April 12, 2019
Why Fighting Your Own Fraud Battles Can Be a Bad Idea
Posted by Laine Sulik
A recent global study by the Association of Certified Fraud Examiners found that 22% of the occupational fraud (fraud committed by employees) cases reviewed resulted in losses of over $1 million. The same Report to the Nations Global Study on Occupational Fraud and Abuse also found that 53% of fraud victims recovered nothing.
As these grim statistics illustrate, successfully pursuing allegations of fraud is not so simple. If your business has been a victim, you shouldn’t go into battle to recover your money without an arsenal of the right forensic experts.
Don’t Throw Good Money After Bad Results
It seems counterintuitive for Armanino to advise clients to retreat from a forensic investigation. Unfortunately, as forensic accounting experts, we have become all too familiar with clients throwing good money after bad results. Often, we encounter clients who have become so personally affected by the fraud that they will continue to fund a losing battle, solely on principle.
We understand the difficulties of cutting one’s losses, but companies could prevent casualties to the tune of hundreds of thousands of dollars by acknowledging that the chances of recovery are slim or that potential fees could exceed recovered amounts. Hiring the right forensic expert will provide clarity regarding your options, as they will advise you on the best use of funds to reach your desired outcome.
Know the Rules of Engagement (aka Federal Rules of Evidence)
It’s also important to let experts handle any documents, depositions and trial preparations. Erring on the side of caution, we recommend our clients address every investigation like it will end in litigation. Preparing for trial starts as soon as the first note is written or document is received. Why is it important to have litigation in mind from the start? Because every note, email discussion, analysis or comment can at some point come under scrutiny by the opposition and/or the public.
Federal Rule of Evidence 901 requires the identification of evidence as genuine; attorneys and experts must prove that evidence is authentic and unaltered. Maintaining a chain of custody with details regarding possession of and access to documents certifies that original evidence has remained unchanged. Courts require this to ensure the integrity of evidence remains intact.
Federal Rule of Evidence 703 allows expert witnesses to rely on certain evidence that may otherwise be inadmissible in court. Failure to use an expert in forensic accounting may lead to Daubert challenges, whereby opposing counsel challenges the validity of witness testimony [Daubert, 509 U.S. at 593-94 (1993)].
A successful Daubert challenge prevents witness testimony from entering evidence altogether. These challenges may be brought against the reliability of testimony or against the qualifications of the expert. Engaging a qualified expert in forensics mitigates the risk of disarmament of your witness as a result of a qualifications challenge.
Know the Opposition
Many times, fraud victims seek forensics experts after they’ve already conducted some level of reconnaissance. But victims of fraud often struggle to remain objective during the investigative process. Experts don’t take it personally; they are obligated to remain objective. Internal investigations are crucial in that they lay the foundation and provide a roadmap for a forensics team to reference during an investigation. However, companies affected by allegations of fraud often have difficulty seeing both sides of the coin.
Part of an expert’s job is to envision a variety of scenarios that test the strength of the expert’s opinion. An experienced fraud and forensics team will help companies and attorneys prepare a case that has acknowledged and addressed any questions or objections that the opposition might present.
Don’t Go It Alone
Veteran forensics experts spend years honing their craft and developing a unique set of battle strategies that make for an effective investigation. They have specialized knowledge of document management, data conversion and analysis, investigative interviews and report writing. They know which questions to ask of whom, and which ammunition is best to fortify a case. They also invest in tools that streamline processes and can save you time you didn’t realize you needed.
In the event you find yourself facing a challenge that requires forensic accounting, don’t try to go it alone. Bring in the special forces and deploy the right team of forensic experts, who have the experience and objectivity to ensure optimal results.
If you’d like more information about forensic accounting or occupational fraud issues, reach out to our Forensic Accounting Team.
Laine is a Certified Fraud Examiner and analyst who has worked on forensics and due diligence projects for clients across many industries. She has extensive experience analyzing financial data, reconstructing missing records, locating hidden assets, calculating economic damages, and preparing expert witnesses for trial. She works closely with legal teams during discovery and throughout litigation, serving as liaison between clients and agencies such as the FBI, IRS and district attorney’s office. She also has experience assisting clients with financial due diligence analysis.
Laine earned both a Master of Science in accounting and a Master of Business Administration from the University of Dallas; she also holds a bachelor’s degree in psychology from Texas A&M University.