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Six Costly Mistakes to Avoid When Fraud is Detected

Category: Articles

Many workplace crimes are "inside jobs." They can involve employees stealing cash, inventory, equipment or intellectual property. Or they could include more sophisticated schemes such as bribery, kickbacks or payroll fraud.

Internal fraud investigations can pose numerous challenges. Here are six costly mistakes an organization can make when faced with the possibility that one of its employees or executives is engaging in fraudulent behavior.

Mistake #1: Making a Rush to Judgment. The facts may appear to clearly show that the targeted individual has perpetrated internal fraud. However, regardless of how compelling the facts may be, your company must conduct an appropriately rigorous investigation.

Mistake #2: Letting Word of an Investigation Get Out. The existence of an internal fraud investigation should only be shared with those with a "need to know." Divulging information beyond these individuals can doom an investigation to failure, especially if the targets are made aware of the fact that actions are being scrutinized.

Mistake #3: Proceeding without Notifying Legal Counsel and HR Professionals. Employees have certain rights and if they are violated, it can directly affect the results of the investigation and it can also create considerable legal risk for the company. Before a formal internal fraud investigation is launched, both legal and human resource professionals should be briefed on the situation.

Mistake #4: Failing to Maintain a Document Trail. Even a simple fraud will likely involve documentary evidence. No matter how straightforward the fraud may appear at the time, it is critical that the investigation case files contain all relevant information compiled by the company during the investigation.

Mistake #5: Not Realizing that U.S. Practices Don't Apply Overseas. If your company employs employees abroad, it is crucial to comply with the foreign country's employment laws. Failure to do so can be expensive and can even hurt your ability to do business internationally.

Mistake #6: Not Holding Executives to the Same Standards. A successful fraud investigation depends upon secrecy, as described in Mistake #2. If alleged fraudsters determine that your company is investigating them, they will probably attempt to destroy evidence, influence witnesses, or disappear with their ill-gotten gains.

In some cases when executives are suspected of fraud, companies handle them with kid gloves.

Not only can special treatment of an executive result in significant financial losses from that individual, it can lead to subsequent losses from others in the company. If staff members become aware that leaders are permitted to get away with fraud while lower level employees are held accountable, they are more likely to steal too.

Consult with your attorney and accountant to assist with internal fraud cases. By doing so, you dramatically improve the chances that your company will conduct a successful investigation while helping to avoid the pitfalls.

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