Mistakes or something else?
When we talk investigations, particularly potential financial wrong-doing, we enter a grey area. Projects don’t necessarily begin with a C-Suite request to investigate financial crime allegations. And of course, people don’t announce their ethical or criminal lapses.
Instead, many cases of individual employee fraud or general corporate malfeasance are discovered as part of something else. Often, it is as part of a larger effort at improving efficiency or sorting out an administrative problem or operational red flag.
In other words, they don’t begin with formal investigations of financial crimes at all. It might be situations like these:
“Sales are up, yet we are still losing money.”
“Vendor invoices seem to be growing Y-O-Y, and even Q-O-Q, but sales and inventory aren’t.“
“Corporate messaging? No, as long as you make your numbers, management doesn’t ask a lot of questions or get involved.”
“We are hearing a lot of informal complaints about recent compliance initiatives and how they are bad for business.”
“The sales team is a world onto themselves with little oversight.“
In addition, financial loss is only one of the risks created by financial crimes. Depending on your jurisdiction, there can be financial, regulatory, or even legal consequences to knowingly ignoring financial crimes or failing to take reasonable steps to identify or prevent their occurrence.
The US Department of Justice long ago provided guidance to United States attorneys to the effect that what a company does to address the risk of financial crime matters.
However, being too aggressive can also be a problem. Fishing expeditions to troll for potential problems are fraught with legal risks. There should be a justifiable basis for investigation.
It is also vital to carefully select who will do the investigating. Utilizing a consulting firm where individuals are trained in fraud related issues and identifiers is a must.
Below are some key issues to consider when it comes to professional service firms that deal in these investigations.
Is the engagement staffed by Certified Fraud Examiners?
There are experience requirements for a Certified Fraud Examiner or “CFE”. In addition, there is a rigorous testing protocol by the Association of Certified Fraud Examiners (ACFE) to earn the designation.
The ACFE is the largest fraud fighting organization in the world, and is widely viewed as the leader in fraud related training and issue analysis. And like other professional certifications, the ACFE requires annual fraud-specific coursework to maintain the CFE designation.
Do they have forensic experience around technology?
Important examples relevant to all investigations might include evidence preservation controls and documented procedures for chain of custody.
Do they understand the legal ramifications of an investigation?
How an investigation is organized is at least as important as its findings. Improper actions by an investigative team open up serious risks for a company and employees.
What about best practices around oversight responsibility and discovery?
Counsel is vital here. But many attorneys do not understand the finer points on fraud investigations. That isn’t what they do. A tandem approach utilizing legal counsel and CFE’s can identify corporate risks and reduce them.
Who will make up their team?
Team selection and the specific basis for each person’s involvement (both consultant & client) is an extremely important factor. Failure to consider team size and makeup can have negative consequences, particularly in the event of litigation.
How will the case be built?
There should be an investigative framework here to drive things. An approach that will stand up to scrutiny and reduce the risk of biases and lack of uniformity in analysis.
Wrong-doing should not be ignored, and as mentioned above, in some cases it can not legally be ignored by company leadership. But remember, care must be taken in how the investigation is launched, led, and concluded.
Working with a firm that understands this is paramount to success – particularly if the matter ends up in court as is sometimes the case. Contact us to discuss further.