Corporate Fraud Investigations

There are four critical pieces to a corporate investigative puzzle. With the proliferation of stories of corporate fraud, managers and executives would be wise to familiarize themselves with the workings of a corporate fraud investigation.

The four key parts include: investigative policy, investigative team, managing the process, and the investigation itself.

A corporate investigative policy is necessary because it is important to have guidelines in place for the start of an investigation. What should management do when fraud is suspected? How are fraud allegations to be evaluated? When and why does the company initiate a full-blown investigation?

Most managers and executive haven’t had to deal with allegations of serious fraud. They need some guidance so that evidence isn’t corrupted and so that the allegations are handled fairly. A well-designed policy will help avoid claims of selective treatment. It also brings uniformity to the process so that similar offenses are treated similarly.

The investigative team will carry out the full fraud investigation. Depending on the seriousness of the allegations and the level of examination required, the team could be as few as one or two people, or as many as dozens of people. The team might include: attorney, fraud examiner or forensic accountant, auditor, private investigator, computer consultant, and a management representative.

A properly managed fraud investigation is critical to the successful resolution of a corporate fraud. Included in the responsibility for management of the investigation are: document management procedures and supervision of staff and consultants. The key is being able to quickly locate critical documents, and ensuring that all necessary issues are examined.

Every fraud investigation is unique, since each fraud has its own set of facts and details. The purpose of the investigation should be to determine whether or not a fraud occurred, who was responsible for it, and how much was lost to the fraud. Evidence of the findings must be gathered and presented to those who need to know, such as the lead attorney, upper management, and the board of directors.

In the coming days, we’ll examine each of these four pieces in a little more detail.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.