Taking Back Control When Fraud Occurs

Small Business Fraud | Fast Recovery | Ohio CPA Firm
Nothing makes emotions run high like fraud. Remember to keep your cool and methodically approach the situation. Read on for a list of step-by-step best practices for how to handle the initial phase of a fraud investigation.

Fraud is a devastating blow. Not only does it threaten the financial and physical security of the business you have worked so hard to build, it erodes trust and fractures relationships. If it has happened to you, you know the feeling all too well. The moment you suspect fraud of any kind has occurred, you should take action immediately to reduce the risk of further damage to your company.

Don’t Let Fraud Get The Best Of You

Nothing makes emotions run high like fraud. Remember to keep your cool and methodically approach the situation. Here’s a list of step-by-step best practices for how to handle the initial phase of a fraud investigation:

  1. Before doing anything, call your attorney. You likely have a suspect in mind and will need to discuss how to best handle that person’s removal or suspension from the company. Heed your legal counsel’s advice to avoid a potential wrongful termination suit.
  2. Revoke the suspect’s access to all accounting and company systems, as well as bank accounts (if applicable). You should also recover company-owned property such as laptops and flash drives.
  3. Request a back-up copy of your accounting data. Hopefully you have your data backed-up off-site. (If you don’t, stop reading this article and set that up right now!) Depending on the type of fraud, your back-up may help you reverse some of the damage. Files that appear to have been deleted forever, for example, could possibly be recovered with the help of a cybersecurity expert … so pull in advisors and experts as necessary.
  4. Call your insurance agent. Some policies include liability coverage for fraud – check to see if your policy is one of them. If it is, it might cover some of the costs of the investigation. If you don’t have this coverage, get it.
  5. Review the suspect’s personnel files for ethics or fraud policies that they may have signed. This won’t undo the damage, but it could offer you additional legal protection against their actions.
  6. Call your accountant. Depending on what time of year fraud is discovered, your tax filing or reporting for that year may be delayed until the issue is rectified. Your accountant can provide valuable advice on how to handle the situation.
  7. Determine whether you want to press charges against the fraudster. This is something your attorney and accountant can provide guidance on. Setting the tone is important here. Make sure you set a precedent when it comes to fraudulent behavior. Don’t sweep the situation under the rug.
  8. Consider bringing in a certified fraud examiner (CFE). This professional can help determine the loss associated with any fraud and can serve as an expert and work closely with any attorneys involved in your fraud investigation. Your accountant should be able to recommend a CFE.
  9. Share this information on a need-to-know basis. If you share too much information with your employees too soon, it could create discord within the company. However, once the investigation is complete and the timing is appropriate, it’s important to share a consistent message with your team. Communicate the lessons learned and the consequences for such actions and update policies as needed.