Your friend John works for an insurance company. John holds a business degree and has been involved in the insurance business for many years. In a recent conversation, John shares some company information with you. He has heard that the internal auditors estimate that the company has lost about $2.5 million over the last year as a result of fraud. Because you are a certified fraud examiner, John asks you how this will affect the company’s profitability. John doesn’t have access to the company’s financial information.
1. Compute the additional revenues needed to make up for the lost money, assuming that the company has profit margins of 5, 10, and 15 percent.
2. Give examples of three types of fraud that could affect the insurance company.