Businesses and fraud experts often face a long, arduous process when investigating any occupational fraud incident. When the suspect is a member of upper management, it’s exponentially harder.
In theory, investigating executives shouldn’t differ from the process of investigating rank-and-file employees. In reality, the authority and influence of an executive can slow — even shut down — a fraud investigation. You need a plan to prevent interference and facilitate the collection of evidence that can be used in court, if necessary.
The first step is to brief the executive’s chain of command. As soon as allegations surface, work with your company’s human resources and legal departments to make the suspect’s superiors aware of the situation. If you believe the fraud may involve the executive’s immediate boss, brief someone higher up the chain of command.
To minimize the potential for rumors and information leaks, limit the number of employees with knowledge of the investigation. Instruct them to refrain from discussing the case with anyone within or outside the company. Better yet, hire a fraud investigator to handle most of the investigation. An outside expert knows how to protect confidential information and is able to remain professional and impartial when interviewing suspects and potential witnesses.
If employees participate in the investigation, involve only experienced and trustworthy people. An investigation of an executive inevitably attracts greater scrutiny from the senior executive team and stakeholders such as investors. So make sure the team conducts the investigation in strict compliance with your company’s personnel policies and employment law. Investigation-related electronic files should be password-protected and physical documents stored on-site should be secured in a locked filing cabinet.
Many companies are hesitant to discipline (particularly, to terminate), an executive involved in wrongdoing due to potentially negative publicity. In fact, many senior executives expect to see overwhelming evidence of wrongdoing before they agree to take action against a colleague. Keep this in mind as your team conducts its investigation.
You should try to assemble convincing evidence of fraud before formally interviewing the suspect. To avoid being overwhelmed or overpowered by the executive, a professional fraud examiner or a superior executive should conduct the meeting. Should the need arise to suspend the executive pending further review, make sure someone with the appropriate authority is present.
Cost is too high
Investigating allegations of wrongdoing by an executive can be stressful, but it’s critical. According to the Association of Certified Fraud Examiners, the median loss associated with fraud perpetrated by an owner or executive is $850,000, compared with $100,000 for non-management employees. If you suspect executive fraud, don’t hesitate to contact us.
© 2020 Covenant CPA
You may suspect that an employee has stolen from your company. But without evidence of a crime, you’ll have a hard time pursuing prosecution. So if you discover a fraud, first call your attorney. Then take immediate steps to preserve the evidence.
Safeguard paper documents
Place any hard documents related to the possible fraud in a safe location that’s accessible only to key people. The fewer who handle it, the better. Don’t make notes on any paper documents and, unless necessary, don’t let them be handled. Instead, make separate notations about when and where they were found and how you preserved them. A court case can be derailed if you don’t preserve the chain of evidence and can’t prove to a judge’s satisfaction that the documents haven’t been tampered with.
Handling paper documents is relatively easy as long as you approach the task with care. You can copy anything you need to continue operations and turn the originals over to a fraud expert or law enforcement for fingerprinting, handwriting analysis or other forensic testing.
Take care with technology
Digital evidence can be another story, especially if your IT
staff isn’t trained to react to fraud incidents. Even if these employees are
highly skilled at setting up and troubleshooting your computer applications,
they’re unlikely to be fully aware of the legal ramifications of having a
computer or mobile device used to commit fraud.
IT staffers could inadvertently alter or destroy evidence in the course of restoring a computer to normal operations. To avoid such mishaps, arrange for training so that these employees know how to respond to fraud incidents. They should be instructed to stop any routine data destruction immediately. If your system periodically deletes certain information &mdsh; including emails &mdsh; that process must be discontinued the minute you notify them that something is amiss.
If no one has a background in computer forensics, turn the investigation over to an expert as soon as possible. Forensic experts can identify and restore deleted and altered records, digital forgeries and files that have been intentionally corrupted. They also can access many password-protected files and pinpoint unauthorized system access.
If you’re unsure about how to handle fraud evidence, simply take steps to restrict access to it, then ask your attorney about the next step. Better yet, contact us before you discover fraud. We can help ensure you have the necessary training and procedures in place to preserve evidence if an incident ever occurs.
© 2019 Covenant CPA