The do’s and don’ts when you suspect fraud
Recently Elliott Davis has been approached by several organizations that have identified possible fraud and then wanted to know, “What do we do now?” Unfortunately there is no single, black and white answer as each situation is unique. However, here are some things you should consider to help navigate the turbulent waters of dealing with suspicions of fraud in your organization.
Hire an attorney and forensic experts. The first thing you want to do is assemble your investigative team. Your team should be made up of attorneys and specialists who can help you understand what has occurred and how your organization should respond. Attorneys will help coordinate the investigative process and will be critical when pursuing remediation through civil litigation and prosecution. Forensic accounting and investigation professionals will help determine if allegations have merit and will assist in quantifying potential losses.
Fully investigate suspicions and allegations. In the 2016 Global Fraud Study performed by the Association of Certified Fraud Examiners (“ACFE”), the most common ways fraud was detected were through tips (39.1%), internal audit (16.5%), management review (13.4%), and by accident (5.6%). These detection methods typically do not encompass the complete picture of how the fraud was perpetrated and may only identify the “tip of the iceberg.” Examining the complexities of fraud and how it is committed warrants the use of experienced forensic accountants and legal representation. Utilization of these experts will help you fully understand what occurred and give you greater peace of mind when the issues are ultimately resolved.
Prosecute and recover. It is understandable that an organization may want to avoid prosecuting an employee for possible fraud because of negative publicity; however, prosecution may help an organization recover losses and damages caused by the fraudulent activity. You should consult your legal counsel to determine the best avenues to pursue prosecution. Your investigative team can also work with law enforcement to help increase the chances your case is prosecuted.
Good news! You can also take civil action against individuals who have financially harmed your organization. Also, check with your insurance provider to see if you can recover fraud losses. In some cases your insurance provider may help with costs to investigate the underlying fraudulent activity.
Upon learning of an allegation or developing a suspicion that an employee has stolen from you, your first reaction may be to immediately terminate them.
Use discretion. While this would certainly prevent the issue from occurring further, it could hinder your ability to investigate what actually occurred and may give the employee time to tamper with or destroy evidence. Often times, forensic experts are called in after employees have had ample time to destroy paper documents and wipe computers and cell phones of any evidence, which is sometimes irreversible. If evidence tampering or deletion has occurred, the investigation may take longer and will be more expensive (i.e. additional digital forensic experts may need to be hired to attempt to recover lost data). If possible, consult your investigative team to determine a plan so your case is handled correctly.
Assume you are immune to fraud. Just because you have external or internal auditors, robust internal controls, management oversight, or all of the above, does not mean you are immune to fraud. Fraud risks are inherent within all organizations and fraudsters are often creative and technically savvy. Remember even the best fraud prevention controls can be overridden.
Make accusations that are not supported by evidence. Unsupported accusations can negatively impact overall morale of the organization and could lead to potential legal issues if the accusations are indeed false. Hiring the right investigative team will help you substantiate allegations so you can make informed decisions.
Ignore the problem. Following the investigation and/or prosecution, you may feel relieved that your problems are in the rear-view mirror; however, it is important to determine the causes of the fraudulent activity. Typically your investigative team can help you evaluate the root cause and methods of the fraud and can provide recommendations to keep you from having the same issues in the future.
We Can Help
The Forensic, Valuation and Litigation Support group at Elliott Davis has extensive experience working with companies who have experienced fraud. Our consultants have a wide variety of industry experience and credentials. We can help at every step of an investigation including: witness/suspect interviews, data analysis, investigative reports, and testimony. Contact Mike Costello, Sharon Hamrick or Jason Ligon to learn more about how we can help you.