Frequently Asked Questions: Fraud Examination and Forensic Accounting
 What is a fraud examiner and what do they do?
A Certified Fraud Examiner is responsible for resolving allegations of fraud, obtaining evidence, taking statements, writing reports, testifying to findings, and assisting in the prevention and detection of fraud and white-collar crime.
Following are a few examples of some typical CFE functions:
- A Certified Fraud Examiner in private practice was retained to examine evidence of fraud and to testify in a $350 million securities fraud case. His testimony helped recover $70 million.
- A Certified Fraud Examiner employed in the internal audit department of a bank headed the investigation of a $125,000 embezzlement case. She ultimately assisted authorities in the criminal prosecution of an officer.
- A Certified Fraud Examiner in private practice provided litigation support to an attorney involved in the trial of a civil fraud case. The CFE’s expertise helped the attorney win the case.
- A Certified Fraud Examiner employed by the U.S. Government advised a federal agency on ways to improve its ability to detect fraud in contracts, which resulted in potential savings of millions of dollars.
Who uses a fraud examiner?
Most major corporations as well as governmental agencies in the United States and throughout the world employ certified fraud examiners. Certified Fraud Examiners are charged with investigating a wide variety of allegations of fraud, primarily within their own organizations. Certified Fraud Examiners also provide investigative and consulting services to law firms, business enterprises, and others in the area of litigation support, fraud investigation, and fraud prevention.
Who commits fraud?
Internal theft is a potential problem in any business. A dishonest employee or group of dishonest employees acting together can cost your business thousands of dollars without you even knowing it. Research has shown that in the typical workforce a considerable number of employees are prone to dishonesty and will actively seek out ways to cause losses and create liabilities. Management encourages theft by failing to establish procedures and controls or to adhere to them once they are established. Management often assumes certain incidents or conditions in the workplace are the result of carelessness, incompetence or inexperience on the part of the employees, when in actuality, these are signs of deceptive behavior in progress.
The Fraud Examiners at HORNE LLP can assist in helping to identify and reduce this ongoing problem. We will review, analyze and make recommendations to existing policies and procedures regarding the operational function of the organization.
Red flags for business fraud?
HORNE LLP's Fraud Examination team can provide the highest quality detection and deterrence plan for your business. We can help you to better understand the exposure your organization has to fraud. For example, to detect fraud in your business, consider these risk factors.
- An employee under financial pressure.
- An employee with personality changes.
- An employee demonstrating poor money management.
- An employee living beyond their means.
- An employee with outside business interests.
- Poor company internal controls.
- Too much control by a single employee.
- Lax management.
- Failure to pre-screen employees.
- Records altered, missing or destroyed.
- Chronic shortages.
- Signatures on records appear to be forgeries.
- Employee drug or alcohol abuse.
- Employee gambling problems.
- Employee gives inadequate answers when questioned about missing supplies, property or funds.
- Customer or supplier complaints about shortages or discrepancies.
If you have noticed one or more of these Red Flags, contact us immediately.
Embezzlement: What do I do now?
Act quickly, carefully
Employers face the probability of getting burned twice by not understanding the importance of a properly structured investigation.
Here are 10 considerations, in no particular order of timing or importance, that can maximize the potential for a happier, less costly outcome for an employer who is the victim of embezzlement:
1. Act quickly. By the time embezzlement is discovered, the scheme probably has been occurring for a while. Minimize losses by quickly moving to stop the fraud.
2. Contact your insurer. Failing to put your insurer on notice can void coverage. Most policies have a 30- to 60-day notice provision.
3. Contact legal counsel. An attorney with employment experience can help you through the maze of employer and employee rights. Additionally, an attorney with fraud experience can be invaluable in developing and executing a litigation plan.
4. Decide how to deal with the alleged perpetrator. Avoid the urge to immediately terminate the employee. Suppose an assumption of guilt is later proven wrong. The employee may successfully sue for wrongful termination, defamation, slander and/or libel.
Retaining the employee is advantageous in that employees have a duty to cooperate with employers in a legitimate investigation. This will make obtaining records needed to prove fraud easier. Only after sufficient evidence exists for a fraud examination should an employee be placed on leave or terminated.
5. Take immediate steps to preserve data. Data to be secured includes anything a suspected employee has touched in connection with his role in the organization:
- Secure pertinent data, computers and media, preferably without the employee's knowledge.
- Search the employee's desk and office. Generally, both are property of the entity, and you are within your rights as the employer to conduct a search. However, you can make a misstep here, so check with the attorney first.
- When an employee has been notified that he is the subject of an investigation, do not allow the employee to touch or remove anything from the office except for personal items. The employee should be accompanied at all times while in the office, then escorted from the premises.
- Don't overlook home computers the employee may have used for work-related purposes.
- Terminate the employee's access to computers within and outside of the office. Change all passwords to prevent unauthorized access or destruction of evidence.
6. Hire a certified fraud examiner (CFE). Conducting an embezzlement investigation can be a complex undertaking. The plan developed by a CFE will maximize efficiency and, ultimately, the effectiveness of the investigation.
7. Know your rights and responsibilities as an employer. You have a right to conduct a fraud examination. You also have a responsibility to stockholders to investigate and seek to recover any losses suffered through theft.
Laws dealing with employee rights in the workplace do not have to hamper the examination, but they must be followed. Best rule of thumb: Treat all employees consistently.
8. Know your employees' rights and responsibilities. Remember, not only do you have rights as an employer, but the employee also has rights. Before taking adverse action against an employee, consult your attorney to protect yourself from possible legal retaliation.
9. Facilitate background and credit checks. Need and Greed, common fraud indicators, often can be identified with some basic checks. However, provisions of the U.S. Fair Credit Reporting Act require disclosure of a report to the employee.
10. Remember the Iceberg Principle. What may initially appear to be a simple scheme could prove to be a much bigger operation with players inside and outside the entity. Don't stop digging too soon.
Conclusion
A successful outcome requires the interplay of diverse elements, not to mention a delicate balance between the rights and responsibilities of both the employer and the employee.
Hiring seasoned professionals on the legal and accounting fronts will help an employer avoid missteps. They also may help identify faulty accounting procedures and ways to correct them.
A professionally managed fraud investigation may provide an invaluable benefit - the prevention of the double loss - that is, the loss from the embezzlement plus the additional loss when not handled properly.
Visit Our Team to learn more about the experienced fraud analysts and investigators available to you at HORNE.
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