Fraud schemes can be devastating for an organization. They don’t only cause financial loss – they can damage the company’s reputation, compromise employee morale and lead to fines or non-compliance penalties. Successful fraud cases depend on thorough investigations that are effective, timely and legal. This article will help you understand how to conduct a fraud investigation that’s accurate, effective and fair to all parties.
Fraud is the intentional misrepresentation of a fact to gain a benefit, usually financial. The Association of Certified Fraud Examiners (ACFE) describes it as “a crime involving the knowing misrepresentation or concealment of a fact with intent to deprive another of a known legal right.” In criminal fraud cases, the state or federal government prosecutes the accused for violations of state and federal statutes, with punishments ranging from restitution to prison time.
A good tip line is a critical tool for early detection of fraud at an organization. The ACFE reports that in a recent study, tips were the leading method of initial fraud detection (40% of cases) and caused median losses 50% less than those detected by passive methods, such as internal audits or investigations conducted by law enforcement.
Identifying fraudulent behavior begins with gathering evidence, such as emails, transaction logs, bookkeeping journal entries and text messages that may reveal a fraud scheme. Ensure that you only review documents relevant to the case. For example, reviewing an employee’s personal email outside the scope of your fraud investigation could muddle the investigation and taint the integrity of the data. Proper documentation also helps preserve evidence and supports accountability, especially in the event of legal proceedings or disciplinary actions.
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