The most common way that employee fraud is detected is through tips about the fraudulent activities. According to the 2006 Report to the Nation, an extensive study on fraud done by the Association of Certified Fraud Examiners, over 34% of internal frauds are detected with tips.
The tips about fraud usually come from other employees, but can also come from customers, vendors, or other company outsiders. Over 64% of fraud tips are reported by employees, however, making them our most valuable resource for information.
Once a tip about fraud is received, it must be evaluated to determine how credible it is and whether it warrants further investigation. Some things to consider when evaluating the tips:
- Does it sound credible – At first blush, does the tip sound reliable, or does it sound silly? This factor shouldn’t be used to determine whether to investigate further, but first impressions do mean something, so this should be considered in conjunction with the rest of your evaluation of the tip.
- How much detail is provided – As a general rule, the more specific a tip, the more likely it is to be genuine. People who are making false fraud reports often don’t provide as much detail as those who are making legitimate referrals.
- Is the tipster reliable – In the cases where a fraud tip is received from a person who makes her or his identity known, it’s important to evaluate that person’s character and honesty. Is there any obvious motive to lie?
- Does the tip fit with known facts – Evaluate whether there is any objective information that immediately contradicts the tip. For example, suppose someone provides a tip that Bob Smith stole some equipment last week Wednesday. You know that Bob was on emergency medical leave all last week. Clearly, this tip loses credibility in light of the information you have about Bob’s work schedule.
- Is the tipster willing to provide additional information – In the case of anonymous tips, it may not be possible to ask follow-up questions. But when the person providing the information has revealed her or his identity, their willingness to participate in follow-up discussions can point to credibility. Usually, people with reliable information do not object to answering questions and providing additional information.
Naturally, if a person providing a tip fails on one or two of the above evaluations, it doesn’t necessarily mean that the information provided was false. We must evaluate the totality of the situation and use the above factors as part of an overall process of evaluating and investigating tips about fraudulent activities.