Fraud Investigation

Internal Fraud Investigation Basics
Fraud investigation is a methodology of resolving fraud allegations from inception to disposition. More specifically, fraud investigation involves:
    • Obtaining evidence and taking statements.
    • Writing reports.
    • Testifying to findings.
    • Assisting in the detection and prevention of fraud.
Initiating a Fraud Investigation
Frauds are discovered by any of several sources, including tips or complaints from someone, auditing procedures, or by luck. No matter how the initial indicator comes to light, the accumulation of the evidence to prove or disprove the allegation of fraud is substantially different from a routine audit. It is necessary to have counsel involved in, and in most cases, "directing" the investigation, at least as far as the legal aspects of the case are concerned.
Evaluating Tips
One formal study showed that about one-third of all internal investigations begin with a tip from a co-worker, manager, or other employee. Audits, on the other hand, uncover about 20 percent of internal thefts, while the remainder is discovered by "accident."
Companies should encourage a reporting system that allows anonymous tips to be furnished to security, audit, or management. Because most tips are not actually valid, it is important to understand the motives of persons willing to supply information to evaluate whether the tip merits further inquiry. The three principal reasons, explored below, that persons furnish tips are:
  1. Revenge.
  2. Genuine concern.
  3. Money.
Co-workers furnish information as a result of some grudge against a fellow employee to cause trouble. This information often is without value, and careful screening of the information can eliminate the need for an unnecessary investigation.
Genuine Concern
In some instances, the tipster does indeed find information of value worthy of initiating an internal fraud case. The tipster observes some activity that is suspicious and...