FROM THE ARCHIVES
By Lynda L. Hartzell, CPA/CFF, CFE, CIA
When an organization finds suspected fraudulent activity, it can be shocking and upsetting. It may be hard to comprehend that a trusted employee could have done something to defraud the organization.
In our experience, it is not uncommon to find owners of small businesses granting increasing independent authority for handling transactions to people they feel they can trust. Even in very large organizations, it is not uncommon for positions to be structured such that trust in the employee to do the right thing results in too little oversight and insufficient internal controls. An employee in a position of trust is uniquely positioned to commit and conceal fraud over an extended period of time.
The decision to hire a Certified Fraud Examiner is often not an easy one. Knowing what to expect is likely to be helpful in reaching a decision as well as in getting the most out of the investment of your time and money.
Based on the extensive experience our firm professionals have in handling cases of every size and of many different types, we have compiled these tips for working effectively with your fraud examiner.
1.) Try to be as objective as possible. Sometimes clients have observed things in the accounting records that seem fraudulent. As fraud examiners, we are expected to gather and evaluate evidence in a systematic and objective manner. What seems like fraud on the surface may not be. On the other hand, what has been observed by the client may be the proverbial tip of the iceberg.
2.) Check with your insurance agent to see if you have appropriate coverage, such as a surety bond or employee dishonesty, that may reimburse you for all or part of your losses. Also find out if your insurance covers the cost of the investigation. From time to time our clients are delighted to find that they may be reimbursed for the fees they pay us.
3.) Most firms will likely grant potential clients a meeting to discuss the issues at no charge. During this initial meeting, be as prepared as possible to focus on the essential concerns that you have. It is not unusual for potential clients to have a great deal to say about the people involved and some general opinions about those people. However, your fraud examiner needs to understand the allegations as clearly as possible to work with you on outlining an approach. Developing a deeper understanding of the people involved and collecting more detailed information about the case requires more time than is typically allotted for an introductory meeting of this type.
4.) Cases come to our firm at various stages. You may have done a great deal of investigative work already. You may have filed a report with the police. If you have compiled very detailed schedules that require extensive time to review, please understand these schedules won't likely be perused in depth until the firm has been engaged. The fraud examiner may use a different approach to gathering evidence and compiling information. Police departments often will not invest significant time in analyzing your records. Their goal is to present a simple, easy to follow packet to aid the District Attorney in determining the merits of the case. Your fraud examiner is expected to find the most straightforward way to present the evidence gathered. If your goal is to reduce fees by compiling some of the information yourself, be prepared to work with your fraud examiner to determine how best to help.
5.) Know the accounting system in use by your company. If possible, prior to the initial conference, determine whether there is a way to grant the fraud examiner direct access to your accounting records so that expectations for completing the engagement can be established. For example, if your company uses QuickBooks Online, you may be able to easily add the fraud examiner as a user. Other cloud-based accounting solutions are likely to have similar access capabilities. If using desktop software, it may be possible to provide your fraud examiner with a copy of the appropriate computer file. Allowing this access is far more cost effective and less disruptive to your business than having the fraud examiner make frequent requests for records. Very often, one piece of information will lead to the need for additional information. If the suspected fraud involves payroll, you'll also want to understand what options may exist for providing the fraud examiner with the payroll records. Similarly, if fraudulent activity in the inventory management system is suspected, you will want to learn as much as possible about how to provide the necessary records to the fraud examiner.
6.) The decision as to whether the fraud examiner should do his or her work at your business location is one that requires careful thought. Your fraud examiner may recommend that the bulk of the work be done offsite to minimize disruption and reduce speculation on the part of other employees. However, be prepared to assist the fraud examiner in arranging interviews with people who have relevant information, and if necessary, arranging inspection of items that require access to your business premises.
7.) You and your fraud examiner need to understand what the final product should be. If a written report is to be delivered, then it is important to communicate the intended audience for the report as well as any deadlines that need to be met. A prudent fraud examiner knows the importance of doing a thorough job and may have competing demands on his or her time. It is crucial that the expectations for completing the work and delivering a finished product be understood ahead of time. The fraud examiner's ability to timely deliver will be highly dependent upon the client's ability to timely provide records and answer any inquiries promptly.
8.) Most of the time, an engagement letter is likely to be prepared. The purpose of this letter is to ensure that the client and the fraud examiner are working from a common understanding. The letter is likely to explain at a high level the kinds of procedures the examiner expects to perform based upon your preliminary discussions. It will also describe expectations for both the client and the examiner. Arrangements for payment of fees would also be included in an engagement letter. Often it is difficult to estimate the amount of time needed to investigate and report upon a suspected fraud. In our firm, it is common practice to set milestones for updating a client. For example, we may state that as our work progresses, and our accumulated time charges have reached a specified dollar amount, we will pause our work and confer with you about estimated total costs.
Although forensic accounting services, including fraud investigative services are never inexpensive, and the discovery and investigation of suspected fraud may be highly disruptive to the business, using these tips may help to minimize both fees and the disruption to your business.
If you suspect you, your client or your company is a victim of a fraud, please give us a call so we can provide you with the professional assistance you need.
Corporate Internal Investigations
White Collar Criminal Defense
Asset Recovery Services
Dispute Advisory Services
Due Diligence Reviews
Fraud Prevention Seminars & Training
Data Mining & Electronic Discovery
Corporate Compliance Monitorships
Fraud and Compliance Seminars & Training
Expert Witness Testimony
Economic Damage Analysis
Intellectual Property Damages
Lost Personal Earnings
Government Contract Accounting
Mergers & Acquisitions
Construction Claims & Project Audits
Individual, Trust, and Estate
S-Corp & C-Corp, Partnership
Year-end Tax Planning and Estimated Tax
Taxation of Executive Compensation
Reasonable Compensation Estimates
Retirement Savings Planning
Employer Retirement Plan Development
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