Insurance agencies that entrust producers with client billing need strong financial controls to mitigate embezzlement risks. Embezzlement is a crime of opportunity. When employees can access funds, billing software, or other insurance agency financial tools, the opportunity for embezzlement, large or small, exists. While agency owners want to hire trusted employees and allow those employees to feel trusted, trust alone may fail to safeguard agency or carrier funds.  

Taking careful steps to prevent, detect and deter financial impropriety can help agencies stay solvent and prevent a financial and reputational disaster.  

Let’s explore some key strategies agency owners can use to protect themselves and their clients’ funds. 

Segregation of Duties 

One of the foundational principals of financial control is the segregation of duties. This practice ensures that no single person has control over every stage of a financial transaction. By dividing responsibilities, you make it harder for any one individual to manipulate records or steal funds without detection. 

Here are some examples of segregation of accounting duties. 

Remember, all fund transfers should have top financial security considering fund transfer scams endemic in today’s world. 

For more information on segregation of financial duties, visit the link. Duty segregation will help prevent undiscovered fraud; however, there is no one magic bullet that will prevent all fraud. Again, financial fraud is a crime of opportunity, so a desperate employee may be highly motivated to find ways around the best accounting safeguards.  

Here are further steps you can take to help prevent embezzlement. 

Colby Allen, Vice President of Valuations and Consulting at Agency Brokerage in Melbourne, Florida, had this to say about the important of fraud prevention. “Many small-town local agencies will use the phrase ‘We are not corporate’ to recruit talent. While the sentiment is often a source of pride, it is also a potential blind spot for an agency owner. Rejecting the idea of a corporate environment should not mean a business owner can ignore potential risks that corporate controls help to mitigate.” 

Allen goes on to stress the importance of segregation of duties and clearly defined roles to reduce the risk of “bad actors” taking advantage of a lax environment. 

Regular Audits and Reconciliations 

Regular internal and external audits can be a powerful tool to prevent fraud. While employees often negatively view the word “audit,” they help identify discrepancies in financial records, such as missing payments or fake invoicing. Even when mistakes occur unintentionally such as data entry mistakes, audits can shine a bright light on these errors before they escalate or recur. 

The first step in preventing embezzlement is to “think like a crook.” Audits can uncover items once they have occurred; however, think ahead to determine workarounds an employee may use to their own advantage. ‘ 

Imagine a producer has been holding back a portion of client payments for personal use. By cross-checking client invoices against bank deposits, you would notice missing funds that do not align with the billing records. Quick detection allows for immediate action, protecting both agency finances and client trust. 

Regular internal and external audits can be a powerful tool to prevent fraud. While employees often negatively view the word “audit,” audits help identify discrepancies in financial records, such as missing payments or fake invoicing. Even when mistakes occur unintentionally such as data entry mistakes, audits can shine a bright light on these errors before they escalate or recur. 

The first step in preventing embezzlement is to “think like a crook.” According to Al Diamond, owner of Agency Consulting Group, located in Cherry Hill, New Jersey, “Many businesses learn to close and lock the barn door after all of the animals have escaped (or have been stolen).”  He recommends starting with a review of the balance sheet liquidity ratios and performance tests provide enough data to alert the owners that something is happening before extreme results force them to concentrate on the priorities of the business, Diamond recommends. The balance sheets assess the organization’s ability to meet its short-term obligations; the performance tests evaluate a company’s overall efficiency and financial health. 

Imagine a producer has been holding back a portion of client payments for personal use. By cross-checking client invoices against bank deposits, an auditor would notice missing funds that do not align with the billing records. Quick detection allows for immediate action, protecting both agency finances and client trust. 

 Leveraging Technology to Secure Financial Processes 

Key tools include the following. 

A simple step for agencies is to establish an invoicing platform that automatically logs every transaction and deposits all payments into a centralized account. When all producers work in the same system, tracking patterns can help prevent misuse. Technology streamlines financial controls and reduces human error and opportunities for invoice and payment manipulation. Accounting and client management systems offer important safeguards to monitor financial activity, flag unusual behavior, and prevent unauthorized access. 

According to Allen, “New technology solutions can help an agency streamline collecting and remitting premiums. Not only do these solutions provide a better client experience, but they also enable the agency to reconcile receivables and payables with integrated reporting compared to relying on more manual accounting processes subject to human error or risk for fraud.” 

Clear and Consistent Client Communication 

If your producers routinely bill clients, adding another layer of transparent communication with clients will add another layer of protection. As clients review their invoices and payment confirmations, they actively participate in the financial process, creating additional oversight. However, many business owners delegate this task to employees who may not understand the insurance billing process and automatically pay invoices without management oversight.  

When agency principals contact clients to ensure all is well, including billing, your transparency can help build client trust, ensuring clients feel secure about the agency’s billing practices. The secret to this practice is to alert all new and renewing clients that occasionally they may hear from an agency principal to ensure all is well. You can also alert clients that if they see charges they don’t recognize or if payments go uncredited to their accounts, they should reach out immediately to management, not the producer.  

You can engage this way without raising alarm. Simply develop a standard greeting that goes out to all new and at least annually to renewing customers stating something like this. 

“In today’s world of fund-transfer fraud and other sophisticated ways to compromise payments, we ask you to carefully review all invoices you receive from us. While we strive to provide accurate billing, our priority is the security of all financial transactions. Please feel free to reach out to ______________ [not the producer], if you have any concerns about your account.” 

Always encourage clients to reach out if they notice discrepancies, delays, or suspicious activity on their accounts. As the agency owner, you don’t want to be the “last to know” if something goes wrong.  

Additionally, invoicing non-existent vendors is another frequent source of embezzlement. It is important to appoint a manager to thoroughly vet new vendors and that your employees cannot set up new vendors themselves.  

According to Virginia Bates, president of VMB Associates, a consulting firm specializing in education, agency management and automation issues, "Most agency principals are excellent salespeople. Some have superb staffing skills, but few are adept at accounting and system reporting. Comparing clients’ payables, daily deposits and aged payables can provide assurance of sound money handling or, in rare cases, clues to intentional or just clumsy misdirection. A monthly vendors' payable report is a quick but effective way to be sure all agency money is going to the right places." 

Fostering a Culture of Transparency and Accountability 

Beyond technical controls, agencies must create an organizational culture that prioritizes ethics and integrity. You as the agency owner must model the behavior you want your employees to emulate. When employees know that all are held accountable and supported, they are less likely to engage in misconduct. Disgruntled employees may be the ones most likely to commit unethical acts. A transparent workplace discourages dishonesty while encouraging employees to speak up if they notice suspicious behavior. 

Here are some steps you might take to foster accountability.  

For example, consider holding quarterly staff meetings focused on fraud prevention and emphasizing the importance of protecting both the agency's reputation and client funds. Reward team members who show excellence in upholding ethical standards to reinforce the agency's values.