The following checklist of actions may guide a person that suspects fraud within the company.
- Do not act on emotion. It’s time to gather all the facts.
- Alert appropriate management within your organization. This, of course, heavily depends on who’s suspected of committing the fraud. Fraud discovered at the lower echelons of the company can probably be handled by the direct manager in association with the compliance supervisor. Things get a bit more complicated the higher you move up the corporate ladder. Accountability, though, goes straight to the President, CEO and Board of Directors. So, make sure compliance is amply prepared and authorized to do what’s necessary even upon discovery of high-level fraud with the company.
- Document date, time and details of initial report/discovery. This is important for both the reporting of the suspected fraud and ongoing investigation.
- Take notes (and/or pictures and video) of all observations and actions. Important information can quickly be forgotten or confused over time. Creating copious notes and/or documenting photographic evidence helps ensure you have all the information the company needs to maintain the integrity of the investigation.
- Maintain confidentiality (only inform those people who need to know about the suspected act). Loose lips sink ships – and investigations. Prematurely alerting the suspect(s) leads to destruction of evidence and cover-ups.
- Do not confront the suspect. You could be putting yourself in danger, in addition to undermining the investigation.
- Write out in full the suspected act or wrongdoing in as much detail as possible, including:
- The alleged occurrence,
- Who was involved in the occurrence,
- Whether the activity is ongoing,
- Location of occurrence,
- The value of the loss or potential loss, and
- A list of who else may know of the activity.
Corporate investigations can take months and legal ones even longer.
Identify all documentary and other evidence connected to the activity, such as:
- Contract and Agreements,
- Purchase orders,
- Cell phones,
- Cloud access accounts,
- Credit card statements, and
- Relevant social media accounts.
Collection of evidence is critical for proving the crime.
- Immediately gather the evidence (only if doing so will not alert the suspects) and place it in a secure area. Bear in mind a need to maintain a legitimate chain of evidence in case it becomes necessary to bring in outside authorities.
- Protect the evidence from damage or contamination. This includes all confiscated electronic devices. You may need the evidence for civil or criminal proof, or even use it in a countersuit against a litigious fired employee should you need to.
- Identify all potential witnesses. This includes people within and without your organization. Certain people may even alternate from witness to suspect and vice-a-versa during the course of your investigation.
- If possible, secure and/or remove the suspect’s access to relevant computers and security systems. This decision is delicate and may need to be made at the highest levels of authority within the organization. There’s a fine balance between mitigating damages and continuing to collect evidence. You may want to consult outside legal and accounting firms and request an Opinion Letter regarding your decisions, depending on the situation.
- Ensure regular back-up of all files and secretly place additional security on all accounts the suspect(s) may have access to.
- Contact the company’s outside counsel and accountants for advice and recommendations. This should occur early on in the process but, typically, at the highest levels of management.
- Contact the company’s insurance carrier. You may or may not be covered for the type of fraud under investigation. Should you be covered, the insurer may have its own processes for conducting investigations and you may unwittingly forfeit certain rights or claims by not alerting them early enough. The insurer, moreover, may try to deny the claim and you might be forced to retain additional counsel to sue your insurer for coverage.
- You may need to retain a forensic accountant. Some frauds can be quite elaborate and complex, involve multiple jurisdictions and/or require advanced training in computer programming. A full investigation may require particular expertise.
- Continue to monitor suspicious personnel and activities to ascertain the full breadth and extent of the fraud.