You suspect employee fraud. Now what?

When any type of fraud, including employee fraud, is discovered, it’s usually by surprise. That’s because most of us aren’t used to looking for criminal behaviour inside our own organisation. We trust our employees and co-workers, and we keep our focus on succeeding as a team and accomplishing our goals for the business. Nobody wants to think that someone might be subverting the rules for their own personal gain.

Unfortunately, though, fraud does happen. The statistics tell us that on average, organisations lose about 5 percent of their total revenues to fraud. If that’s not bad enough, the average fraud lasts 18 months before being discovered – if it is discovered at all (ACFE, 2020).

One of the problems is that, since we aren’t looking for fraud, we sometimes don’t want to believe it when we do encounter its red flags. Though they may be unmistakable to some, when it involves our trusted co-workers (and even our superiors) sometimes we try to rationalize or ignore those signs altogether. Accounting discrepancies are one thing, but what about the more subtle things – like behavioural red flags? The following are a few examples:

• The subject appears to be living beyond their means
• They are having financial difficulties
• They have an unusually close association with a vendor or customer
• The subject shows excessive control issues or unwillingness to share duties
• They demonstrate unusual irritability, suspiciousness, or defensiveness
• The subject has what can be described as a “wheeler-dealer” attitude involving shrewd or unscrupulous behaviour
• They have recent divorce or family problems.

Now, these are just warning signs. None of them mean that fraud is definitely taking place. But it’s worth noting that, according to the ACFE, “at least one of these seven red flags had been identified before the perpetrator was caught in 76% of all cases.”

When such behaviours are put in the context of real discrepancies, such as accounting problems, missing cash or inventory, or other issues, a picture of fraud can begin to take shape. While most fraud is discovered by accident, having employees who are trained to recognise red flags is no accident and makes your organisation better protected in the long run.

So, now you’ve discovered fraud in your organisation. What happens next?

1. Report it

Depending on your company’s anti-fraud policy, you should follow the proper reporting channels. Many organisations have an anonymous reporting system, such as a hotline or online module, through which they can report suspected fraud without fear of retaliation. Such a system is highly recommended, as it directly results in more fraud tips and helps you uncover bad behaviour sooner, before it’s done the most damage.

2. Begin an investigation

Organisations that don’t have their own anti-fraud professionals on staff should engage an outside firm that specialises in financial investigations whenever fraud is suspected. These experts will review your fraud tip and lead your organisation through the next steps.

3. Gather evidence

Only seasoned experts should engage in an investigation because improper evidence collection can harm the potential to bring a case to court, should it rise to that level. Also, professional fraud investigators have an understanding of privacy laws and know what is and isn’t admissible in terms of gathering evidence in the workplace.

4. Interview witnesses

Part of the evidence-gathering phase, witnesses should be interviewed to draw a clear picture of what has taken place. They should be interviewed individually by anti-fraud professionals, who know how to elicit the information they need to uncover the truth.

5. Contact law enforcement

As the investigation proceeds, if fraud appears to be a proven concern, the employee should be terminated from employment and law enforcement should be informed. Without prosecution, the fraudster will just move on to their next victim.

6. Review and update your anti-fraud controls

How did this fraud happen? Were anti-fraud measures too weak, or were they not properly followed? Now is the time to evaluate risk management and control systems to learn from this case, and prevent the next fraud. Due diligence experts should be engaged to provide an objective, thorough examination of your control systems and make recommendations that will improve your level of protection.

CRI Group has experts who have conducted fraud investigations all around the world, for organisations of all sizes and industries. Our investigators work on-site at your company bringing a boots-on-the-ground approach to uncovering all the facts of the case. When you’ve uncovered fraud, that’s the time to let the experts take over. You owe it to yourself and the future of your business to make sure every investigation is done professionally and effectively. Contact CRI Group to learn more about our fraud investigations today. Get a FREE QUOTE

CRI Group has safeguarded businesses from any risks, providing investigations (i.e. insurance fraud), employee background screening, investigative due diligence, business intelligence,  third-party risk management, forensic accounting, compliance and other professional investigative research services. In 2016, CRI Group launched Anti-Bribery Anti-Corruption (ABAC®) Center of Excellence – an independent certification body established for ISO 37001:2016 Anti-Bribery Management Systems, ISO 37301 Compliance Management Systems and ISO 31000:2018 Risk Management, providing training and certification. ABAC® operates through its global network of certified ethics and compliance professionals, qualified auditors and other certified professionals. Contact ABAC® for more on ISO Certification and training.