4 Must-Do's If You Find Fraud

I started feeling sick last Thursday and the symptoms got worse over the weekend. The symptoms are slowly moving from my head to my chest. It seems to be a really bad cold and maybe something else. I am beating myself up because I probably pushed my body too hard during the marathon, which weakened my immune system. But being sick is throwing a wrench into my ultramarathon training plan.

Having less than two months left before my ultra weighs heavy on my mind because I know there is a lot of work ahead of me. But I know that if I continue to train before my body is ready, I could get even sicker and get further behind on my training. Therefore, I am working toward a speedy recovery by taking medicine to help with my symptoms, getting plenty of rest, staying hydrated and taking my vitamins.

The impact this cold is having on my body is similar to the impact fraud has on an organization. Fraud is a disease, and if symptoms (red flags) are identified, you can’t ignore them. Oftentimes, someone will contact me because they may suspect fraud is occurring in their organization. As they describe their situation, it is usually pretty clear that they should be worried because there are a significant number of red flags.

Therefore, we need to take steps to respond as if fraud has occurred. The first 24 to 48 hours after an investigation is launched are crucial because suspects may be alerted, documents and data can be destroyed, and your organization can sustain additional losses.

The following are four things you must do if you suspect fraud:

1. Determine the people involved. This step is straightforward and can be accomplished pretty quickly, but make sure you spend an appropriate amount of time identifying possible parties. Based on the red flags, you already have at least one person identified. This person’s name should be at the top of the list, and under this name, you should list the names of any relatives, friends or associates who may have helped them commit fraud against the organization. This list should not be limited to people in the organization, but should consider customers or vendors who could be connected as well. The goal is to cast a wide net and then narrow down the list during the investigation.
2. Determine the possible areas impacted. Based on the list of parties, you should be able to identify the areas that could be impacted. The major areas often impacted by fraud are payroll, accounts receivable and accounts payable, but there could be other areas like theft of inventory or overbilling customers. You may ask, “Of the parties identified in step 1, what areas could they impact or influence?” This list should also include as many areas as possible.
3. Identify and secure evidence. This is probably the most critical step. With the information from steps 1 and 2, you should determine ways to identify the types of documents and data that could be relevant to an investigation. What are the sources of this data and how can you protect it? Data internal to the organization is sometimes the easiest to get, but it is also the easiest for a fraudster to manipulate or destroy. Third-party data is sometimes harder to obtain, but it is sometimes the most reliable. During this step, you should also make decisions regarding removing a fraudster’s access rights to electronic systems and to the physical property.
4. Mitigate losses. Depending on the type of fraud and the parties involved, there may be ways to mitigate future losses from the fraud scheme immediately. As an example, your organization has uncovered a fraud involving a certain employee and the same employee has a close relationship with a vendor. Your organization owes the vendor approximately $45,000. The vendor may or may not be involved, but you make the decision to hold all payments to that vendor until you get further into the investigation.

The steps above are very important, and it takes a lot of experience and consideration to make good decisions during the initial phases of a fraud investigation. Stay calm, be patient and ask for help.

Usually a fraud investigation begins as nothing more than a hunch because red flags are popping up. It is the same as me ignoring my cold symptoms and continuing to train. I would get sicker and stay sick longer if I didn’t stop and take action now. Don’t ignore red flags. A fraudster will cripple your organization more and more the longer they remain undetected. 

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