Business Interruption Claims and Fraud

Business interruption insurance typically covers losses sustained by a business due to disaster-related damages (including the COVID-19 pandemic) that affect the entity’s ability to continue operating in the manner it had before the event. 

The relevant business interruption insurance policy should define the actual coverage, loss calculation methods, limits of coverage for claims and procedures for filing a claim. 

Forensic accountants have the expertise and understanding to prepare business interruption claims and can evaluate potential fraud risks surrounding them. Whether working with the insured in preparing a claim or the insurer in reviewing, there are several key areas that may be susceptible to fraud, including:

  • Period of loss – from the date of the event until the time the physical condition of the business is corrected. These dates can be manipulated as part of a claim.
  • Base period – operating results in prior base periods can be manipulated, causing potentially inflated loss claims.
  • Mitigation of loss – cost savings that would reduce a business interruption claim may be incurred but not reported.
  • Books and records – financial records in pre-loss and post-loss periods must be accurate.

Forensic accountants may uncover any of these red flags as part of the discovery process with adjustors or vendors, in reviewing claims history, receiving tips from an employee hotline, or through an analytical review of the claimant’s financial statements.

Based on their initial review of the claim, the client or insurance carrier should determine whether further investigation is warranted. An investigation by the insurance carrier’s own investigation team, or in tandem with outside forensic accountants, provides the expertise necessary to assess the potential red flags of fraud. 

If you have questions or concerns about your business interruption or insurance claim, please contact Tom Pratt or Brian Webster.

About Schneider Downs Accounting Advisory 

Schneider Downs Accounting Advisory Services offers a variety of technical accounting advisory services as well as outsourced accounting and financial advisory services for every type of organization. To learn more, visit our Accounting Advisory Services page. 

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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