Internal Fraud Investigations: Proceed Delicately or Like a Bull in a China Shop?

 

I came across an interesting interview/article about internal fraud investigations. The article discusses a 55-year-old woman from Aberdeen, Scotland (UK) who worked as an administrative assistant at a metal shop. She admitted to embezzling over £1.5 million (about $1.86M USD) over six (6) years. By my calculations, that's an average of over £20,000 (about $25,000) per month. 

That's not a small chunk of change to go missing.

She was caught when she bragged about her lifestyle to the person in charge of payroll. She reportedly went on extravagant vacations and purchased vehicles, paid for her son's wedding, and set up savings accounts for her grandchildren.

I came across an interesting interview/article about internal fraud investigations. The article discusses a 55-year-old woman from Aberdeen, Scotland (UK) who worked as an administrative assistant at a metal shop. She admitted to embezzling over £1.5 million (about $1.86M USD) over six (6) years. By my calculations, that's an average of over £20,000 (about $25,000) per month. 

 The method of embezzlement was one that we have seen over and over: the fraudster set up a fake vendor and paid company funds in response to phony invoices. The money would then find its way to the fraudster's account(s).

Handle Delicately?

An attorney was interviewed and had these thoughts: “The issue with any sort of fraud compared with that sort of ordinary misconduct situation will be the potential liabilities and risks that the business that the employer faces as a consequence of the fraud. Quite often the initial discovery of wrongdoing may just be the tip of the iceberg and so, for example, if you take new fairly standard action, in accordance with policies and procedures in response to that, you may not have the full picture and that can have some quite serious consequences. So if the employee has been stealing from the company there may actually be a web of other third parties involved in it, they may be giving money to third parties outside the business, there may be other employees who are acting in conspiracy with the particular individual and so it’s very important not to ‘tip off’ other people who are involved so approaching an investigation in a very cautious manner is the right thing to do in these situations."

A Difference of Opinion

While I agree that there are circumstances that call for a "soft" approach aimed at ferreting out potential conspirators, I find that I typically prefer a different approach: the bull in the china shop (hence the picture at the top of this article). I want facts, and these are often provided by documents and electronic trails. We follow the facts to their logical conclusion. If that casts shadows on others, so be it.

I also want bad actors to panic and make mistakes. They might attempt to cover up things after the investigation begins or potentially attempt to make "one last score."

This approach may simply be more effective in the US than in the UK, in part due to employment laws. US states typically feature "at-will" employment schemes in which either party can separate from the other for any non-discriminatory reason. In cases where there is smoke, but not fire, about potential confederates, employers may choose to terminate them without cause (I am using this term colloquially). That may not always be an option in the UK due to differences in employment laws.

Best Practices

1. Whether you move forward delicately or in an aggressive manner, act quickly! Time kills investigations. There is a reason why cases go cold.
2. Independent investigations are a great choice. For one thing, you may not know who is involved in the fraud - it may be the person that you might otherwise choose to open an investigation!

This is a cross post with LinkedIn.