You need to have a Plan in place before you discover fraud. Fraudsters often commit multiple frauds multiple ways before being discovered. You cannot trust your initial reaction. The wrong response can hinder your ability to discover the full extent of the embezzlement or to gather evidence sufficient to be awarded restitution. As we mentioned in the previous paragraph the person who committed the fraud is likely to be someone you trust so you need to put away your emotions, breathe, and follow the plan.
The actual fraud is likely significantly larger than what you initially suspect. Your first reaction will be to confront the suspect. This can provide them with an opportunity to destroy evidence and hide stolen assets, including cash. Start your investigation before you confront anyone.
In the United States 37% percent of frauds are discovered with a tip. This is more than twice as common as management review of 14%. So it is likely that more than one person suspects a fraud. You need to assure the tipster that they are protected and persuade them that it is in everyone’s best interest to for them to keep this information to themselves until you have had an opportunity to investigate.
If the fraud is in progress, such as an illicit wire transfer, you may only have a few minutes to reclaim the funds. So do what you have to do to protect your assets but do not confront the subject. Take the attitude that you are correcting an error. Breathe. Then refer to your plan.
Before you discover fraud, prepare a written plan that you can rely on to keep you organized in this painful and emotional situation. Breathe then refer to your plan.
Below is a brief outline of steps to consider when you encounter fraud.
- Document the details of the initial tip or evidence.
- Time and date
- Record all of your thoughts, something that seems trivial now may be important to remember.
- Only discuss the incident with those who need to know. You do not want the suspect to be aware of your investigation at least until you have secured all of the evidence. Remember they may have committed other infractions that you are not aware of yet.
- Make a list
- What do you think happened
- Who you think did it
- Is it reoccurring
- Where did it happen
- What cost
- Who else knows
- Who else may have been involved (was there active or passive collusion)
- Protect all evidence, secure and try to avoid alerting the suspect
- Computer records especially e-mail
- Credit Card and expense reimbursement statement
- Canceled checks
- Contracts and Purchase Orders
- Time and billing records
This is just a short list of what to do before you start an investigation. Remember the most important thing to do is to breathe. Then you should contact a qualified forensic accountant to help guide you through the investigative techniques and documentation of the crime. Call your independent CPA and your legal counsel. Not all CPAs offer these kinds of services but if they do not, they or your attorney will know someone who does.