Internal Fraud Investigation: The First Five Days

This article describes how to initiate an investigation into fraud allegations in a way that maximizes the company’s chance of recovering losses. It outlines actions that should occur within the first few days in order to secure evidence, organize resources, and evaluate the substance of the charge.

The company should develop an incident response plan before any allegation is even made. This plan will function as a road map for how to respond.

Often fraud allegations involve crimes or policy violations. In either case, consult legal counsel at the outset of the internal investigation. In some cases, the organization may need to involve outside counsel.

Carefully consider the composition of the investigation team. It can be internal, external, or a combination. The team should consider what data could be relevant, and then secure it. Before the team jumps to any conclusions, it is advisable to “reset” and ensure there is a clear understanding of the allegation. The best source for this initial information is likely to be a whistleblower.

Once the investigation team has gathered enough evidence to conclude that the “predication” of fraud exists, it should develop an investigation plan. The plan will leverage the information garnered in the initial assessment.

Prepare a list of insurance policies that cover potential losses due to fraud. Keep in mind that the first step in recovering fraud loss is understanding the time frame for reporting the alleged fraud, and then properly notifying the carrier.