Lessons learnt from a $17m fraud

DUAL CEO Damien Coates had brokers riveted to their NIBA Convention seats yesterday when he laid bare the fraud that rocked the underwriter earlier this year.

In a much talked-about session, the Asia-Pacific CEO took to the stage to spell out how an employee siphoned off $17m, offering a warning that it could happen to any business.

“The trauma that DUAL has been through in the last three months is something I’d never want any business to go through.”

On 30 June, news broke that former employee Josie Gonzalez and her husband had allegedly misappropriated $17m in insurer funds, via false invoices to a fictitious law firm, JAAG.

“A lot of people ask me the question: was the issue to do with vendor approval processes?” Coates says.

“In fact we had a very strong vendor approval process for any broker we do business with and before we appoint any lawyer to our panel.

“The issue was that our vendor approval process only applied to known categories of vendors. JAAG was set up as a vendor and when they first submitted the invoice, before our management approved that invoice they asked who is JAAG and the explanation given was that JAAG was a clearinghouse for any barristers who do work on DUAL claims.”

Coates says the problem was DUAL’s processes hadn’t kept up with its growth.

“When I first set up DUAL I was approving every invoice. I wanted to know where every dollar went. As the business had grown our two bank signatories were signing 800 invoices a month,” he says.

“Many CEOs have asked me out how we uncovered it, saying surely it was an issue of annual leave. It wasn’t at all and any of us who are running businesses and thinking annual leave is a logical way in the current technological age we live in to prevent fraud is living in a different world. That control doesn’t work.

“No-one is ever really on holidays. We can still check out emails and keep the business going.

Coates says Gonzalez took every day of her annual leave.

“If you’re serious about annual leave as a control you have to do what the banks do: for two weeks of their four weeks annual leave they block every single person’s system access,” he says.

The fraud was uncovered because Gonzalez’s access to the system was blocked for part of her time on maternity leave.

Coates says despite the trauma of recent months there have been positive outcomes.

“All our binders have been renewed and we’ve had phenomenal support from the broking market,” he says.

Coates also says the experience has enabled the firm to truly understand the nature of the risks they underwrite for their clients.