Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
We also often hear of the costs associated with fraud and how the financial loss may affect the company’s ability to operate.
However, we typically do not have the opportunity to learn how the defrauded company investigated the matter, nor do we hear how the organization financially recovered from the fraud. This article will share insight on how your business should manage incidents of fraud and how you may be able to recover money lost due to the occurrence of fraud.
Ideally, your organization should already have clear, documented, uniform fraud policies. These policies are contained in what is commonly referred to as a fraud management program.
Unfortunately, due to other priorities (such as growing the business), most growing companies have either not designed such a program or designed one that is not clearly defined. Such lack of definition may exacerbate internal fraud and cloud future investigations.
Fraud prevention, detection and investigation phases are the pillars of a fraud management program. It is important to include each phase, as each is critical in assisting with deterrence and recovery from fraudulent acts. A successful fraud management program includes all three phases.
The fraud prevention phase should discuss in detail how the organization is trying to prevent fraudulent acts from occurring and who will be involved with the prevention measures. Because prevention is easier and more cost beneficial than detection or investigation, we recommend companies spend considerable time developing these measures.
Examples of fraud prevention measures include implementing an anonymous tip reporting system, conducting employment background checks and ensuring the physical security of assets.
The second phase of the fraud management program involves a detailed detection plan. The organization should designate and train employees responsible for performing or overseeing fraud detection methods.
Detection tests and examinations can be performed internally by company officials or by external sources, typically an investigative accountant, otherwise known as a forensic accountant.
If your company decides to perform fraud detection using internal personnel, these duties should be performed and reviewed by more than one person. There are numerous cases related to employees who were assigned to detect fraud and were later determined to have been involved in perpetrating the fraud, making detection all but impossible.
Sound unlikely in your organization? Don’t forget the cardinal rule of fraud: Expect the unexpected.
The investigation phase ties the prevention and detection phases together and provides evidence that either supports or refutes fraud allegations. Similar to the first two phases of a fraud management program, your organization should clearly outline how allegations will be investigated and by whom.
Fraud is most often uncovered through tips received from employees, vendors, customers and business associates. Once your business receives a tip regarding allegations of fraud, it is important to have a timely and confidential investigation into the matter.
A swift, confidential investigation may allow you to stop the fraud if it is ongoing and may not tip off the perpetrator, allowing for the opportunity to catch the individual in the act. A quick and discreet investigation will also provide less opportunity for important evidence to go missing or become altered.
Timely investigations will assist your organization with future actions against the perpetrator in civil and/or criminal proceedings. In certain circumstances, businesses are able to obtain immediate judgments against the perpetrators and their financial accounts and assets may be secured immediately, which provides businesses with the possibility of recovering their financial losses through the seized assets.
Insurance company policies vary on the time window for reporting dishonest employee activities. Businesses should check with their insurer. Businesses do not necessarily have to complete their investigation within this time period, but insurance company notification should occur during this time.
The ability to recover money from fraud can occur through various methods, depending upon the road in which a business attempts to travel:
File a criminal complaint with a law enforcement agency to seek restitution. In this scenario, the victimized company may incur minimal costs. However, many law enforcement agencies have limited resources to investigate fraud cases and may not have the expertise needed to investigate the matter.
Submit an insurance claim. As mentioned above, this is a viable option if acts from dishonest employees are covered under your policy. Typically, your business will need to provide solid evidence of fraud before receiving insurance funds.
Therefore you may need to engage independent, outside experts such as forensic accountants to document and quantify the loss amount.
Retain legal counsel to pursue civil remedies. Money may be recovered through various processes such as settlements, favorable trial outcomes or judgments.
Depending upon the complexity of the fraud scheme, it may be necessary for your legal counsel to retain consultants or forensic accounting experts.
Fraud is a risk for all businesses, and your business needs to be prepared.
Remember, if you do have the unfortunate situation of dealing with a fraud incident, there are opportunities to recover your losses through insurance or by civil and criminal remedies. It is important to have a plan of attack to recoup your losses before an incident occurs.
