Fighting Crime in the Workplace

1. Fighting Crime in theWorkplace Tom Phillipson – Head of Contingency & Crime, Swiss Re Corporate Solutions Lois Fuchs – Risk Manager, Honeywell

2. 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 Fidelity Insurance • Questions

3. 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

4. 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

5. 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: ChiaTeckLeng 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.

6. 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

7. Prevention and Detection – A Risk Manager's Perspective Detection • Tip or complaint (including whistleblower hotline) • Surprise audit • Linguistic software • Red flags Prevention Internal/external audit Anti-fraud training Dual controls for cheque signing/wire transfers Employee vetting

8. Commercial Fidelity 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.

9. Commercial Fidelity 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

10. Questions?

11. Appendix I – Sources and Recommended Reading • Association of Certified Fraud Examiners Global Report 2010 • Kroll Global Fraud Report 2011/12 • PWC Global Economic Crime Survey 2011

12. Appendix II - Swiss Re Corporate Solutions Underwriting Appetite • Target clients: all industry segments, except jeweller’s block & casinos • Multi-year capabilities • Capacity & attachment linked to size of insured • Revenue > USD 500m • Capacity: up to USD 25m • Attachment point: minimum USD 5m • Revenue < USD 500m • Capacity: up to USD 10m • Attachment point: minimum USD 25k Required Underwriting Information: • Number of employees and their locations • - Audits- Training- Dual controls • (5) year loss history

13. Thank you!

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