Investigating Rules For Small and Midsize Companies When Suspecting Occupational Fraud

In the 2010 Report to the Nations on Occupational Fraud and Abuse, the American Society of Certified Fraud Examiners (ACFE) found that nearly one-quarter of the cases studied involved losses in excess of $1 million dollars. Additionally…

  • Only approximately one-seventh (15%) of the culprits who were caught had prior charges or convictions for fraud. The remaining 85% had no record.
  • The median theft loss perpetrated by an employee is $80,000. The median theft loss perpetrated by a manager is $200,000. The median loss conducted by an owner or executive is $723,000.
  • On average, frauds will occur for 18 months in a company before being detected.
  • Tipsters account for over 40% of fraud discoveries; however, many thefts are only found by accident.

In today’s market, small and medium-sized companies are increasingly more vulnerable to fraud and employee embezzlement schemes. In general, these organizations have fewer controls in place and, even when in place, do not implement consistent enforcement. Subsequently, when fraudsters victimize companies, management usually does not know where to turn or how to perform a proper investigation. The following rules are basic guidelines companies should considerwhen commencing an 私家偵探 investigation. Following these rules will generally allow owners to assess damages and take appropriate action without “breaking the bank” in legal and investigative fees.

RULE #1 – Seek Independent Experts – Regardless of a company’s size, businesses far too often find themselves engaged in lawsuits due to the lack of independence and investigational bias. Victimized companies, in an effort to mitigate further financial loss, attempt to use internal resources to determine how the fraud was perpetrated and calculate financial damages. However, external independent experts should, in this case, be retained.

Attempts to perform the investigation internally will many times become a costly decision. The company may decide to pursue legal action against the perpetrator, and one defense is usually an allegation that the person who performed the investigation either had the same or greater capacity to perpetrate the fraud or may have a bias against the alleged fraudster. This is more common when the employee performing the investigation is within the chain of command of the fraudster. As a result, many these companies find themselves spending even more financial resources and incurring even greater risks after being sued or counter-claimed by the alleged perpetrator.

Companies should be aware that the need for both independent counsel as well as an independent financial investigator are critical in creating and protecting unbiased results. This is particularly true when the investigation surrounds company management and the suspected amount of stolen money is significant.

Financial investigators that are retained should be engaged by outside counsel whenever possible to preserve attorney / client privilege. Companies should be aware that, when retaining a financial investigator, it is generally unwise to retain the company’s CPA or tax firm to perform the investigation. Many times these personnel are unqualified to perform such investigations and may be concerned about their own legal exposure in the matter due to mistakes in the audit, review, or tax preparation.

Author: awais

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