THE FRAUD INVESTIGATION PROCESS

I. The fraud investigation process involves systematically A. The engagement process B. The evidence process C. The reporting process D. The loss recovery process
II. The engagement process A. Analyze data B. Create Hypotheses regarding a possible fraud C. Test hypotheses D. Refine and amend hypotheses E. Fraud theory is supported by the evidence
III. The evidence collection process A. Physical evidence, Collect physical and documentary evidence B. Collect documentary evidence C. Collect observational evidence D. Collect interview evidence 1. The initial interviews are conducted with the most remote suspects 2. The investigator then conducts additional interviews that are successively closer to the suspects 3. With the prime suspect being the last person interviewed
IV. The fraud investigation engagement process A. Initial report 1. Includes the initial information used to justify the investigation 2. The initial information should be included in a unified case file 3. The incident report can serve as probable cause for law enforcement 4. The incident report can provide proof the suspect is not being singled out because of illegal discrimination or in violation of collective bargaining rights B. Make notifications and evidence 1. Routine incident reports may be routed to a predetermined department 2. Non-routine reports may be routed to the legal department or outside council 3. It might be necessary to notify an insurance provider or regulatory body 4. The initial notification and incident evaluation must be kept as secret as possible, to avoid compromising a possible investigation 5. Temptation must be resisted to confront suspects at this point C. Consider legal issues 1. Consider rights of workers or other suspects 2. Consider the possibility of conducting the investigation under attorney-client privilege 3. Evaluate the evidence and consider whether there is sufficient legal justification to fire a worker or place a worker on administrative leave 4. Consider the rights of investigating employers 5. Consider the extent to which a government entity might be involved in the investigation 6. Consider reporting obligations

D. Consider loss and mitigation and recovery options 1. Immediately fire the employee 2. Change the employee’s job responsibilities 3. Place the employee on administrative leave (with or without pay) 4. Permit the employee to continue in her current position, possibly continuing the fraud, thus giving the investigator the possibility of catching her in the act 5. Insurance recovery 6. Recovery through litigation 7. The objectives, scope, and costs of the investigation E. Define scope, objectives, and cost of investigation F. Engagement letter or memorandum
V. Possible objectives for an investigation A. Stop the fraud from continuing B. Identify the loss for insurance purposes C. Identify the loss for tax purposes D. Make an example of a fraudster E. Minimize any embarrassing disclosures in the press. F. Discover weaknesses in the internal control system.
VI. Elements of an engagement letter A. Services to be provided B. Objectives and Scope of the Investigation C. Methods to be used D. Resources required E. Responsibilities of the respective parties F. The Basis and Methods Used for Charging Professional Fees G. The means for resolving disputes