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Planning a fraud investigation

Forensic Focus - December 2008

Forensic accountants perform a variety of investigations. The exact process followed from one investigation to the next will never be the same, however there are themes that remain consistent, like objectivity, impartiality and clear and concise communication.

We have also found that when planning an investigation,there are almost always three phases. These are:

  • Phase 1 – Pre-investigation
  • Phase 2 – Investigation
  • Phase 3 – Reporting and recommendations

In previous newsletters we have outlined the first two phases. In this newsletter we will touch on phase 3 – reporting and recommendations. This information should be useful for those who become involved in any kind of investigative process.

Phase Three – Reporting and recommendations

The pre-investigation planning phase would have identified the potential end users of the report. That phase should also have identified the objectives of the report users. There is no point in conducting an in-depth investigation and reporting upon various breaches of internal control if that is not what the readers of the report want. Likewise, if it is not the intention of the recipients of the report to refer criminal charges, writing a report that focuses upon the criminal responsibility of the fraud offender is both ineffectual and a waste of time.

A fraud investigator’s report should focus upon the key factors establishing how the fraud was committed, who committed the fraud, how much was taken and how reparation may be achieved.

The report should also identify ways in which the fraud that has been perpetrated could have been avoided, or can be avoided in the future. Where there have been breakdowns in internal control or a lack of controls these should be highlighted and brought to management’s attention.

It is not the role of the fraud investigator to judge a suspected fraudster innocent or guilty. Of course, if a confession has been obtained in an interview that should be communicated to management, however the report should not contain conclusions as to the matter of guilt. The final judgment in this area rests with the Courts, if it is to proceed that far.

The report should also test and report against the proposed hypothesis at the start of the investigation. The report should not be subjective in its conclusions. In our experience, a common failure of many investigators is that having done a book perfect investigation, they “fall in love” with their own work, drawing conclusions that are not supported by the work papers or the evidence. It is essential that before the report is submitted to management in its final form, that the team reviews the report as to its balance, fairness and above all, accuracy.

Assumptions need to be clearly identified as assumptions and equally, subjective statements, need to be identified as such. Conclusions supported by hard evidence and the reference to that evidence should also be identified.

Above all, the report should be clear and decisive in its conclusions avoiding ambiguity and doubt wherever possible. The preferred course of approach where matters are not known is to clearly state that this is so, rather than to hypothesise.

Finally, when the report has been submitted and the job concluded, all work papers and documentary evidence should be secured before being placed into deep storage or destroyed. In our experience, it may take years for a decision to be reached as to whether or not a prosecution will take place.

For more information please contact:  

Lorinda Kelly
Associate Director, Forensics

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