12 Things to Do If You Suspect Internal Fraud

Discovering that you are the victim of an internal fraud is a harrowing experience, particularly when the perpetrator is someone you’ve trusted. The feeling of betrayal is strong. Your instincts tell you to react immediately.

It’s hard to go against that instinct, but that is exactly what you should do so you can learn what happened and prevent it from happening again. Most internal fraud goes on for an average of 16 months before being detected. This usually means there’s a glitch in your internal controls. Reacting in the moment can cause you to miss important facts you can use to protect your company going forward.

Once you suspect a fraud was committed, you should take specific action:

• Identify people you trust. Identify a few employees you can trust and ask them to help you investigate. The team must be objective, so it might be wise to include a forensic accountant or other consultant.
• Ensure confidentiality. The team should share only necessary information. Unwarranted disclosure can seriously damage the investigation. Keep in mind that if the reputation of an innocent person is tarnished, you may be exposed to a lawsuit.
• Be discreet. Financial, payroll and personnel records should be discreetly reviewed. Your findings can quickly show whether your suspicions are right or wrong.
• Document the entire process. Put everything in writing, including the act or acts being investigated, how the investigation is being conducted and an estimate of the projected losses.
• Secure evidence. Any potential evidence should be placed in a secure place. Team members should not attempt to examine evidence on their own. Doing so may inadvertently alter the evidence. There is one exception to this rule: if the person you suspect is in the process of destroying electronic evidence, you need to take immediate steps. There is no guarantee IT experts will be able to recover deleted data.
• Consult a lawyer. If the investigation shows a fraud was committed, consult an employment lawyer to ensure that the rights of the suspected employee are protected. Otherwise, you might leave yourself open to a lawsuit.
• Identify witnesses. Make a list of potential witnesses. Remember that confidentiality is key, so interviews should be conducted individually.
• Restrict access. Don’t fire the suspected employee while the investigation is ongoing. Instead, restrict his or her access to company data and bank accounts.

After you identify the fraud, take the following actions:

• Assess and repair damage. Evaluate the potential damage to the company’s reputation, both internally and with customers. Then, work with your public relations and human resources teams for a plan to rebuild your brand.
• Report the crime. Report the crime to law enforcement and to your insurance company.
• Reward whistleblowers. If you discovered the fraud through a tip, make sure to reward the person who stepped forward and let others know how much you value their morality.
• Review controls. Review the internal controls you have in place so you can identify what went wrong and make needed changes.

Taking these steps will put your company in a position to move forward. For guidance in ensuring your company’s future success following an incident of internal fraud, contact us today