COMMON PITFALLS DURING A FRAUD INVESTIGATION BY ROBIN SiNGH

JUNE 2014
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Fraud Risk
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BY DR. STEVEN HALLIDAY
BY ROBIN SINGH
COMMON
PITFALLS
INVESTIGATION
Experience has demonstrated that
amongst the mistakes that can
befall an investigation four common
mistakes in handling fraud allegations
routinely occur. These pitfalls include: not
investigating at all, not conducting the
investigation under attorney-client privilege,
not using independent investigators
and not following a strict investigative due
process.
1. Failing to investigate
EDITED BY JAMES TEBBS
Investigative inaction is one of the most
serious errors management can make when
faced with fraud allegations. This inaction
can be the result of sheer negligence or due
to a more sardonic, deliberate judgment. In
many instances, organizations- particularly
charitable and public-service agencies-are
staffed by individuals who can’t fathom
that someone on staff might exploit their
shared cause for personal benefit. On other
occasions, personalities and corporate
internal rivalries stand in the way of initiating
proper investigations. No aspiring
executive wants to answer for fraud that
went on under their leadership.
2. Attorney-client privilege
The law does not readily protect investigative
findings from unnecessary disclosure,
particularly in the Middle East. An effective
way to protect findings from disclosure
to opportunistic plaintiffs and government
agencies is through the utilization of attorney-client
privilege. This is done by having
a lawyer co-lead the investigation with
an “experienced” investigator. Forensic
accountants and other crucial members of
the investigative effort should report to the
lawyer.
In a privileged environment, management
can be confident it will have proper time
to manage the disclosure of the sometimes
dramatic findings discovered by forensic
accountants. Similarly, forensic accountants
may identify issues beyond the scope of
the original investigation, and disclosure
of these issues may not be relevant to the
investigation at hand. By operating in a
privileged environment, firms can address
unexpected and unrelated findings without
unnecessary or premature disclosure.
Further, a privileged investigation can
best enable the release of findings at the
discretion of the party/company involved.
This is far more advantageous than large
scale disclosures of information which can
be misconstrued by the public, the media
or government agencies.
3. Engaging independent
investigators
Federal prosecutors routinely assign more
credibility to investigations that are led
by outside specialists rather than those
conducted by in-house counsel, unless
this function is independent of the line
management. Furthermore, Using external
specialists also allows for access to the latest
investigative techniques and technologies,
as well as deeper experience than may
be retained in-house.
4. Following investigative due
process
Conducting any investigation requires a
disciplined and well executed approach to
ensure evidence is gathered, securely maintained
and correctly interpreted.
For example, voice recording interviews
is not permissible under certain state laws
in the United States also in other countries
(including countries in the Middle
East unless it is done with the consent of
the interviewee in good faith). There are
several high level mistakes investigators
make while conducting interviews and
taking statements, including making sure
the correct procedures are adhered to, or
making sure statements are accurate and
reliable. Furthermore, investigators need to
ensure they conduct interviews in a logical
sequence – for instance interviewing a
suspect after finishing interviews with the
witness. Another example is working on
copies of evidence rather than on the original
evidence itself. This brings the issue
of tampering with evidence into question
in the fact that the investigator has altered
that evidence since it was collected and it
will not be in its original form if it were to
need to be looked at again or used in court.
Conclusion
Fraud is clearly undesirable, and having to
investigate them can be costly and a drain
on corporate resources. The findings can be
embarrassing and expensive to a company
in the short term. However, avoiding the
mistakes mentioned above will assist in
making sure that a company or client never
makes a far more costly and embarrassing
appearance in legal courts for failing to
conduct a proper investigation, and may
help to avoid negative public perception.
ROBIN SINGH, MBA, MIT, CFE, CFAP is Senior
Ethics / Fraud Control Officer at Abu Dhabi
Health Services Company (SEHA).
28 INTERNAL AUDITOR - MIDDLE EAST
JUNE 2014