You Suspect Fraud May Be Present in Your Business. Now What?
If something in your company doesn’t feel right, it isn’t always clear what to do next.
There is not always a single event that confirms a fraud problem. It could be that a transaction doesn’t make sense or that a pattern looks off. In many cases, it starts with a question, not a clear answer.
What happens next depends on how that concern is handled.
Taking Fraud Suspicions Seriously
Many companies assume that they’re immune to fraud because they have a clean audit, trusted team members and good processes. But in reality, none of these factors will protect your company from fraud, so it’s important to not dismiss fraud suspicions because of this rationale.
External audits are not designed to detect fraudulent activity; so, even if your audit is clean, fraud may still be present. In many cases, employees who conduct fraud have been with the organization for many years, are trusted by leadership and know how systems work. And many companies think that they have effective internal controls when, in reality, they have processes that are easily circumvented.
Most fraud cases are identified by a person who sees something that does not look right and reports it. So, concerns need to be taken seriously, whether they come from someone else or from what you are seeing directly.
Escalating Fraud Concerns and Coordinating a Response
When fraud is suspected, the response needs to stay limited to a small group.
The concern should be elevated to the appropriate formal channel. That may be general counsel, internal audit or another defined role within the organization. From there, the information is kept close to that group.
If the individual suspected of fraud becomes aware too early, they can alter or destroy records, which will make an investigation even more challenging. There is also a risk of acting before the facts are clear. Some situations that look unusual at first glance have a reasonable explanation upon investigation. Raising concerns too broadly before confirming what happened can create unnecessary consequences.
At this point, organizations often bring in a professional who works in fraud investigations or legal matters. If the issue moves forward, information must be collected carefully and evidence must be preserved for further review, so it’s important to have professional guidance.
Moving Forward After Fraud Is Confirmed in Your Company
Even when fraud is confirmed, there may not be a clear path forward.
Companies must decide whether to move forward to prosecution. A large number of organizations that experience a fraud event choose not to move forward for a wide range of complex reasons.
Some organizations don’t want the situation to become public because they are concerned about the organization’s reputation. There is also a personal element. In many cases, the individual involved has been employed with the organization for a long time. Leadership knows them and knows their family, and the fraud is not prosecuted because of personal relationship dynamics.
Even if an organization wants to move forward with prosecution, building a case takes time and documentation. Many situations require an external expert to support the findings, which requires additional cost and resource investment.
In most cases, funds lost in a fraud event cannot be recovered (or can only be partially recovered) because they have already been spent, which also affects how organizations evaluate their options.
For example, an organization may estimate a loss and then compare that to the cost of pursuing the case. Legal fees, investigation costs and external support can approach or exceed the amount that could be recovered.
Because of these complicated dynamics, outcomes vary when fraud is detected within a company. Some organizations pursue the case regardless of cost. Others separate from the individual and stop there. In many situations, the person leaves without formal action and there is no public record of the incident.
What This Means for How You Should Respond to Fraud Concerns
If you suspect fraud, an early response matters more than anything that happens later.
Assume that if something is not addressed, it will continue. In many cases, concerns sit for a long time before anyone acts on them, and when they are finally addressed, the scope is often larger than expected and the losses are higher.
At that point, the decision is less about proving what happened and more about how the organization chooses to move forward.
To learn more about responding to fraud concerns or implementing internal controls in your organization designed to prevent it, connect with your Warren Averett advisor directly, or ask a member of our team to reach out to you.
