the risk management blog

Examining the Bigger Picture in a Fraud Investigation

byJamey Waters, CFE | August 25, 2014

As an experienced corporate investigator, having investigated hundreds of various types of fraud cases, it’s really not hard to come to the conclusion that where there is smoke there is usually fire and often times in more than one place. When a client or an individual is alerted to suspicious behavior by an employee/contractor, the investigation generally must focus on the specific allegations. However, it is also important to use the initial investigation opportunity to open a broader review into the suspect for two main reasons:

  • To look for motivating factors (a motive); and
  • To determine, if he/she may be committing fraud or deviant behavior in other areas not specific to the case. After all, if the individual is involved in some form of fraud or deviant behavior that we are aware of, it is highly probable this extends to other areas as well.

According to the widely accepted Fraud Triangle model developed by Donald Cressey, “…individuals are motivated to commit fraud when three elements come together: 1) some kind of perceived pressure, 2) some perceived opportunity, and 3) some way to rationalize the fraud as not being inconsistent with one’s values.” One of the reasons for opening a broader investigation and not just focusing on the specific allegations is to look for motivating factors or pressure(s) the person may be under that might drive him/her to commit the fraud. People often say “I would never do that” but when faced with varying degrees of perceived pressure, it is difficult to determine the lengths people will actually go to in committing fraud.

Desperate people do desperate things at desperate times!

Another reason for broadening the investigative review into the suspect’s other areas of responsibilities is because if the person is able to internally rationalize the reason for committing the fraud in one area of responsibility, he/she is more likely to rationalize it in another area if the opportunity presents itself.

During these broader investigative reviews there may be “red flags” and/or fraudulent activity in multiple areas. For example, if there is an allegation that a suspect is abusing a company fuel card, the investigation should include potential fuel card abuse and then expand that to include potential expense report abuse, potential internet use abuse, potential theft, potential conflict of interest, and even potential corporate espionage, depending on the circumstances. During the investigation, if fraudulent activity is confirmed in one area, fraudulent activity or at least deviant behavior is often found in the broader investigation as well. Although fraudulent activity may not be present in every area of the investigation, it does often overlap.

A past case example involved the suspicion of an employee who was alleged to have stolen a variety of their employer’s property. During the broader investigation, it was discovered that this employee was running a lawn care business on the side and was performing lawn care services when his manager thought he was on the clock running service calls. This information was critical to the investigation and helped paint a broader picture of what was really going on with the employee. Although owning another company outside of his current employ was not technically fraudulent, it was considered deviant behavior since it was against company policy, which he later confessed to knowing. Of course, falsifying his work hours was considered fraudulent activity.

During the interview, it was disclosed that the employee’s brother had recently died and he had promised his brother to help raise his nephew. The employee soon learned that after paying his brother’s funeral costs, and starting to financially support his nephew, he was not making enough money to cover his expenses. Not coincidentally, the start of his lawn care company and the beginning of the theft patterns all started the same month his brother died. Even though all indicators pointed to this employee being the culprit of the thefts, the actual evidence was really questionable on the surface. However, it was easy to provide evidence of his side business and the fact he was not at work at his primary position when he claimed that he was. Armed with this knowledge during the broader investigation, it made for a great segue during the suspect interview from talking about his own company and his time card abuse to stealing his employer’s property, which he openly admitted.

In conclusion, it’s best to consider all potential opportunities for fraud to occur. Don’t just focus an investigation on the initial allegations, but expand the investigative review in order to take a look at the bigger picture. Fraud, embezzlement, and other crimes cost businesses billions of dollars each year. Recent economic pressures on companies have forced a lot of “down-sizing”, limiting pay and benefits. This often times generates a sense of “self-justifications” for illegal behaviors by employees.  On average, internal fraud, theft, and crime account for 88.7% of corporate losses that total 7% of annual revenue annually in internal fraud, theft, and crime according to the Association of Certified Fraud Examiners.

Clients turn to Lowers & Associates’ fraud investigations to discreetly handle internal investigations for fraud, theft, and crime, particularly when involving potential insurance claims.  L&A’s experienced fraud investigators are prepared to interview employees, conduct covert operations and surveillance, and assist in insurance claim documentation and asset recovery.  We also work closely with management, legal counsel, and law enforcement to develop a strategy for recovery and prosecution if necessary.