The effectiveness of forensic auditors in the Maltese insurance process

Abstract

Purpose: The purpose of this study is to identify whether forensic auditors would be effective if they had to be engaged by insurance firms. Design/Methodology: To prove effectiveness of forensic auditors in the insurance industry, the author used the criteria established by Bond et al. (2011). This criterion revolved around having procedural, substantive, transactive and normative effectiveness. The objectives of this study were achieved through a questionnaire distributed among qualified accountants, CPA holders, holders of practicing certificate in auditing, insurance firms, risk managers, advocates, and professionals working in compliance. Given the variety of participants, it was decided that for the study to be viable, 384 answers had to be gathered. The questionnaire included statements on each criterion for respondents to rank on a five point Likert scale. Responses were analysed through the use of factor analysis, multiple linear regression and ANOVA testing. To have a comprehensive image of the results, thematic analysis was performed on the open-ended questions, in light of the quantitative results. Findings: Results show that engaging forensic auditors in the insurance industry is effective. Forensic auditors are definitely needed in the claims process of insurance firms, and possibly, they should further be engaged in the risk management team of an insurance company. However, with regards to determining the compensation amount, respondents showed lack of trust, and prefer if forensic auditors work together with loss adjustors, lawyers, and actuaries to enhance their service. Conclusion: With the engagement of forensic auditors, there would be added benefits to society. Although insurance firms may not eventually benefit in lower claims costs, they would benefit in the way they decide to reserve. Society would also benefit from such engagement, for instance, from enhanced knowledge of fraud detection thereby affecting the behaviour of society towards insurance business, which would ultimately reduce opportunities and capabilities of fraudsters. Research Limitations: The main limitations were the lack of local literature on forensic auditing in insurance firms, as well as the lack of forensic auditors in Malta who could have been interviewed in this study. Value: Taking into consideration the increase in corruption and fraud cases in Malta, this study should enhance knowledge of the profession of forensic auditing, thus showing the need and the effectiveness of forensic auditing in the Insurance Industry.