When Time is Money: Planning a Fraud Examination

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GUEST BLOGGER

Mark Scott, J.D., CFE
ACFE Research Specialist

“It was late on a Friday afternoon when my office phone rang. Before I could say, ‘Hello,’ I realized I had a potential new client on the line. Without stopping to breathe, she rattled off who had referred her to me, that she believed she was the victim of a fraud (at the hands of her bookkeeper), and that she was SO upset and didn't know what to do or where to start. I told her to start by taking a deep breath. And then, I offered to come down to her office right away (there went my quiet Friday afternoon). When I arrived, she was in tears, her staff bewildered and no one seemed to know what to do next. After identifying the key issues, I quickly came up with a plan of action and then told her, ‘I'm truly sorry this has happened to you. It isn't fair. I can assure you that I can help.’"
- Tiffany Couch, CFE, CPA/CFF, Principal of Acuity Group PLLC

This situation described above conveys just a few of the issues, decisions and problems that small business owners, executives and CFEs may face in the first few hours after learning about a suspected fraud. To complicate matters further, when fraud allegations arise, response time is critical, and in most situations—including the above hypothetical—pressure and stress are high. How quickly and effectively you respond is vital, and decisions made within the first few hours can have a significant effect beyond actual fraud losses. Mishandling fraud-related issues can have severe consequences, including civil litigation, fines, and other unbudgeted expenses. It could also tarnish your company’s reputation.

Determining the initial response is a burdensome process on top of an already stressful ordeal, but one way to help reduce that burden is to put an organization in the best position to respond by creating a fraud response plan. A fraud response plan should include things such as:

  • Protocols for reporting tips, allegations and other indicators of improper activity
  • People who may be required to respond to particular types of fraud
  • Factors to consider when deciding what steps, if any, are required to respond in an appropriate manner
  • Procedures for notifying employees to suspend the destruction of potentially relevant records
  • Principles for documenting incidents and corresponding responses
  • Procedures for logging all fraud allegations and recording the corresponding response efforts

Having a fraud response plan in place will help you move quickly, manage response and create an environment to minimize any adverse impact. Additionally, a response plan will allow you to respond to suspected and detected incidents of fraud in a consistent and comprehensive manner, and it will send a message that you take fraud seriously.

Conversely, without a fraud response plan, you may not be able to address issues properly, and will likely expend more resources and suffer greater harm than those that have such plans in place.

Moreover, if you determine that a fraud allegation or issue will be investigated, those responsible must take steps to plan, initiate, coordinate, organize and otherwise manage the investigation. Failure to engage in such activities will create frustration and reduce the investigation’s chances of success, thereby potentially causing the organization to lose valuable time and money. 

We recently released an online self-study, Planning and Preparing for a Successful Fraud Examination, and are working to develop another online self-study, Managing and Organizing a Successful Fraud Examination, with the goal of helping fraud examiners deal with the strategic, organizational and managerial challenges they face when fraud incidents become known. These self-studies will give you the tools you need for success in these time-sensitive and stressful situations.

To find out more information about these self-studies, visit ACFE.com.