Experience has demonstrated that amongst the mistakes that can befall an investigation four common mistakes in handling fraud allegations routinely occur. These pitfalls include: not investigating at all, not conducting the investigation under attorney-client privilege, not using independent investigators and not following a strict investigative due process.
1. Failing to investigate
Investigative inaction is one of the most serious errors management can make when faced with fraud allegations. This inaction can be the result of sheer negligence or due to a more sardonic, deliberate judgment. In many instances, organizations- particularly charitable and public-service agencies-are staffed by individuals who can’t fathom that someone on staff might exploit their shared cause for personal benefit. On other occasions, personalities and corporate internal rivalries stand in the way of initiating proper investigations. No aspiring executive wants to answer for fraud that went on under their leadership.
2. Attorney-client privilege
The law does not readily protect investigative findings from unnecessary disclosure, particularly in the Middle East. An effective way to protect findings from disclosure to opportunistic plaintiffs and government agencies is through the utilization of attorney- client privilege. This is done by having a lawyer co-lead the investigation with an “experienced” investigator. Forensic accountants and other crucial members of the investigative effort should report to the lawyer.
In a privileged environment, management can be confident it will have proper time to manage the disclosure of the sometimes dramatic findings discovered by forensic accountants. Similarly, forensic accountants may identify issues beyond the scope of the original investigation, and disclosure of these issues may not be relevant to the investigation at hand. By operating in a privileged environment, firms can address unexpected and unrelated findings without unnecessary or premature disclosure. Further, a privileged investigation can best enable the release of findings at the discretion of the party/company involved. This is far more advantageous than large scale disclosures of information which can be misconstrued by the public, the media or government agencies.
3. Engaging independent investigators
Federal prosecutors routinely assign more credibility to investigations that are led by outside specialists rather than those conducted by in-house counsel, unless this function is independent of the line management. Furthermore, using external specialists also allows for access to the latest investigative techniques and technologies, as well as deeper experience than may be retained in-house.
4. Following investigative due process
Conducting any investigation requires a disciplined and well executed approach to ensure evidence is gathered, securely maintained and correctly interpreted.
For example, voice recording interviews is not permissible under certain state laws in the United States also in other countries (including countries in the Middle East unless it is done with the consent of the interviewee in good faith). There are several high level mistakes investigators make while conducting interviews and taking statements, including making sure the correct procedures are adhered to, or making sure statements are accurate and reliable. Furthermore, investigators need to ensure they conduct interviews in a logical sequence – for instance interviewing a suspect after finishing interviews with the witness. Another example is working on copies of evidence rather than on the original evidence itself. This brings the issue of tampering with evidence into question in the fact that the investigator has altered that evidence since it was collected and it will not be in its original form if it were to need to be looked at again or used in court.
Fraud is clearly undesirable, and having to investigate them can be costly and a drain on corporate resources. The findings can be embarrassing and expensive to a company in the short term. However, avoiding the mistakes mentioned above will assist in making sure that a company or client never makes a far more costly and embarrassing appearance in legal courts for failing to conduct a proper investigation, and may help to avoid negative public perception.
ROBIN SINGH, MBA, MIT, CFE, CFAP is Senior Ethics / Fraud Control Officer at Abu Dhabi Health Services Company (SEHA).