Audit for Detection of Fraud

1
Presented by
R. Ravindra Kumar
Regional Manager (Inspection)
LIC OF INDIA
GANDHINAGAR INSPECTION CENTRE
Auditor’s Role in Current Scenario
Potential areas of Fraud in
Life Insurance & Ways to Detect

AUDITOR SHOULD NOT BE A
BLOODHOUND
4

Qualities of an Auditor
The Qualities are hidden in the “AUDITOR” :
• A wareness
• U nderstanding
• D iligence
• I nquisitiveness
• T hink on his feet
• O rganised
• R esourcefulness
5

Definition of Fraud
Fraud is described as an intentional act of deceiving,
concealing, or misrepresenting information that
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concealing, or misrepresenting information that
results in payment of unauthorized benefits to an
individual or group who are otherwise not entitled.

Three elements must be present for fraud to be
executed:
a.a. Pressure/ motivation usually individual
characteristics and situational factors
b.b. opportunities eg available targets ie lack of
The Fraud triangle
b.b. opportunities eg available targets ie lack of
controls
c.c. rationalization/justification/ neutralization
This is known as the fraud triangle

Pressure/ Motivation :
1. Greed
2. Gambling
3. Financial strain - personal
4. Financial strain - business
5. Maintaining own/ family business
6. Influenced/ implicated by others

Pressure/ Motivation (Cont.):
7.Pleasing others
8. drug/alcohol addiction
9. Financing new business interests9. Financing new business interests
10. Terminal illness
11. Dissatisfaction with employer

Opportunity
Weak or non-existent internal control
1. Lack of segregation of duties
2. Highly decentralized organization2. Highly decentralized organization
3. Lack of knowledge/awareness
5. Opportunity is the perception by someone believing they can
commit a fraud without getting caught
6. Management control and influences “opportunity” more than any
other factor in the Fraud Triangle

Rationalization:
1. Intention to conduct a reasonable business
2. Intention to repay
3. Influenced/ implicated by others
4. Underpaid by employer
5. Helping clients
6. Tone at the top: poor corporate governance

Difference between Audit and Fraud
• Individual/Gang
Audit
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• System / Process
Improvements
• Improvements
• Individual/Gang
• Prosecution

How to deal with this issue?
Auditors are policemen
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Separate Audit and Fraud

AUDITING FOR FRAUDS
Auditing for fraud can be very challenging. It
has the aura of detective work – finding things
people want to keep hidden. However, auditingpeople want to keep hidden. However, auditing
and fraud examination are not easy. They
should only be pursued by persons who have
proper training and experience. Thus, fraud
awareness for independent auditors and
internal auditors is the focus of this
PRESENTATION.

Learnings from Special Reports in 2018-19
Areas of Concern:
• Violation in KYC/AML Guidelines
• Cancellation of Claim Liability & re-booking
• Maturity claim settled without Policy bond and Discharge voucher
• Discrepancies in cash collection during Demonitisation period
• Discrepancy in alteration in Policy masters through PM Modify
menu-RFM-93
• Third Party Adjustments of Proposal Deposit
• Discrepancy in NEFT transactions

Fraud Indicators
The following fraud indicators may include but not limited to, shall be examined closely:
• Unusual employee behavior
• Reluctance to take leave/ Regular long hours worked by key employees
• Over indulgence or being over inquisitive or showing extra interest in other’s
assignmentsassignments
• Over dependence, blind trust on one person
• Key documents like vouchers, invoices, contracts, files reported missing
• Close relationship with suppliers/Contractors
• Suppliers/Contractors who insist on dealing with a particular employee only.
• Excessive variation in actual expenditure as compared to sanctioned budget.
• Bypassing superiors/subordinates
• Pending bank reconciliations etc
• Payment of loan /surrenders without establishing identity beyond reasonable doubt.
• Bypassing Stores Code procedure

Illustrative List of Suspicious Transactions
1. Customer insisting on anonymity, reluctance to provide identifying
information, or providing minimal, seemingly fictitious information.
2. Frequent free look cancellations by customers.
3. Assignments to unrelated parties without valid consideration.3. Assignments to unrelated parties without valid consideration.
4. Frequent requests for change in addresses
5. Borrowing the maximum amount under an insurance policy soon
after buying it.
6. Adverse Media reports about a customer
7. Information sought by Enforcement agencies

Frauds Detected by Different Authorities
Detected by No. Amount ( in lakh)
Informed by Internal Mechanism 265 3068.26
Informed by Outsider 170 1308.96
Informed by Internal Auditors 39 259.72
Informed by LIC Employee 21 262.21
Informed by Whistle Blower 10 127.53
Informed by Govt. Agencies 3 641.00
Informed by Statutory Auditors 1 81.31
Grand Total 509 5748.99

No. Particulars of Fraud Amount
1
Lodgment of third party cheque by Development
Officers / Agents
195165
2 Fraudulent Death Claim 2062739
3 Fraudulent Loan / Surrender 4463923
Frauds Detected by Internal Auditors
3 Fraudulent Loan / Surrender 4463923
4 Fraudulent NEFT Transaction 478670
5
Submission of forged bills for claiming
reimbursements
1202403
6 Misappropriation from postage account 131797
7 Irregularities in payment of LTC / Sundry Advance 293500
8 Recycling of maturity claims / discounted claims 2962018
9 Huge expense under AMC 565702
10 Fraudulent encashment of cheque 1452500

ROLE OF AUDIT/INSPECTION
• Provide opinion about the adequacy of systems &
procedures to curb a potential fraud.
• Include areas susceptible to frauds in the questionnaire.
• Provide necessary support in causing investigation.
• The minutes of monthly meetings conducted by various• The minutes of monthly meetings conducted by various
Fraud Monitoring Committees shall be examined during
the course of Audit, Inspection & QMA. Appropriate
debits shall be given by Audit/Inspection if the minutes
are not maintained properly.
• Audit / Inspection departments may make Exception
Reporting to Audit Committee, if required.

POTENTIAL AREAS OF FRAUD
Marketing/Sales
• Lack of control over saleable literature
• Payment Advances to Agents without proper care
• Proposer’s /policyholders money used for third party payments by
Development Officers and agents
• Splitting of Policies without the consent of the proposer
• Settlement of Development Officer’s Appraisal without proper verification of• Settlement of Development Officer’s Appraisal without proper verification of
e.g. FP cheque Dishonour , Scheduled premium
• Calculating the No. of lives without subtracting duplicate lives for GOIB
payment to Dev. Officer and for Finalizing the Club Membership of Agent.
Module is not full proof for calculating the No. of Lives.
• Fake/Forged submission of tickets for travelling allowances
• Adjusting BOC’s of different parties in different names
• Influencing surrender of policies and then procuring new business
• Lack of control in issuance of Gift Cards/ Competition prizes.
• Lapses in determination of Competition qualifiers

Chief Life Insurance Advisor
• Completing fake polices to get undue advantage
• Lack of control on use of Premium point password
• Retention of policy bonds by Agents
Bancassurance & Alternate ChannelBancassurance & Alternate Channel
• Business canvassed by Bank but completed under
Individual Agency
• Business completed by Bank recycled under Individual
Agency
Senior Business Associates
• Delay in depositing the premium amount

• Micro Insurance
• Collection of premium from policyholders without acknowledgement in the
pass book and not remitting the same in the office.
• Making fake entries in the policy holders pass book without actually
receiving the premium to obtain fabricated claims.
• Taking advantage of fraudulent/suspicious background of the MI Agent
under whom they work and claiming wrong benefits under the policiesunder whom they work and claiming wrong benefits under the policies
• Delay in remitting the premium collected from policy holders.
• Proposing Insurance on the lives of persons who are non-existent to lodge
death claims with forged Death Certificate at later stage.
• Not handing over the original policy document to the policy holder and
subsequent surrender of policies without the knowledge of the policy holder.
• Adjusting Renewal premium towards New Business for inflating the NB
figures.
• Splitting of policies without the consent of the proposer.
• Issuance of policies without proposal form.

Finance and Accounts
• Alteration in cheque, E.g. Name and amount in the cheque
altered
• Late lodgment of cash collected
• Lack of control on receipt stationery- stock register not
maintained properlymaintained properly
• Inadequate control on cancelled transactions and safe
custody of cheque books
• Issue of fresh cheque against stale cheque without proper
care
• Cheque favouring LIC of India from Cheque cancelled a/c
and policy payments misused- Fresh cheque drawn and
used for payment of unrelated policyholders premium or
fresh proposal

Finance and Accounts contd.
• Fake currency notes of huge amount detected in cash
counter. This may be due to replacement of legitimate
currency by fake currency
• Recycling of death/maturity /SB claims to third party.
Cheque pertaining to claims issued in favour of LIC of
India and used to pay premiums or proposal deposits of
unrelated parties.unrelated parties.
• Cheque issued without validation of vouchers leading to
double payment
• Misuse of cheque leaves to issue cheque in personal name
without validation.
• Bank reconciliation is adjusted and opening balance of
certain account codes are altered to tally the Trial
Balance
• Unused and incorrect Cheque books lying in the stock of
cheque books.

Policy Servicing
• Payment of Loan:
– along with the history of RFM 93 { correction in master details such as
Prem., Sum Assured, Plan/Term }
– on the basis of frequent requests of duplicate policy received from a
agent.agent.
• Payment of Surrender value:
– along with history of RFM 93 { correction in master details such as
Prem., Sum Assured, Plan/Term },
– on the basis of requirements of lost policy
• Reduction in O/S loan by way of RFM without supporting documents
• Change in address/ECS details/NEFT master without request from P.H.
• Refunds debiting Renewal prem. A/C
• Lack of control on undelivered policy bonds for reassignment after full
repayment if loan

Underwriting & Reinsurance
• Non-disclosure of material facts at the time of proposal
• Fake medical examination and Special medical
examination
• Forging of special reports by TPA for completion of new
businessbusiness
• Delayed/no cheques dishonor action of proposal deposit
• Proposals completed in contravention of the higher office
decision
• Proposals completed without underwriting by Competent
Authority
• Non-disclosure of correct age

Underwriting & Reinsurance contd.
• Forged/fake financial documents, Age proofs, identity
proofs etc.
• Conversion of Single into Regular premium mode etc.
• Non Compliance to KYC/AML
• Misuse of outstanding proposal deposits• Misuse of outstanding proposal deposits
• Delayed or no Reconciliation of proposal deposit schedule
• Insurance on the lives if non-existent parties
• Insurance to uninsurable lives
• Third party adjustment of BOC
• Lack of control over policies returned undelivered with
remark ”No such person”
• Refund of proposal deposits to incorrect payee

FRAUD INDICATORS
The following fraud indicators may include but are
not limited to shall be examined closely:
• Unusual employee behavior
• Reluctance to take leave/ Regular long hours worked by key
employees
• Over indulgence or being over inquisitive or showing extra• Over indulgence or being over inquisitive or showing extra
interest in other’s assignments
• Over dependence, blind trust on one person
• Key documents like vouchers, invoices, contracts, files reported
missing
• Close relationship with suppliers/Contractors
• Suppliers/Contractors who insist on dealing with a particular
employee only.
• Excessive variation in actual expenditure as compared to
sanctioned budget.

Contd.• Tender conditions floated in such a way that can be met
only by specific contractors.
• Selection of a single vendor/Contractor for many tasks
• Vague tender specifications/Disqualification of any qualified
bidder on flimsy grounds
• Frequently overriding internal checks & controls
• Bypassing superiors/subordinates
• Inadequate monitoring & lack of oversight to ensure that
controls function as intended.
• Lack of periodic testing and evaluation
• Arrears of work
• Pending bank reconciliations etc
• Payment of loan /surrenders without establishing identity
beyond reasonable doubt.
• Bypassing Stores Code procedure

Sales Department
Procedure FraudPronareaduetononadherencetosystem Systemloophole
Publicity Notfollowthestorecodeprocedure NospecificguidelinefromCO,CCdeptt
GIFTARTICLES CompetitionGiftArticle&SPGIitems PurchasequantitynotdefineatthetimeofOrderGIFTARTICLES CompetitionGiftArticle&SPGIitems PurchasequantitynotdefineatthetimeofOrder
OfficeAllowance OfficeAllowancesBills Authenticityofbillsassubmissioninlumpsum
Peopleinvolved Beneficiary Detection
Vendor Vendor ViolationofStorecode
Vendor+Employees Vendor+Employees Violationofprocedurewhileplacingorder
Agents+Mos Agents OfficeallowanceBills

Category Case Study Remark
Diary and
calendar
Sold diary and calendar and collected
cash.
J.V. passed : debiting renewal
commissioncreditingD&C.
**Fraudbyemployee**
commissioncreditingD&C.
Excess
commissionpaid
Through add option commission of
orphan policies added and with the
connivance of agent shared the excess
amount.
**Fraudbyemployee**

P.S. Department
ADDRESSCHANGE KYC PASSWORDUSEDBYUNATHORISEDPER
DUPLICATEPOLICY PROPERDOCUMENTSNOTOBTAINED VERFICATIONOFDOCU.ARENOTDONEDUPLICATEPOLICY PROPERDOCUMENTSNOTOBTAINED VERFICATIONOFDOCU.ARENOTDONE
SURRENDER EXITINTERVIEW NOTGIVINGIMPORTANCETOEXITINT.
AGENT/CUST. FRAUDSTER VERIFICATIONOFKYC

Fraud in loan
payment
Fake policy bond printed.
Loan raised by submitting fake policy bond.
Green voucher prepared: debited loan interest,
credited a/c-4 favoring fake party.
Loan interest debit to the extent of loan interest
payment to avoid adverse balance.
**Fraud by one
person**
Other: Negligence of
duty.
-
Fraudulent death Charge Sheet was issued to a Sub-staff forFraudulent death
Claims , case of
revival.
Charge Sheet was issued to a Sub-staff for
helping in reviving a policy on a policy-holder
who had died and making a fraudulent claim and
also misleading the Claim Investigation Officer
regarding illness and date of death of L.A.
Creation of
NEFT master
Neft Payments were manipulated by AGENTS.
Given own./spouse account no for creation of
NEFT master
NEFT master created
with pre-printed
cheque leaf & Original
Passbook not verified.
Signature was not
verified.

O.S. Department
Procedure Fraud Pron area due to non adherence to system System loophole
STORE CODE (TENDERING) LAPSE IN EXERCISE OF DUE CONTROL NON ADHERENCE TO PRESCRIBED PROCEDURE.
CASUAL/CONTRACT
LABOUR/DUMMY EMPLOYEE LAPSE IN EXERCISE OF DUE CONTROL NON ADHERENCE TO PRESCRIBED PROCEDURE.
L.T.C /P.L. ENCASHMENT. DUPLICATE PAYMENTS FOR SAME BLOCK. LACK OF CONTROL IN TR.IN /OUT CASESL.T.C /P.L. ENCASHMENT. DUPLICATE PAYMENTS FOR SAME BLOCK. LACK OF CONTROL IN TR.IN /OUT CASES
STATIONERY ITEMS /I.T.
CONSUMEABLES
EFFECTIVE QUALITY CONTROL CHECK (TENDER
V/S ACTUAL.) NO SYSTEM CONTROL
A.M.C AUTHENTICITY OF REPORTS SUBMITTED WITH TECHNICAL ASPECTNO ESTABLISHED SYSTEM OF CROSS VERIFICATION
People involved Beneficiary Detection
VENDOR/EMPLOEE VENDOR/ EMPLOYEE VERIFICATION OF RECORDS/AUTHENTICITY
EMPLOYEE EMPLOEE VERIFICATION OF APPOINTMENT LETTER /IDENTITY
EMPLOYEE EMPLOYEE
VERIFICATION OF L. T. C CARD AND AUTHENTICITY OF
BILLS.
VENDOR/EMPLOEE VENDOR/ EMPLOYEE
VERIFICATION OF ITEMS RECEIVED & REPORTS OF Q.C.
COMMITTEE.
VENDOR/ EMPLOYEE VENDOR/EMPLOYEEVERIFICATION OF REPORT RECONCILIATION OF REPORTS AND BILLS SUBMITTED BY VENDOR.

Supply by
venders(Stores
item)
Bad quality of printed material supplied.
No proper QC done
Payment released
**fraud by vender**
**negligence by office staff**
Short supply by No proper register for incoming stocks **fraud by vender**Short supply by
vender
No proper register for incoming stocks
and distribution maintained
**fraud by vender**
Inferior quality /
duplicate supplied
by vender
No proper quality control by QCC **fraud by vender**

Claim Department
EARLYDEATHCLAIM INVESTIGATIONBYMO MISGUIDEBYAGENTSINTERMEDIATES
DEATHCERTIFICATE FAKEDEATHCERTIFICATE DEATHCERTIFICATEW/OQRCODE
PAYMENTBYCHEQUES PAYMENTBYCHEQUES THIRDPARTYPAYMENT/LICFAVOURPAYMENTBYCHEQUES PAYMENTBYCHEQUES THIRDPARTYPAYMENT/LICFAVOUR
PAYMENTWITHOUTPOLICYDOCUMENTS PROPERIDENTITYPROOF
INVESTIGATINGOFFICER/BENEFICIARYNOMINEE/AGENTS/EMPLOYEE INVESTIGATIONTOOTHERTHANSERVICINGBO
AGENT/DEVOFFICERS NOMINEE/AGENT DEATHCERTIFICATEWITHQRCODE
EMPLOYEE/AGENT/D.O. EMPLOYEE/AGENT/D.O. VERIFCATIONOFADJUSTMENTDETAILS
CLAIMANT/EMPLOYEE CLAIMANT/EMPLOYEE VERIFICATIONOFIDPROOF&FAMILYHISTORY

Creation of
NEFT master
Neft Payments were manipulated by
AGENTS.
Given own./spouse account no for
creation of NEFT master
NEFT master created with
pre-printed cheque leaf &
Original Passbook not
verified.
Signature was not verified.
MHR Charge Sheet issued to a Development
Officer for suppressing material
information about health of the Proposer
in MHR
**Fraud committed by D.O. /
M.O. of Branch.
Fake death claim Submitted proposal by suppressing **Fraud committed by PolicyFake death claim Submitted proposal by suppressing
material fact. Policy continues for more
than 3 years. Fake death certificate
submitted.
**Fraud committed by Policy
holder**
Policy taken for
large S.A. And
submitted death
claims.
1. Policy taken on the life of 80
years old lady- showed 55 years
in proposal. Presented other
person.
2. Taken policy on the life of
mentally retarded person.-
presented healthy person.
3. Presented forged document
before Agent & DO.
4. CBI unearthed the scandal.
**case of impersonation**

Account Department
SURPLUSTRANSFER MANUALVOUCHER PAYEENAME/ACCOUNTDIFFER
CANCELLEDTRANSACTION EFFECTIVEQUALITYCONTROLCHECK MISUSEOFCASHTRANSACTION
PAYMENTFROMINCOMECODES&CHEQUECANCELLEDACCOUNTSEFFECTIVEQUALITYCONTROLCHECK WRONGPAYMENTSPAYMENTFROMINCOMECODES&CHEQUECANCELLEDACCOUNTSEFFECTIVEQUALITYCONTROLCHECK WRONGPAYMENTS
MISUSEOFJOURNELENTRIESTOCREATEERRONEOUSEFFECTSONASSETSANDLIABILITIESEFFECTIVEQUALITYCONTROLCHECK WRONGPAYMENTS/ADJUSTMENTS
EMPLOYEE EMPLOEE/RELATIVEOFEMPLOYEE BANKSTATEMENTS
EMPLOYEE EMPLOEE CANCELLEDRECEIPTS/REGISTER
EMPLOYEE EMPLOEE/RELATIVEOFEMPLOYEE JOURNELBOOKS
EMPLOYEE EMPLOEE JOURNELBOOKS

Payment to
wrong person
through Green
Voucher.
Payments made without supporting vouchers
amounting to 2.10 crore.(CBI FIR RC 03(A) 2014
dt 13.03.2001
Cheques were blindly signed.
Reconciliation was not done, payments by
“Green Vouchers”
Cheque signing
authorities did not
verify supporting
bills/pay order.
Prepayment
vouching not done.
***Fraud***
***Negligence of
duty***
MI unit: Green Vouchers were used to draw LIC
of India Cheques debiting competitions, Publicity
expenses!
SO: Green vouchers were used for LIC of IndiaSO: Green vouchers were used for LIC of India
Cheques operating CLIA head of accounts!
MI :Claim proceeds were diverted for NB. The
police report indicates that the Death Certificates
were fake.( 49 lacs D/CL amt and 1.38 cr
unremitted amt.)
MI :over adjustment of MI Collections was made
for NB!
Short lodgments
of Cash
Denomination of cash wrongly mentioned in
DCB and Pay-in-slip.
Concerned person did
not reconcile the
amount of DCB &
pay-in-slip from Cash
Book.
** Negligence of
duty**
** Cash lifting
person took
advantage of
negligence**

Control over
R.R. Register
Cheques towards Renewal Premium of a
Employer Employee scheme were diverted to NB
and others RP
On the basis of a complaint, case was filed under
EOW,R No 81/2013 ( RS 3.72 crore)
Missing cash
box
Charge Sheet was issued to a Cashier for i) Not
locking the cash counter from inside and ii) Not
getting the fishplate in counter fixed.
**Negligence of
duty**
getting the fishplate in counter fixed.
Facts were called and it was observed from FIR
that the cashier was not handed over the cash
box by sub-staff/key-holders
As per Accounts Manual (before 2006) key-
holders have to hand over cash box to cashier
Cash stolen
from Bank
premises
Rs.20 lacs misplaced from Bank premises.
Officer accompanied the cash came to office
when cash reached in the bank premises.
He did not receive the Pay-in-slip after
acknowledgement of Bank.
**Negligence**

Short lodgment
of cash in the
Bank
Bank peon deposit less cash in the bank.
Siphoned more than Rs.20 lacs.
Submit original pay-in-slip in BO.
Lodged cash through Different pay-in-slip in
bank.
Bank reconciliation was pending the branch.
Charge sheet given to cashier, HOD A/C,
Officer accompanied the cash and Bank
Peon.
**Fraud by Bank
Peon**
**Negligence(other
officials)**
Peon.
Delayed Bank
reconciliation
Absence of Reconciliation/ too much coincidence
are the most prone areas for an intelligent person
to exploit.
Of late Indemnity Bonds/duplicate policies are
used more often to siphon off money.
Non remittance of cash within time frame from
premium points, NGO's(MI)
Third Party
Cheque
Collected cash from Policy holder. Deposited self
cheque. Subsequently, it got dishonored
*Fraud on the part of
intermediaries**
*Negligence of Staff**

ACTION PLAN ADOPTED
1. Listing of Policies Surrendered during the period from
01/04/**** to 31/03/****.
2. Listing of Payment Details of Surrendered Policies.
3. Listing of Cheques cleared through A/C IV in bank drawn
in favour of LIC of Indiain favour of LIC of India
4. Sorting out and Matching the cheques of Surrender Value
payments cleared in favour of LIC of India.
5. Matching of Cheque numbers recycled to Transaction
number in Collection books (From Cheque number to
Transaction Number) in respect of the SV cases
6. Matching of Transaction Numbers to BOC in respect of the
SV cases.

ACTION PLAN ADOPTED
CONTD.,7. Listing of Adjustment Details of the BOCs recycled from
Surrender Payments.
8. Matching of Completion Details with that of Surrendered
Policy details.
In the above process 1000 dockets of NB cases completed
in respect of 275 cases from Surrender were physically
verified to list out the discrepancies.

Hindrances in the process
1. Cheques issued in favour of LIC of India if cleared
in other branch offices could not be matched.
2. Recycled cheques where details of only one
cheque were entered for consolidated sum ofcheque were entered for consolidated sum of
multiple cheques in the amount column also could
not be matched through system.
3. Log files for the same could not be obtained from
Branch Office as it is only extracted on weekly
basis.

Final Observations
1. Master modification for status code
RFMs through RFM93 for status code corrections were not
noticed in respect of the surrendered policies.
2. Issue of Alert Report:
Of all the policies surrendered during 01-04-**** to 31-03-Of all the policies surrendered during 01-04-**** to 31-03-
****, 2 policies were reinstated. Out of which one policy
finds place in the Audit Report for the year **** for a large
number of discrepancies and Alert Report was issued by
Audit Department.

Final Observations.. Contd.,
3. SV cheques not encashed :
Two cheques of SV were still lying to the credit
cheque cancelled account as on date of special audit.
4. Recycling register details
1. Cheques have been handed over to Branch Manager in large1. Cheques have been handed over to Branch Manager in large
numbers.
2. From 01-04-**** to 31-03-****, Details of disposal of cheques
favoring LIC of India are left blank.
3. In numerous cases, Cheques handed over to Development officer
and Agents.
4. Cheques in favor of LIC were not accounted directly at cash
counter and also disposal particulars were not noted on the
register.

5. SV proceeds are recycled to NB on the lives of
unrelated proposers: In one of the recycled
cases, the amount was used for completion of
policies under CEIS.policies under CEIS.

6. Accounting of SV Cheques:
1. There are cases of Accounting of Multiple
cheques under one single cheque number with
consolidated amount of Multiple cheques forconsolidated amount of Multiple cheques for
issuing a single BOC.
2. Due to this, only one cheque was being
individually accounted and the rest of them
were being lodged into the bank without being
individually accounted for.

6. Accounting of SV Cheques Contd..:
3. But since all these cheques were issued by LIC
favoring LIC, the credit was received for the consolidated
amount of pay in slip in the bank statement. Hence no
difference found for the purpose of reconciliation on this
count.count.
4. From 01.07.**** to 31.12.****
Tot Cheques drawn in favor of LIC of India:
695
Total Cheques mentioned in Books : 163
Total no. of Cheques not mentioned : 512
Total amount for 695 Cheques Rs. 3966115
accounted under 163 Cheques.

7. Reconciliation and Tallying of cash and Cheques
not done on day to day basis with physical
cheques by holder of Key 1.
Eg: On 24/12/****, a cheque was entered for an amount
which was Rs. 50000/- more that the actual amount of the
cheque and rectified on 30/12/****as given belowcheque and rectified on 30/12/****as given below
Date
Cheque
no.
Actual
Amount
Payin
Slip
Amount
Payin
slip no.
Payin
slip
Date.
Payin Slip
Totals
Actual
amount of
cheques
lodged
Remarks
24-12-** 471730 31472 81472 8037 24-12-13 198984 148984 Error
30-12-** 471738 81472 31472 NA 30-12-12 NA NA Rectification

8. Checking of SV records recycled
Month of SV 03/2012, 08/2013, 09/2013,
12/2013
Total No. of Dockets Checked 473
NO consent letter available for
recycling 74

9. Recycling of cases for third party adjustment needed to be
viewed seriously.
Total number of NB cases from SV Proceeds selected for
verification 350verification 350
Dockets made available for verification from above 275
No. of proposals completed without requirements of recycled
cases 110

10. Third Party Adjustments from SV recycling
1. No controls on cheques issued in favor of LIC of India
2. These cheques were not accounted in name of Bonafide Policy
holders.
3. Cheques issued in favour of LIC of India instead of policy holder3. Cheques issued in favour of LIC of India instead of policy holder
were used to complete NB on the lives of proposers totally
unrelated to the Surrendered Policy person, with some written
consent.
4. Genuineness of the consent and motives of such consent was
questionable . The whole process was seen as though they were
done to circumvent AML and KYC norms

10. Third Party Adjustments from SV recycling Contd.,
5. Amount utilisted for Third party adjustment
Financial Year
NB completed on lives of
Third partyFinancial Year Third party
2012-20** Rs. 715090
2013-20** Rs. 12180979

11. QMA reports.
QMA reports do not suggest or point out
1. Third party adjustments of proposal deposits on large scale.
2. Unusual accounting of Multiple cheques for single BOC
3. Surrendering of 1242 policies with FUP less than or equal to
03/2009
4. Practice of issuing lump sum deposits in all cases by
circumventing AML/KYC norms

Involvement of Personnel in the process
1. PS Dept: Prepared SV Vouchers with payment in favour of LIC of
India for recycling, against the procedure. Especially for
conventional Policies.
2. F&A Dept: Not issuing BOC in name of bonafide policy holder,
Bank lodgment of the cheques without accounting individual
cheques, Issuing of Block BOCs, not maintaining register forcheques, Issuing of Block BOCs, not maintaining register for
handing over of cheques.
3. NB dept: Completion of policies without proposal, Third party
adjustment violating AML guidelines, Bypassing the alerts given
by the module during completion of proposals.
4. Branch Manager: As per recycling register, Cheques were
personally collected by BM. Out of these, many were adjusted for
third parties thereby violating AML/KYC norms.
5. Others: Third party adjustments are scattered over such a wide
spectrum of policyholders, agents, Development officers, SBA

Conclusion
1. All the cases where SV amounts were recycled into NB on the lives
of third parties may result into complaints at a later date.
2. As consideration amount towards proposals was not received
from the new policy holders, validity of the policies raises serious
legal issues.
3. As a corollary, commission paid to agents, Credit to Development3. As a corollary, commission paid to agents, Credit to Development
officers may need to be revisited

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Regional Manager
LIC OF INDIA
Gandhinagar Inspection Centre
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