When business owners suspect an employee is stealing assets or cooking the books, do-it-yourself fraud investigations can be perilous. It’s important for owners to work with an attorney and a forensic accounting specialist to ensure that the case is handled properly and evidence is preserved and admissible. Here’s some guidance on the investigative process, including how experts conduct interviews and gather evidence.

Plan the interview

Skilled interviewers trained in fraud detection know how to spot fraud warning signs, detect deception and pin down suspicions by talking with suspects and their co-workers. The specific information an expert asks employees depends, in part, on the circumstances and individuals involved. But experts generally rely on various financial and accounting standards to frame their questions.

For example, the American Institute of Certified Public Accountants’ Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit, provides guidance that’s useful outside the audit context. According to SAS 99, expert interviewers should ask members of management direct questions about such issues as specific knowledge of any fraud ploys (or allegations of fraud), understanding of the company’s fraud risks, and programs and controls that have been implemented to mitigate specific fraud risks or to otherwise help prevent, deter and detect fraud.

SAS 99 suggests that a fraud interviewer speak not only with a company’s management and audit committee, but also with anyone who can provide information helpful in identifying risks of financial fraud. Thus, interviewees might include employees at all levels who are involved in initiating, recording or processing complex or unusual transactions, as well as operating personnel not directly involved in the financial reporting process.

Rank-and-file workers can provide a valuable perspective that’s different from those of directors or overseers of the financial reporting process. Their responses might corroborate management’s responses or indicate that management is wrongly overriding internal controls.

Interview employees

The interview process usually starts with introductions and rapport-building. The interviewer may explain the purpose of the interview and ask questions to which the answers are already known, so he or she can observe the subject’s demeanor and degree of candor.

Then the interviewer transitions to more specific questions. He or she encourages the interviewee to do most of the talking — and may even use silence as a tool, as people being interviewed frequently try to fill conversation gaps. The employee may disclose information unintentionally, provide clues or suggest an unplanned, but fertile, line of questioning.

Before ending the interview, the expert will confirm the information elicited. He or she also asks open-ended questions about other individuals to interview and areas to explore.

Gather evidence

Another key task experts perform during a fraud investigation is collecting evidence from the company’s internal documents, including:

  • Personnel files,
  • Internal phone records,
  • Emails,
  • Financial records,
  • Security camera recordings, and
  • Physical and IT system access records.

Locating this evidence may require the expert to perform computer forensic examinations. Experts also consider external sources of evidence, such as public records, customer and vendor information, media reports, and private detective reports.

Forensic accounting specialists have been trained on how to review and categorize internal and external evidence, conduct computer-assisted data analysis, and test various hypotheses. Be sure your expert is documenting and tracking every step in the investigation.

When the expert is finished conducting interviews and gathering evidence, he or she will report any findings. You may determine the appropriate format for the report and how distribution will be affected by the need to protect legal privileges and avoid defamation.

Hire a professional

Despite their best prevention efforts, businesses may become victims of white collar crime. When fraud strikes, the use of an outside forensic expert, along with an understanding of the investigative process, can facilitate matters and minimize potential losses.

© 2017

Return to the Litigation & Valuation Report – July/August 2017