You Found Fraud, Now What? 5 Steps to Immediately Take After Suspecting Fraud in Your Company

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GUEST BLOGGER

Kelly Todd, CFE
Managing member & member in charge of forensic investigations
Forensic Strategic Solutions, LLC

Despite efforts to prevent fraud, the unfortunate reality is that it still happens — in fact, according to the ACFE's 2016 Report to the Nations, it is estimated that companies lose 5% of revenue each year to fraud. If you suspect fraud has occurred at your organization, take these immediate action steps:

  1. Safeguard potential evidence. Preservation of evidence is key. Secure any and all potential evidence — but by all means, avoid the temptation to examine the evidence on your own. Electronic evidence is fragile and easily altered. Did you know that simply turning a computer off or on can alter potential evidence? Secure computers, cellphones and external electronic media sources such as thumb drives. Maintaining the evidence will help your forensic accounting team identify what occurred, who committed the fraud and why.
  2. Gather a team. Enlist a forensic accountant and computer forensic specialist to help you collect, analyze and store the data. It would be wise to hire an outside financial investigator who is familiar with and experienced in fraud investigations — using an in-house accountant is not appropriate, as they are not as objective as an outside source. In fact, someone on the accounting team may be part of the problem. Retain an employment lawyer to ensure you stay on the right side of the law regarding the rights of the suspected employee. 
  3. Deal with the suspected employee. Don’t fire the suspected employee immediately — it could make gathering evidence much more difficult. Instead, restrict their access to company data. Do not let them remove their computer or any other company items and documents from their office.
  4. Notify your insurance provider. A crucial fact for employers to know is that you must notify your insurance provider within 30 to 60 days, depending on your policy. Failure to do so could cause a loss of coverage.
  5. File proof of loss. You will need to document any losses with your insurance provider in a specified time frame. Documenting a claim with an insurance provider takes time to ensure it is properly recorded. It is possible to file an extension should you need one, but be sure not to miss any deadlines or you risk forfeiting coverage.

The best way to mitigate fraud risks is to have internal controls and external resources available to prevent them from happening in the first place. Should fraud occur, the initial steps you take in addressing suspected fraud can hinder or greatly help your efforts — don’t make the mistake of collecting evidence and acting without the assistance of a team of forensic specialists and legal professionals.