After a fraud investigator is done with her work and has issued the expert report, company management and retained attorneys must decide what to do with the information presented. If the case is already in litigation, the use of the report is obvious. If the company has not yet taken action, a few options should be considered.
Internal Discipline
It is natural to want to dismiss an employee as soon as it is apparent that the person has committed a fraud. It is often safer for the company to have the suspect off-site, so that no more fraud can occur, but it is important to realize that this may also hamper the gathering of information. For this reason, some companies decide not to immediately terminate the employee. If the employee is still actively employed by the company when the fraud investigator’s report is issued, a decision must be made about her or his future. The company could decide to do nothing if sufficient evidence is not available or if the evidence exonerates the employee.
The next possibility is discipline, while maintaining the person’s employment with the company. This might include a warning, suspension, demotion, change of duties, probationary period, or pay cut. Labor and employment attorneys must be involved in this process to ensure that no laws are broken in the process of punishing the employee.
Terminating the employee may be a viable option as well. In companies with strong zero-tolerance policies, this might be the standard reaction to most fraud cases. It is easy to see why management may not want the employee at the company, especially if the company is very small. Trust has been broken, and management may not believe that it can be mended, so the employee is better off terminated.
It is important for management to remember that swiftly disciplining an employee who has engaged in fraud or unethical behavior can have a deterrent effect. Employees may think twice in the future before committing fraud if they know that management takes swift actions in these cases.
Insurance Claims
It is always advisable for a company to check its business insurance policy for coverage related to employee theft. This should be done as soon as a potential fraud is identified. Insurance companies often have clauses that require a fraud to be reported soon after it is suspected, so it is best to contact them immediately. Unfortunately, many companies have no coverage or inadequate coverage for cases of employee dishonesty. An assessment of risk goes with the purchase of every insurance policy, and lower coverage (or no coverage) for internal fraud is a risk that management may be willing to take.
The fraud investigator’s report should be sufficient to substantiate an insurance claim by the company. The claims process can often be made easier if the company puts insurance company claims personnel directly into contact with the fraud investigator. In this way, any questions or concerns can be resolved quickly.
Civil Legal Action
Upon gathering evidence to support an opinion on allegations of fraud, a company may decide that pursuing a civil suit against the perpetrator is the best course of action. If this happens, a fraud investigator’s assistance may be needed to help gather the right documents. During the process of discovery, each side of a case is trying to find out as much as they can about the situation, requesting documents and demanding that certain questions are answered.
A fraud investigator can be a big help in putting together a request for production of documents. Because the investigator has familiarity with the case, she or he is in a good position to know what documents could bolster the case and fill in any holes discovered during the investigation.
It is important that document requests are specific enough that they clearly identify the information that is being asked for, yet not so specific that the company or person responding can avoid providing the documents. For example, certain ledgers or accounting records may have common names, yet be called by a company-specific identifier. It is important to identify those records by both the common name and the company-specific name (if known), so that the opposition cannot say they don’t know what is being requested.
Criminal Charges
A defrauded person or company can refer a case to law enforcement and can help increase the chances of the case being prosecuted but ultimately does not make the decision to prosecute. That decision lies solely in the hands of law enforcement. The larger the fraud or the more egregious the case, the more likely that law enforcement may seriously look at it. Local law enforcement is often reluctant to get involved with white collar crime cases because of lack of resources, lack of expertise, and a focus on violent crimes.
It is more common for the FBI or a state law enforcement agency to give serious consideration to a white collar case. However, they often do not have a lot of time or resources to devote to an investigation. If the company comes to them with a report from an independent fraud examiner, complete with supporting documentation, it is sometimes easier to get law enforcement to consider the case. Simply put, law enforcement resources are stretched thin at all levels, and the more work the company can do for law enforcement, the easier it might be to have them consider criminal charges.
