Risk Insider: Greg Bangs

When Do-Gooders Do Wrong: Fraud at Nonprofits

By: | May 21, 2015 • 2 min read
Gregory W. Bangs is chief underwriting officer of global crime at XL Catlin. Over the last 30 years, he’s been underwriting insurance and developing new products in the U.S., U.K., Hong Kong and France. He can be reached at Gregory.Bangs@xlcatlin.com.

Recently, a former Emory University employee pleaded guilty to wire fraud after embezzling more than $300,000 in tuition and fees paid by students. She instructed students to wire their tuition into her own Paypal account.

According to her attorney, “Based on the circumstances at her life at the time, she made some poor choices.”

From universities to religious groups to a host of local, national and global charities, nonprofit organizations are full of honest, hard-working people dedicated to improving society in some way. Unfortunately, even the most well-meaning individuals can find themselves in situations — faced with financial troubles or other personal circumstances — that tempt them to act inappropriately. Before they know it, they find themselves in financial hot water and, in turn, their nonprofit employer is in it as well.

According to the latest “Report to the Nations on Occupational Fraud and Abuse, 2014 Global Fraud Study,” by the Association of Certified Fraud Examiners, not-for-profit organizations continue to make up more than 10 percent of frauds committed.

While a for-profit organization may see stolen money take a bite out of its profits, a charitable organization may see even greater financial and reputational damage when money intended for doing good goes elsewhere.

That’s why the temptation to cover up financial problems can be particularly attractive for nonprofits. For organizations that rely on charitable giving, the notion that they are not safeguarding donations more carefully can put a dent in the future donation stream.

It’s also a bit of a double-edged sword for nonprofits. Putting fraud controls in place may entail some administrative costs and many donors evaluate their giving decisions based on nonprofits’ cost allocations, leaning towards organizations that show more of a donor’s dollar goes directly to their cause, not administrative costs.

While a for-profit organization may see stolen money take a bite out of its profits, a charitable organization may see even greater financial and reputational damage when money intended for doing good goes elsewhere.

In the long-run however, internal processes and protocols can prove to be a wise investment that will assure that money given to a cause is allocated to do the good it is intended, not to get swiped by employees.

Like any for profit organization, not-for-profits need to maintain a strong system of internal controls, among them:

  • Segregate duties. This assures that one employee cannot perform a complete financial transaction from end-to-end without involving someone along the way.
  • Background checks. For a nominal cost, nonprofits can make sure that employees have not already had some past issues that would affect their judgment with the organization’s money
  • Invest in technology. Today software accounting packages can raise a variety of red flags such as repetitive withdrawals or employee expense reimbursements.
  • Identify the role of board members for responding to or investigating allegations of fraud. Many seasoned financial and business professionals serve on charitable organization’s boards of directors and can be valuable sources for setting up fraud control procedures.
  • Commit to an independent audit every 4-5 years. Larger charitable organizations may commit to independent audits more regularly as they are often required in order to receive federal funding. Smaller organizations can seek more affordable methods of evaluating the nonprofit’s financial positions, such as a review of certified financial statements.
  • Prosecute offenders. Again, many nonprofits can be reluctant to go public with fraud cases because of its potential effect on donors. Not acting however, can be equally detrimental, sending a signal that employees who dip into an organization’s bank account may just walk away with a slap on the wrist.
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The Role of Risk Management

CROs Gaining Authority, Survey Finds

The role of insurance sector CROs is expanding.
By: | May 12, 2015 • 4 min read
Team meeting

The forces of change are continuing to reshape the insurance industry and its chief risk officers (CROs) are at the forefront of that change, reports Ernst & Young Global, aka EY.

The professional services multinational just published its fifth annual survey of CROs in the insurance sector. Conducted between December 2014 and February 2015, the survey canvasses views from various senior risk executives at 20 North American insurance companies, with life, P&C and multi-line insurers all represented.

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The findings show that “the most profound forces of change” are reflected in an evolution of the CRO role. They have greater authority, are assuming greater responsibilities and gaining an enhanced profile across the organization, with effective risk management increasingly regarded as contributing to market success.

Ways in which this enhanced profile is evidenced include direct participation on key strategic business matters, larger staffs than before and a wider use of stress testing. Nearly three in four CROs told EY that their department had expanded in the past year.

Along with more stress tests, additional staff are needed for operational risk, the own risk and solvency assessment (ORSA) and model risk management. Risk management today is closely “integrated with the business, rather than being an afterthought,” according to one survey respondent.

The report identifies three current key themes cited by CROs:

Capital Standards Still Confuse

The lack of common accounting standards and capital measures makes it difficult to compare performance and solvency across companies. Insurers employ various capital measures, many specific to the company, to analyze their risk exposures over a range of time periods and under different normal and adverse scenarios. The quantitative impact survey (QIS) launched last September by the Federal Reserve Board and field testing by the International Association of Insurance Supervisors (IAIS) persuaded several companies to consider new approaches to regulatory capital treatment.

Expanding risk management capabilities and the hiring of more risk staff confirms that it has become a team activity, played across and at every level of the enterprise.

More Regulations and Intrusive Regulatory Oversight

CROs from insurers not already regulated by the Federal Reserve Board accept, grudgingly, that they will also come under its spotlight. Until recently these CROs were confident that current state-based requirements would remain unchanged, but now accept that the two regulatory regimes, with different risk management standards, will probably converge around more stringent guidelines.

Risk Management Is a Team Sport

The 2015 survey shows CROs spending more time and effort on integrating risk management practices into the business. For some, the risk management function’s value is chiefly measured through its integration with the business. Expanding risk management capabilities and the hiring of more risk staff confirms that it has become a team activity, played across and at every level of the enterprise.

Past and Future Challenges

Asked to identify the main risk challenges currently occupying the insurance industry, 40 percent of CROs surveyed cite the slew of regulation and pending common capital standards. Although a distant second, 14 percent picked cyber risk, showing the CRO’s agenda now extends beyond financial risk. Easing concerns over interest rates and the economy as well as renewal of the Terrorism Risk Insurance Act (TRIA) saw both dip from a year ago to 13 percent and 10 percent respectively. Lingering worries that TRIA might not be extended was subsequently resolved at the end of January. Competition and pricing levels also scored 10 percent.

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Looking ahead to the main risk challenges of the next 12 months, 28 percent of CROs surveyed cited capital modeling and stress testing. Three tasks: establishing an enterprise risk management (ERM) framework and governance; integration and transparency; and assessing risk appetite each attracted 15 percent, while both emerging risks and operational risks were cited by 9 percent. Still a high priority a year ago, ORSA has since fallen off the list as many institutions have since participated in one of the three pilots or produced an ORSA draft.

Longer-term, insurance industry CROs expect greater authority and accountability, increased influence and broader interaction over the next few years, with their role becoming more visible and more accountable as it becomes better defined. In the meantime, they are focused on performance and creating value for the business. As one respondent commented, “we are spending less time on defining and debating the role and approach and more time on executing our risk plan.”

Graham Buck is editor of gtnews.com. He can be reached at riskletters.com.
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Sponsored Content by CorVel

RIMS Recap: Tech Trends that Could Change Everything

The future is here, and emerging technology is transforming the landscape of workers' compensation.
By: | May 8, 2015 • 5 min read
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Last month, Gordon Clemons, CEO and Chairman of CorVel Corporation, presented at the RIMS Conference in New Orleans, La. about emerging technology and how it is impacting risk management and workers’ compensation. The discussion served as a springboard for new insights on how technology will change the industry, and reaffirmed the need for integrated systems and human interaction for the best results.

The presentation noted the future is here – and technology is constantly evolving in hopes of outpacing tomorrow’s needs. As these technology platforms become more inherent in daily life, the gap in translating their utilization to workers’ compensation will begin to close.

Technology in Healthcare

Gordon Clemons, CEO and Chairman, CorVel Corporation

While many consumer-based technology advancements exist in other industries, perhaps most notably in the retail space helping vendors to reduce various delays in the sales experience, people may forget that healthcare, too, is a consumer industry. And as such, healthcare also experiences workflow lags, which can be collapsed.

While patients and claims may not lend themselves as freely to mobile applications and technology that subscribes to the “Internet of Things” philosophy, the rapid rate of development foretells the not-too-far-off arrival of the “a-ha,” “wow factor”-type application that consumers are seeking in the healthcare industry.

Once we get there, we can only expect that the Pangea of resources will yield better outcomes. The potential impact to medical management includes more affordable/accessible healthcare, patient convenience, personal assistance, automatic inputs to claims systems and less administration from both patients and injured workers.

“Healthcare is stubborn about change. There are more data points in healthcare and there is a greater need for high quality and accuracy,” Clemons said.

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Tech Trends for the Next Digital Decade

As an industry advocate in all things innovation, CorVel has been keeping tabs on emerging tech trends. As they begin to influence in other industries, it sparks the question – will they eventually change workers’ compensation?

Here are some of the trends on CorVel’s radar:

Wearables

Smart phones and tablets were the first mobile devices to really start to gain traction across people’s personal lives. Since then, wearables (like Fitbits and smart watches) have been part of the next digital generation to be taken up by consumers.

As these personal devices quickly advance, wearables could offer payors and employers added insight into the wellness of claimants through the extent of their retrievable data.

Beacons

Beacons are devices that use low-energy Bluetooth connections to communicate messages or triggers directly to a smart device (such as a phone or tablet). Retailers have started using this technology, sending offers to near-by consumers’ phones. Now the concepts of smart mirrors and smart walls offer a one-stop-shop with recommendations related to the preferences of the shopper – making a hyper-efficient business model. It is possible that we could see these devices adapted to being a catalyst for healthcare’s business model by reducing the delays of administrative work.

Drones

Formally known as unmanned aerial vehicles (UAV), drones can be remote-controlled or flown autonomously through pre-defined flight plans within their internal systems. Some carriers are testing the use of drones to potentially be used to evaluate property damage and responding to natural disasters.

Telemedicine

As most injuries reported in workers’ compensation are musculoskeletal injuries, the industry lends itself well to the benefits of telecommunications and telemedicine. With the rise of electronic capabilities, telemedicine becomes another option to help guide an injured worker through their entire episode of care, reducing time delays.

In order to get to that point in time, implementing these trends (and those that are yet to be launched) will only be as successful as the population willing to accept them. Buy-in will require a commitment to the long-standing pillars of the industry. According to Clemons, “While technology can truly move the needle in workers’ compensation, it will take more than bells and whistles to maximize its impact.”

“People’s feelings are valid. The skepticism surrounding new technology is not misplaced, but neither is the enthusiasm,” Clemons said.

New Trends, Same Priorities

SponsoredContent_CorVelBeyond the buzzwords and hype surrounding the latest apps and devices, for new technology to succeed within the workers’ compensation realm, it boils down to the two primary concepts that drive the industry to begin with – effective infrastructure and a people-first philosophy.

The power of applicable resources and the actionable data that results from them is in the foundation of the systems themselves; that primarily being through the influence of integration. It is not a new concept; however, as technology advances and the reach of analytic capabilities broadens, it is important to find a provider that can harness this data and channel it into effective workflows to increase efficiencies and promote better outcomes.

CorVel’s proprietary claims management system has been developed and supported by an in-house, full-time information systems division to be intuitive and user-friendly. Complex, proprietary algorithms link codified data across the system, facilitating collaboration between services, workflows, customers, and technology and eliminating the risk that a crucial piece of information will be missed. The result is an active “ecosystem” providing customers with actionable data to provide the most accurate, comprehensive picture at any time, while also collapsing inherent delays.

For the injured worker, the critical human touch connection in the workers’ compensation process can never be minimized. By cutting lag time throughout the various inefficiencies underlying the industry’s workflows, CorVel can connect injured workers with quality care sooner. As systems advance, claims and managed care associates do not have to spend as much time on administrative work and will instead be able to devote more time to the injured workers, reviving the human touch aspect that is just as impactful within the industry.

Regardless of the technology that lies ahead, CorVel looks to the future with investments in innovation, while not losing sight of their role and responsibility to clients and patients. Dedicated to constant improvement for the services they provide injured workers and industry payors, CorVel is committed to improving industry services one app, click, drone (or whatever is yet to come) at a time – perhaps something to discuss in San Diego at next year’s RIMS conference.

For more information, visit corvel.com.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel Corporation. The editorial staff of Risk & Insurance had no role in its preparation.




CorVel is a national provider of risk management solutions for employers, third party administrators, insurance companies and government agencies seeking to control costs and promote positive outcomes.
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