust governance structures, independent verification that services have been rendered, regular internal audits, effective whistleblower mechanisms, and strengthened controls over approval and payment processes. These measures should include proper verification of supplier banking details and thorough supplier onboarding procedures to reduce the risk of collusion and prolonged fraudulent activity.

An employee of the insured received an e-mail that appeared to originate from a legitimate supplier, advising that the supplier’s banking details had changed and requesting that all future payments be made into a new bank account. The e-mail contained the supplier’s logo, contact details, and other information that made it appear genuine.
Relying on the instruction received, the employee amended the supplier’s banking details on the EFT system and processed a payment of R250,000 to the new account.
Several days later, the legitimate supplier contacted the insured to enquire about the outstanding payment. An investigation revealed that the e-mail had been sent by a fraudster who had impersonated the supplier.
The investigation confirmed that the banking detail change request was fraudulent and that the employee had not independently verified the instruction using a trusted contact number on file. Furthermore, no authentic bank confirmation letter or other supporting verification was obtained before the banking details were amended and the payment released.
As a result, the insured suffered a direct financial loss of R250,000, which could not be recovered.

Loss Amount: R250,000

Coinsurance Applicable: 75%

Insurer Pays: R62,500 (25%)

Insured Bears: R187,500 (75%)

Learning Point: All requests to change banking details or payment instructions should be independently verified using trusted contact information before any amendments are made or payments are processed.