How To Investigate Fraud

The need for a fraud investigation arises in a number of different ways. One of the most common is when a whistle blower informs the managers of a company that a colleague has been stealing funds. Other ways in which frauds come to light include when business owners review financial statements or management accounts at the end of an accounting period and discover that results are lower than expected. Often a fraud will not be discovered until a company enters insolvency proceedings, particularly when the directors of the company are committing the fraud. It might be the fraud that has caused the company to collapse. A corporate fraud must be investigated if the losses are to be recovered, or to find out how it was allowed to happen and to prevent a similar reoccurance.ACFE-seal-color

If a fraud is discovered the victim hopefully has a plan in place to deal with the problem. One of the key parts of this plan is to consult with an appropriate expert immediately to ensure that the proper course of action ensues. Failure to do this can result in claims for compensation, destruction of valuable evidence and further losses occurring. The expert will normally be a competent forensic accountant with experience of dealing with a wide range of frauds.

Each fraud is unique, regardless of whether it falls into a category such as “bank fraud”, “employee theft” or “contract fraud”. This is why any forensic accountant performing an initial review of the circumstances must be extremely flexible in their approach. He or she might have to have computers and phones imaged straight away, in secret before communicating any intentions to the staff, in order to preserve digital evidence. Alternatively it might be more expedient to move in straight away investigating the records to find and halt the source of the losses.

The last thing a publicly quoted company will want is adverse publicity as this might affect its share price. Likewise any organisation that relies on its integrity or is entrusted with clients’ money is unlikely to want a fraud to be common knowledge, even though it is not necessarily responsible for the loss. A bank might simply wish to get rid of the fraudster employee and stem the losses without the public ever learning of the mishap.

For most companies, the priority will be to recover the losses, the level of which can often threaten the survival of the business. Getting the police involved might well prejudice any chances of doing this, as a criminal investigation can be very disruptive. On the other hand, the most important outcome might be to make an example of the culprit, and ensure the full force of the law is employed. Whatever the case, the forensic accountant’s priority is to assess the situation to ascertain the wishes of the victim.

The forensic accountant may be a member of the Association of Certified Fraud Examiners who are accredited in their competence to investigate corporate fraud. He will develop a fraud investigation strategy based upon the organisation’s own fraud response strategy. This can include some preliminary activity such as interviewing any whistleblower and possibly even a “covert” investigation during the evening or weekend.

A fraud investigation, sometimes called a forensic examination or a forensic audit, will provide not only a chance of getting the money back, but also evidence of why and how the fraud took place. This in turn will allow the fraud expert to propose additional accounting controls and other preventative measures designed to reduce the risk of any similar attacks of fraud happening.

The forensic accountant may need to provide evidence in court for civil recovery of assets if a negotiated settlement fails. Alternatively, he may also be required to provide expert accounting evidence in a criminal trial. For this reason, his work will always be conducted with this in mind, presenting losses clearly supported by references to the relevant documents inspected. Sometimes the police are unable to investigate a matter until the victim has provided a clear and well supported case summary for them to prosecute.

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About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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