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Firm News
October 1, 2021

Client Advisor November 2021

Fraud Investigations: Key Steps and Mistakes to Avoid

by Ryan Nguyen, CPA, CFE and Austin Ray, CPA, CFE

We live in a world where fraud and embezzlement are rather common; in fact, the Association of Certified Fraud Examiners reports that private companies and small businesses experience fraud more frequently than large corporations, with a frequency rate of 28%!

Knowing what steps to take to address suspected fraud is critical, as these set the course for criminal or civil actions, form a basis for termination proceedings, and provide evidence for insurance claims.

Hire a Team of Fraud Experts

Before launching an internal investigation, hire outside professionals to help guide your efforts. An attorney will help ensure that the proper legal steps are taken to protect your company and establish a case for potential prosecution against the perpetrator. A forensic CPA who is trained as a fraud examination specialist can investigate the fraud scheme, calculate damages, then act as an expert in legal proceedings.

Investigate and Preserve Evidence

At the outset, it is critical to obtain and preserve evidence. Avoid removal of key records by suspects through creating backups of all financial data and correspondence, ensuring that this information remains unaltered. As evidence is collected, always be sure to document the origins of the information and maintain the chain of custody. Again, work carefully with your fraud experts to guide this process.

Identify Suspects and Determine Course of Action

Remember, no one should be above suspicion. Consider collusion between multiple parties and minimize any disclosure of suspicions of fraud. Finally, create a hypothesis of what occurred based on the known facts. Your fraud experts will help you test this hypothesis by thoroughly analyzing all records, conducting interviews, and evaluating the next steps.

{Editor's note: Ryan Nguyen, CPA, CFE, Partner -- Forensics and Audit , and Austin Ray, CPA, CFE, Supervisor -- Forensics and Audit, recently published this article in the Orange County Business Journal. }

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