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07
The Fraud Investigation and
Engagement Processes

McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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The Fraud Investigation Process


The

fraud investigation process involves systematically


gathering and reviewing evidence for the purpose of
documenting the presence or absence of fraud.

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The Fraud Investigation Process


The

engagement process: the series of steps that begins


with the investigators first contact with the case and
concludes with a complete agreement regarding the fraud
investigation
The evidence collection process: the various steps in which
evidence in support of the objectives and scope of the
investigation is collected

The Fraud Theory


Approach to
Evidence Collection

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Four Types of Evidence

Steps in the Evidence


Collection Process
1.
2.
3.

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Collect physical and documentary evidence


Collect observational evidence
Collect interview evidence
The interview process involves specific steps. The initial
interviews are conducted with the most remote suspects.
The investigator then conducts additional interviews that
are successively closer to the suspects, with the prime
suspect being the last person interviewed.

The Fraud Engagement


Process
The

fraud engagement process begins with the


investigators first contact with the case and ends with a
complete agreement regarding the services the fraud
investigator will provide.

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The Incident Report


Includes

the initial information used to justify the


investigation
The

initial information should be included in a unified case file


The incident report can serve as probable cause for law
enforcement
The incident report can provide proof the the suspect is not
being singled out because of illegal discrimination or in
violation of collective bargaining rights

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The Initial Notifications


Routine

incident reports may be routed to a predetermined


department
Non-routine reports may be routed to the legal department
or outside council
It might be necessary to notify an insurance provider or
regulatory body
The initial notification and incident evaluation must be kept
as secret as possible, to avoid compromising a possible
investigation
Temptation must be resisted to confront suspects at this
point

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Consider Legal Issues


Consider

rights of workers or other suspects


Consider the possibility of conducting the investigation
under attorney-client privilege
Evaluate the evidence and consider whether there is
sufficient legal justification to fire a worker or place a worker
on administrative leave
Consider the rights of investigating employers
Consider the extent to which a government entity might be
involved in the investigation
Consider reporting obligations

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Evaluate Loss Mitigation and


Recovery Considerations
Immediate

Loss mitigation options: (1) immediately fire the


employee, (2) change the employees job responsibilities,
(3) place the employee on administrative leave (with or
without pay), or (4) permit the employee to continue in her
current position, possibly continuing the fraud, thus giving
the investigator the possibility of catching her in the act.
Insurance recovery
Recovery through litigation
The objectives, scope, and costs of the investigation

Possible Objectives for an


Investigation
Stop

the fraud from continuing.


Identify the loss for insurance purposes.
Identify the loss for tax purposes.
Make an example of a fraudster.
Minimize any embarrassing disclosures in the press.
Discover weaknesses in the internal control system.

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Elements of an Engagement
Letter
Services

to be Provided
Objectives and Scope of the Investigation
Methods to be used
Resources required
Responsibilities of the respective parties
The Basis and Methods Used for Charging Professional
Fees
The means for resolving disputes