Discovering fraud is an employer’s worst nightmare. Many business owners think fraud will never happen to them and may experience confusion when it does. Business owners encountering fraud for the first time are often at a loss for what to do next and can end up making crucial mistakes in the process.
Shock and surprise are common responses, especially in companies without an adequate Fraud Response Plan, but the priority is to remain calm. Mistakes can have disastrous consequences – destroyed evidence, legal issues, or the refusal of your insurance company to pay-out. These five steps will guide you in dealing with potential fraud:
Gather the evidence
Evidence is the key to investigating and prosecuting fraudsters, but it can be easily manipulated. If word spreads that an employee is suspected of fraud, they may attempt to hide or destroy incriminating evidence, derailing a potential investigation. Safeguarding all evidence for analysis by qualified parties is vital in a successful investigation.
Start by recording everything you can about the discovery of the suspicious activity – details like date, time, what clues indicated the fraud, and any communications with the employee. Your memory may fade quickly and these details can be incredibly helpful in assessing the situation.
Begin seizing any evidence you can from the employee’s work area – laptops or computers, USB drives, and notebooks. Secure any server backups that may contain relevant information to prevent them from being overwritten or corrupted. Gather any physical documents involved that could be misplaced or destroyed and store them in a secure location.
Resist the urge to examine the evidence yourself. The seemingly harmless act of switching a computer on or off can have an impact on the quality of the evidence. Leave anything you collect to be examined by a professional. This maintains the integrity of the evidence and prevents any legal concerns in future investigations.
Do not confront the employee
Employers may feel the need to confront the employee out of anger or confusion. Some may fire the employee immediately, without realizing this could make gathering evidence more difficult or put the company in legal trouble. Your legal rights, as well as the employees, are important to keep in mind when taking any action to assess fraudulent activity.
Maintain confidentiality – only inform parties when necessary to avoid word spreading. This can impact evidence gathering, or cause the employee to hide stolen funds to prevent them from being seized. Leave it to the professionals to interview the suspected employee and other employees who may have information – they will follow due process and allow you to keep your distance from the situation.
Attempt to distance the suspect from the investigation to avoid tampering. Cut off the employee’s access to company computers, emails, accounts, and servers. Disable any remote access to cloud-based systems. Companies that make use of key card access can disable that too to prevent the employee from accessing their office.
Hire a fraud investigator
Fraud investigations are often incredibly complex. The typical fraud scheme is only discovered 14 months after inception – a significant amount of time to develop an intricate plant and cause massive losses to the company. Your fraud suspicion may be a smaller part of a larger problem requiring thorough investigation to accurately estimate the company’s losses and discipline the individual. It is important to hire a fraud investigator to ensure the process is done right.
A fraud investigator has extensive experience in fraud schemes. These professionals maintain confidentiality and understand the law, directing the investigation toward a resolution and avoiding any legal troubles for the company in the process of analysing evidence. The fraud investigator will produce a report that summarizes the evidence of fraudulent activity to present to the police, and some may assist with other aspects of prosecution like communicating with police officers or presenting evidence.
Companies that have not encountered fraud in the past may hand the responsibility of investigation to a member of the company who understands company policy and can save costs. However, this can jeopardise the success of an investigation. There may be more employees involved, or the chosen manager may be too close to the situation to remain impartial. Investigators will work with members of the company to fully understand policy and procedure, but they also have the necessary distance to investigate without external influence.
Notify your insurance
A vital action often not considered until the last minute is notifying your insurance company of potential fraud. Any business hoping to recover losses incurred from fraud will be recovering those losses from an insurance company, and small mistakes may disqualify you from receiving a pay-out.
Take a close look at your insurance policy. It will specify a required amount of time to report the incident, but reporting as soon as possible is recommended to avoid any potential issues. Your policy should also indicate the steps in the process to make a claim. You can contact your insurance provider and ask for help if you cannot find the necessary information. These elements are essential – failure to follow your policy requirements could result in a loss of coverage.
Prevent the issue from happening again
Many companies will go through the extensive process of investigating and prosecuting fraud, only to have the same issue resurface. Resolving fraud when it arises is necessary, but should not be the only method of tackling fraud. It is a costly, time-consuming process that can cause a host of other problems for your business. An effective prevention plan will help you avoid the problem of fraud altogether.
Start by identifying the issues in the instance of fraud you discovered and gradually expand to other areas of the company to develop a comprehensive fraud prevention, detection, and response strategy. This plan should include policy changes and protocols to prevent opportunistic employees from developing fraud schemes, quick detection methods to identify suspicious activity, and a response plan with a detailed system of processes and contacts if another case of fraud is discovered. These processes provide clear guidelines and show employees that the company is serious about fraud prevention – a proven deterrent against fraud.
Discovering fraud can be a shocking, disorientating event, but an awareness of the steps to take will help you remain calm and focussed if it happens to you. If you believe you may have discovered fraud, talk to The Fraud Triangle Forensics about your options, or for assistance in developing a comprehensive Fraud Prevention and Detection Plan.