Top Tips for the stages of a fraud investigation

Wed 25th Nov 2015

  1. Assemble your team – keep it small and on a “need to know” basis. Appoint people unconnected and independent of the suspected fraudster. Instruct lawyers early to benefit from legal privilege. Set your objectives. These should be to ascertain who is involved and where the monies have gone. This in turn will enable you to establish who you have a claim against as a result of their involvement in the operation of the fraud or their receipt of all or part of its proceeds. It will also enable you to identity any assets acquired with your misappropriated monies that you may be able to trace into and claim back as your own property.
  2. Check your insurance position – is the fraud and/or the costs of the investigation covered by employee fidelity or directors and officers policies? If so, notify your insurers without delay.
  3. Decide whether to notify the police – there is no obligation to do so unless either your insurance policy obliges you to do so or you suspect money laundering has taken place. If you are under no such obligation, it is generally preferable to conduct your own investigation and take steps to preserve assets before notifying the police.
  4. Preserve evidence, especially electronic data. Involve specialist IT contractors to take an image of the hard drive of the suspect’s computer and interrogate the copy rather than the original. Suspend document destruction policies. IT specialists may be able to retrieve deleted data.
  5. Don’t over look the HR angle. Involve employment law experts early on to advise on whether you can suspend or dismiss those involved or suspected of being involved in the fraud. Take advice on the extent to which you can search employees’ email accounts and personal property.
  6. Investigate – what can you find out from your own records such as your accounts? What information may be publically available from Companies House, Facebook and so on?
  7. What gaps do you have? The court can make orders requiring third parties such as banks who have inadvertently become involved in someone else’s wrong doing to provide documents and information. This is to enable the innocent party to discover who else is involved, where the monies have gone and what assets now represent those assets. These orders commonly contain a “gagging order” preventing the respondent bank from disclosing the existence of the order to its customer.
  8. Once you know who else is involved and/or where assets are that represent the misappropriated funds, take swift action to preserve those assets so that you have a source from which to recover once you obtain judgment. Apply to court for a freezing order to preserve assets of the proposed defendants up to the value of your claim. This will freeze their assets, howsoever acquired, up to the value of your claim. It is not limited to those assets that were removed from you.
  9. Freezing orders also routinely contain a provision which requires the respondent to provide you with an affidavit of their assets and liabilities. This can be an invaluable pressure point to bring the fraudster to the negotiating table. Many fraud cases settle shortly after a freezing order is served on the Defendants.
  10. Learn from what has happened – what can you change in your practices and procedures to prevent a fraud reoccurring? Know the warning signs and avoid giving employees unchecked authority/autonomy. Introduce appropriate checks and audits and take steps to verify new suppliers.