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Employee fraud – Acting on suspicions

Forensic Focus - September 2010

red telephoneMaybe someone is covering a new role, perhaps internal audit has brought something to your attention, or more likely you’ve just received a tip-off. However you become aware of it, the possibility that you have an employee fraud to deal with will plummet you into a whirlwind of decisions about what to do next. Suspicion of fraud is a sensitive matter and has to be handled delicately.

The right response will depend on the circumstances, but the decisions made at the beginning of an employee fraud investigation will have a critical impact on achieving a successful outcome. The outcome will encompass dealing with employment issues, recovery of funds and possibly prosecution.

Employment issues should be top priority and specialist advice sought. If suspension is the most appropriate course of action, it should be dealt with and the suspension terms be in place before contacting prosecuting authorities. It can be very expensive if you end up agreeing to your employee being suspended for the duration of a police investigation – which may continue for months or possibly years.

There will be a lot of things that you need to consider, however these are some of the first questions you will need to address:

Who is going to manage the investigation internally? 

The best model has one internal person responsible for dealing with the numerous parties who will be involved. This one point of contact in the organisation will need to have access to records, make decisions in a timely manner and answer questions that arise. This person is usually the CEO, CFO, HR Manager or another senior manager.

What do you know? 

Gather all the information you have on the allegation, suspects and other relevant facts such as employment history or events leading up to the allegation.

What do you need to know? 

This will be an important factor in determining how the investigation proceeds. Do you need to know the extent of the potential loss? All the parties involved? Potential avenues of recovery? Or how the fraud could have occurred in the first place? Perhaps all of these are relevant questions that you want answers to.

Do you have any known details for the suspects and other parties involved?

Details like phone numbers, addresses, related entities, car registration, and date of birth can be used by investigators to conduct discrete background checks.

How do we secure the potential evidence (paper and electronic records)? 

It’s important to secure any laptops, telephones, USB’s, backups, CCTV footage or other potentially relevant devices. Our team includes Forensic Technology specialists who you can consult to ensure correct response measures are implemented.

How can you mitigate the risk of further loss?

You need to prevent further access to the company’s records and assets. This could take the form of suspending the employee, removing their physical access to premises, removing remote computer access rights, removing signatory rights, credit cards, fuel cards and other purchase cards.

Who needs to be informed and what can/do you tell them?

You need to remain mindful of the process of natural justice and privacy issues. So your communication strategy should consider what should and can be shared with stakeholders including the Board, management, staff, customers, shareholders and auditors. You should also alert your insurer, and you also need to be alert to the potential involvement of other parties. Use your lawyer to ensure the correct process is followed.

Our Forensics team comprises senior forensic accountants, forensic technology experts, data analysts and investigators who have a great depth of experience investigating employee fraud and are available to assist you regardless of circumstance at short notice.

If you suspect an employee fraud and require some assistance, or even just someone to talk to about the process you should be following, please contact Lorinda Kelly.

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