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Dealing with Fraud Matters

By Ethelbert Nwanegbo, MBA, MACC, CFE.

There is no gain saying that good internal control is essential in deterring fraud but not bring an end to the intent to commit fraud. From a regulation standpoint, organizations are committed in operating a fraud free and highly ethical environment. Dealing with a fraud matter could drain an organization of its resources, gulp valuable management resources, and could demand high legal payout.

Dealing with fraudulent matters requires due diligence and care to ensure that what appears to be fraud in form also passes the smell test. Approach to fraud matter may end up favoring the fraudster, thus leaving the organization worse-off from a legal or liability standpoint.

What is a Fraud Matter?
Fraud matter is any action that appears fraudulent in form or actions that have been determined to be fraudulent based on the act in question. Fraud matter is deemed to be fraud after substantial evidence gathering has been concluded. Remember, it is not fraud until you can prove that the action is fraudulent or has a fraudulent intent.

Certain actions in an organization could be mistaken for fraud. Unintentional financial errors, unauthorized action for the benefit of the organization, unauthorized use of the company’s property for organizational gain, and other irregularities in an organization that are not for personal benefit.

Dealing with a Case of Fraud
Dealing with fraud matters demands a step by step approach which should be part of the standard business operation procedure. This approach will begin from gaining an understanding of the organization’s internal control, identifying the high risk areas, and assessing actions that would constitute fraud; if it could be gathered that fraudulent intent exist or existed.

Time
Time is the key. Dealing with fraud matters promptly is very essential. It could help unveil fraud in the making, undo the harm, recover the loss, or dismiss the notion of fraud. I can not emphasize enough how important it is to approach fraud matters tactically and with urgency. A lot could be lost or recovered on the alter of time when dealing with fraud.

Have a Standard Fraud Policy
Where the action has passed the fraud test and it could be determined with all certainty that the action is fraudulent, steps to uncovering the fraud and gathering of evidence should be standardized. There are certain rules of engagement in order to successfully deal with fraud matters.

Equity
Approach the investigation with a clean heart. This will help the organization pass the fairness and integrity test. Being biased in the conduct of an investigation obscures the true image of the fraud. It could also help the fraudster dismiss the case of fraud, or lead to begging of the question of fairness while sacrificing the main issue- fraud.

Policies and procedures should detail the approach to the investigation; communication should be based on the organizational strata where the fraudulent activity is identified. In an academic paper written by Peter John Lynch, “Strategic Control Plan in Dealing with Fraud and Corruption”; he opined the importance of reporting all fraudulent instances to senior management. He also went further to express the importance of having an alternative means of reporting fraud matter of concern involving fraud or unethical activities within the organization’s frame work.

Evidence Gathering and Securing of Evidence
Dealing with fraud matters: embezzlement, theft, fraud, breach of confidentiality, lapping, procurement lapses, deception, and asset misappropriation can be a nightmare if not properly approached. Hence, evidence gathering is very essential in substantiating the case of fraud. All evidence must be correctly and adequately gathered. Proper evidence gathering procedure should be followed to ensure that the evidence is admissible. If evidence is not properly handled, it could be dismissed. Recording the evidence and storing the evidence will also impact the admissibility or inadmissibility of the evidence gathered.

It is worthy of notation that evidence gathered must be sound, verifiable, and supported. The soundness of the evidence is in its relevance to the fraud. Can the evidence be attached and traceable to the fraud? Verifiability of the evidence is also very important. Can any reasonable person gather the same evidence if exposed to the same information gathering process? Can the evidence support the case that the fraud is committed; pass the beyond the reasonable doubt test?

Conclusively, securing the evidence could impede the admissibility of the evidence.  It is highly imperative that evidence is secured with at least three personnel awareness. Some people will ask the question: why three? With two witnesses, it could be proved that there is collusion. The case of collusion is usually hard to prove with three personnel awareness.