Individuals do not commit fraud unless they can justify it as being consistent with their own personal code of ethics. Personal integrity may be the most important factor in keeping a person from misappropriating assets. Some investigators believe a strong moral code can prevent individuals from using rationalization to justify illicit behavior. Insurance company internal auditors, however, should assume that anyone is capable of justifying the commission of fraud. This is often a function of the fact that those who are trusted are placed in positions where fraud may be committed for example, when trusted individuals are given opportunity to manage and control assets.
Rationalization is a factor often viewed as out of the control of management and internal auditors.
Yet if fraud prevention is routinely discussed with employees as part of an ongoing program, the subject of rationalization can be addressed. If only a small percentage of potential fraud schemes are discouraged, the cost of such a program is probably justified. Employee Fraud Targets Risk of misappropriation of assets is related to specific assets owned by the insurance firm, especially cash. Cash fraud schemes involve relatively high average losses. Thus, insurance company internal auditors should focus their efforts on the prevention, deterrence and detection of fraud involving cash.