When business owners suspect that an employee is stealing assets or manipulating financial results, it’s time to call a fraud expert to investigate. Although the complexity of the incident will determine the investigation’s scope, there are 3 steps experts follow to build a fraud case that can stand up in court.

1. Conducting interviews

Fraud interviewers know how to spot warning signs, detect deception and pin down suspicions when talking with suspects and their coworkers. But they usually start with management interviews, by asking owners, executives and audit committee members what they know about:

• Possible fraud ploys,
• The company’s fraud risks, and
• Internal controls that have been implemented to mitigate specific fraud risks or to generally help prevent, deter and detect fraud. 

An expert may interview not only your company’s management and audit committee, but also anyone who can provide information about financial fraud risks. These interviews might include employees involved in initiating, recording or processing complex or unusual transactions, as well as operating personnel not directly involved in the financial reporting process.

When interviewing suspects and potential witnesses, experts encourage interviewees to do most of the talking and use silence as a tool to elicit information. Before concluding the interview, they confirm the information they’ve gathered.

2. Gathering evidence

Fraud experts also collect physical and digital evidence of possible fraud from the company’s internal sources. Examples include personnel files, phone and email records, security camera recordings, and physical and IT system access records.

Locating this evidence may require computer forensic examinations. Expect your expert to ask to access your accounting system to search for suspicious journal entries, credits, reversals and overridden controls. Experts may also collect external sources of evidence, such as public records, customer and vendor information, media reports and private detective reports.

3. Analyzing facts

Fraud specialists have been trained to review and categorize internal and external evidence, conduct computer-assisted data analysis and test various hypotheses. Rather than rely on gut instinct, your expert will formally document every step in the investigation and follow formal procedures to ensure a comprehensive investigation.

When experts finish conducting interviews and gathering evidence, they report their findings. You and your attorney may determine the appropriate format for a report and how distribution will be affected by the need to protect legal privileges and avoid defamation.

Avoid a botched investigation

A proper investigation is essential to building a strong fraud case. Indeed, botched investigations could prevent your company from recouping losses and prosecuting the perpetrator.

(This is Blog Post #895)