In our last post on corporate fraud detection we discussed a business owner discovering his or her bookkeeper was stealing money from the company. At this point what should the business owner do?
We’ve received several calls of this exact nature and the business owner is looking to our forensic accounting team to determine the right course of action. We’ve identified several steps the owner should take – these considerations are not necessarily listed in order of timing or importance, all are important and overlap. Obviously, each fraud assignment is unique and considerations not identified below will be added.
- Contact legal counsel: Immediately contact legal counsel to determine how to deal with the suspect. Do you terminate immediately, place them on administrative leave without pay or say nothing until evidence is developed? The employer needs to know both his rights and the employee’s rights. A complex series of laws dealing with employee rights in the workplace means these rules must be followed.
- Act quickly to minimize the financial loss: The 2010 ACFE Report to the Nation identified the median length of time a fraud scheme went undetected was 24 months. Thus, the financial impact may be material and will probably be greater than first suspected. Move quickly to stop the damage.
- Prepare an action plan:The approach should take the following steps:
- Secure data. Fraud deals with “intent’ and proving intent generally requires circumstantial evidence.
- Examine documents, including bank statements, wire transfers, ledgers and deposit slips.
- Interview coworkers.
- Interview the suspect. Legal counsel can help with this part of the action plan.
- Prepare a written report summarizing the fraudulent scheme.
4. Contact the insurer: Even though fidelity or employee theft premiums have been paid, many employers fail to put the insurer “on Notice” of a potential loss. Most policies have a 30 – 60 day notice provision, so without this notification, the coverage may be voided.
Check back soon for Part 3: “What to do once fraud has been discovered in your company.”
If you suspect fraud or have questions for a forensic accountant, please contact Michael J. Stevenson, CPA, CFF, CFE, ABV at firstname.lastname@example.org or 614-545-9100 x12.