In part I, we discussed the initial stages of a fraud investigation. In this post, we review the final stages of an investigation and how a conclusion is reached.
Creating the Hypothesis and Collecting the Data
Once the interviewing process has concluded, I will brainstorm possible ways the fraud could have occurred and then formulates a hypothesis of how I believe the fraud occurred. This is the point in which I begin to collect “hard” evidence to substantiate the case. Evidence can be obtained in a variety of means and it is important to conduct the investigation in a manner that will maintain the credibility and admissibility of the evidence obtained in the courtroom, should the case go to trial.
There are many ways to collect information to substantiate a hypothesis – reviewing physical documents, analyzing computer equipment, additional interviews with employees, and attempting to recreate the fraud. In an increasingly technological age, it is essential to obtain information from computers and other digital devices in order to properly determine how the fraudulent activity may have occurred and to build a sufficient case against the perpetrator. Normally, the investigation focuses on employees believed to be directly involved with the crime.
At this stage in the investigation, it is important to look for any other sources of potential fraudulent activity so that the total loss to the organization can be determined. Once the examination has been concluded, the findings of the investigation are communicated to the client.
Communicating the Issues and Findings
Depending on the purpose of the investigation, communicating the issues and findings can happen in a variety of manners. In certain circumstances, the client may want only verbal communications of findings, but in other instances it may be necessary for the client to have a detailed report that can be used in the courtroom to aid in the prosecution of the fraudster.
It is very important for both the CFE and the client to understand the goal of the investigation from the inception to ensure that all information obtained will be admissible if the ultimate outcome of the investigation will lead to trial.
Preventing Future Incidents
One of the most valuable services that a CFE can offer as a result of information learned from the investigation is recommendations that can help prevent future fraudulent activity. By helping clients add stronger controls and preventative measures, we can aid in protecting them from future attacks. These suggestions provide value to clients that far exceed the value of determining the amount of the initial loss and can potentially save clients thousands of dollars in the future.
A CFE that is also a Certified Public Accountant (CPA) can prove invaluable. In addition to knowledge of how fraudulent activity occurs and investigative methods for detecting fraudulent activity, he/she also possesses valuable knowledge regarding financial transactions and business operations. CFEs that are also CPAs can add value to the engagement by performing operational and internal control audits to determine how effectively the client’s controls are operating and whether proper controls exist.
A fraud investigation is a significant endeavor for both the client and the CFE. It is important for both parties to realize that the fraudulent activity and the solution to the problem will not be discovered overnight, but with patience and persistence, a CFE can provide valuable information that will help a company recover from, and prevent, fraud.
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