Got Fraud? Don't Try a Do-It-Yourself Investigation

When a business owner or executive encounters proof of a fraud-in-progress, a natural reaction is often to immediately begin investigating. After all, someone has to get to the bottom of the situation. Yet that’s not usually the best way to go.

Just like on television, we need to give owners and executives a warning that they should not try this at home. It’s tempting to dig right into a potential fraud and start to unravel what’s happened. While the immediate gathering of information is helpful to a fraud investigator, when an inexperienced person tries to go further and actually investigate, bad things can happen.

The biggest reason why company personnel should not try to investigate a fraud on their own is that a good investigation takes an experienced investigator. There are special skills that fraud investigators have, and it’s almost always best to bring in the real experts. Company personnel sometimes inadvertently destroy or damage evidence during their investigation, so that’s another reason to stop amateurs from investigating.

Owners and executives who try to investigate fraud on their own often do so at the expense of their regular job duties. If a company’s president of operations spends a week trying to get to the bottom of a suspected fraud, who is running the company?

Company personnel also sometimes try to interview the fraud suspect, and without proper training in interviewing skills, it can often go poorly. There is often only one chance to interview the suspect, so it’s important to gather as much information as possible during that interview. When an inexperienced and untrained person conducts such an interview, that opportunity is squandered.

Gathering data and documentation is helpful to the fraud investigator. Trying to sort through it and find clues to the fraud often does more harm than good. Employees start tearing through the books, mixing up documents, and making the investigation harder in the long run.

Inexperience with fraud investigation means that the owner or executive doesn’t know how to plan the work, organize the evidence, or create a strategy for uncovering evidence. They’re often not objective in their analysis of the evidence, and are often too emotional to do a fair examination of the documents.

While it may be expensive to bring in a fraud investigation expert, that’s usually the best course of action when a company has evidence of fraud. Find a highly-experienced and qualified fraud investigator to handle the situation, and let owners and management get back to the business of doing business.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.