Noble Insurance Company has received two claims about which the company has grave suspicions about their genuineness and admissibility under the terms of the insurance policy. To help them in the aspect of the genuinenes

CS Professional · Forensic Audit · PYQS · December 2020
Noble Insurance Company has received two claims about which the company has grave suspicions about their genuineness and admissibility under the terms of the insurance policy. To help them in the aspect of the genuineness of the two claims, it appoints a forensic auditor (FA). The claim is not payable where there has been negligence on the part of the insured. The FA was to also look into this aspect and report to the insurer. Fidelity guarantee claim Doomsday Garments Ltd., had lodged a fidelity guarantee claim which insures the perils caused due to act of infidelity of any of the permanent employees of the insured. The insured's business model was that advance payment was required from any buyer before goods are delivered from the insured's warehouse to them. In the given case, the insured's claim was misappropriation of sum of ₹22 lakhs misappropriated by Sakuni, one of its employees. Goods worth ₹24 lakhs had been invoiced for ₹2 lakhs only, to one Kumbakarna Tex. The event happened on January 31st, 2019 evening when everyone was under severe targets pressures and hence the officer superior to Sakuni could not find out the alleged mistake or fraud in the invoicing of goods. When the warehouse keeper was enquired, it turned out that he did receive written memo from the sales team, as per usual practice, to release the goods. The warehouse keeper was not aware of the issue relating to short payment, the same not being in his domain. The FA conducted the investigation in the above situation to help the insurance company and came to their rescue. You are required to imagine and narrate how the FA had helped the insurer in this regard.

Answer & Explanation:

The Forensic Auditor should conduct the investigation in the following manner: Whether Sakuni is a permanent employee of the insured should be ascertained. This can be seen with the help of several documents, some of them being appointment letter, salary slips, bank transfers of salary to the bank account of Sakuni, PF remittance, HR record of employee etc. The Forensic Auditor first ascertained that Sakuni was a permanent employee of the insured. The Forensic Auditor then looked into the internal controls and Standard Operating Procedure 'SOP' to be followed in case of sale to a customer. The important sequences of events were as under: Purchase requisition from buyer was to be first received; Purchase requisition was to be approved by a senior officer. Where the goods worth ₹20 lakhs or above are dispatched, the approval of the Sales Manager was required, who was to check the rates as well as quantities involved. Approval matrix to be checked and whether the same was adhered. The Forensic Auditor found out that in the given case, the Sales manager had not given approval at all. The transaction was authorised only by the supervisor above Sakuni, who coaxed him to believe that he would get it ratified by the sales manager. Such ratifications had been done in the past, but this time it was not done. Since the SOPs have not been followed, it was a clear case of negligence on the part of the insured, consequent to which there will be no liability on the part of Noble Insurance Company.

Topics: Forensic Audit in Insurance Claims

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