There’s no way around it—according to the Association of Certified Fraud Examiners, an estimated five percent of annual revenues are lost to financial crime. What do these numbers mean for you? Big or small, public or private – with statistics like these, there’s a good chance your business is more likely than not to fall victim to internal fraud. The median loss caused by fraud in the ACFE’s study was $145,000—no matter how you spin it, fraud is pricey. Your response to the suspected fraud, however, will determine whether you can recover from the loss or suffer even further damages. Of the companies in the ACFE’s 2014 Report to the Nations, only 14 percent of the victim organizations made a full recovery, and 58 percent made no recoveries, emphasizing the importance of knowing how to respond when fraud is suspected in your business. Minimize the severity of the situation (and the cost to you) by implementing these best practices upon suspicion of employee wrong-doing.
Secure, Secure, Secure
Immediately secure any and all potential evidence by safeguarding data and any other potentially relevant information—but don’t examine this evidence on your own, wait for a trained professional to maintain the integrity of the evidence. Computers and other electronic media sources, such as thumb drives, discs and cell phones, are likely to contain a wealth of information regarding the potential fraud. If the computer is on, leave it on – it is off, leave it off. Simply turning on or off a computer can alter potential evidence. Similarly, don’t connect any external devices to the computer, doing so can alter the original evidence, potentially rendering it useless for evidentiary purposes. A computer forensic specialist will be able to mirror image relevant hard drives, creating a bit-by-bit replica of the original drive allowing examination of the copied drive without disturbing the data that exists on the original drive. A computer forensic specialist will also search for documents, emails and files (deleted or intact) that may be relevant to the investigation. Don’t forget to safeguard the employee’s desk and office—but don’t search the office, as this should be a task undertaken solely by trained professionals in order to avoid a potential misstep. The totality of the evidence will provide the financial investigators with the five W’s (who, what, when, where and why) of the potential fraud.
Assemble a Team
Another best practice to deploy immediately upon suspicion of employee wrong-doing is to hire the appropriate trained professionals, including: legal counsel, a financial investigator and a computer forensic specialist.
- An employment lawyer has the ability to guide you through employee and employer rights to ensure you do not step out of your legal boundaries, potentially saving you from a lawsuit filed by the wrong-doer.
- An attorney with white-collar crime experience will prove invaluable as you develop and execute a plan from investigation through resolution.
- A financial investigator, such as a Certified Fraud Examiner, has the depth of knowledge needed to help successfully maneuver through the complexities of a financial investigation. It is recommended to hire outside of the company rather than to turn to your internal accountant as they are too close to the situation – or worse, part of the problem. Likewise, the accountant who prepares your taxes or financial statements and failed to report any suspicion of fraud is not independent of the situation.
- A computer forensic specialist can secure, collect and analyze digital evidence. With the heavy focus on technology in today’s world, securing digital evidence is crucial in most financial investigations. Properly collecting and handling digital information can be the deciding factor as to whether or not you recover your losses or suffer greater damages. Resist using the company’s IT personnel to perform these tasks—not all computer professionals are created equal. Admissibility of evidence is key. A trained computer forensic expert will use forensically sound methods to sufficiently recover and preserve key digital evidence.
Your initial response to the suspicion of fraud in your workplace can make or break the outcome of an investigation. While these two best practices are important, there are multiple other best practices you should implement to minimize the damage from employee wrong-doing. Check back for part two in the coming weeks.