Article:

Are you prepared for investigation of internal fraud and misconduct?

13 November 2020

Michael Cassidy , National Leader, Forensic Services |

Organisations invest a considerable amount of time, money and resources into recruiting the best employee to help achieve business success. Despite all of the above investment and due diligence, fraud and misconduct incidents within the workplace can still occur, some of which can be serious and require the need for further investigation.

Matters of suspected employee fraud or misconduct are areas that businesses need to consider as part of their risk management strategies, including being able to respond and investigate appropriately should an incident occur.

Unfortunately, some businesses do not consider the potential need for an internal investigation or its subsequent management until after an incident has occurred. This can result in an organisation creating the perception of ‘policy on the run’ and potentially expose the business to further costs to satisfactorily address the matter.

Failing to be adequately prepared for an investigation can have other negative impacts on businesses including the risk of brand/reputation damage through adverse media reporting and the lowering of employee morale and productivity as examples.

BDO’s Forensic team has identified several key themes that impact the organisations’ ability to effectively investigate the issue and appropriately manage the incident afterwards.

Key themes:

  • Immediate termination of the employee upon receipt of an allegation;
  • Not giving adequate consideration before commencing an investigation as to the potential outcome, for example, civil or criminal proceedings, employee discipline;
  • Failing to obtain legal advice, before commencing or during the investigation;
  • Lack of appropriate internal investigation policies or procedures, which increases the risk that due process isn’t followed, and adequate records of the investigation are not being kept;
  • Appointing unqualified or inexperienced people from within the organisation to undertake the investigation; and
  • Not having insurance coverage for employee dishonesty/theft.

A lack of adequate investigation guidelines can also lead to accusations that the investigation was a ‘witch hunt’ or that the matter was ‘swept under the carpet’ in the event that the allegation isn't substantiated. Adequate investigation policies and procedures enable an organisation to demonstrate that the investigation was conducted and managed impartially as well as ensuring procedural fairness.

For example, effective investigation management policies and procedures should look to address the following key areas:

  • Define the types of incidents that will be investigated, as well as those that are to be reported to law enforcement or other regulatory bodies;
  • Designate who the authorised personnel to conduct investigations are, including the requirements for maintaining independence and impartiality, as well as being appropriately qualified and experienced;
  • Consider the legal implications of any investigation to be undertaken;
  • Outline the investigation methodologies to be utilised, including:
    • The process for the receipt and assessment of incident reports;
    • Confidential management of complainants and ‘whistle-blowers’;
    • Development of investigation plans (including scope, timeframes, staffing, costs etc.);
    • Formats and practices to be followed when interviewing witnesses and staff;
    • Collection and securing of evidence/exhibits or information; and
    • Reporting formats and requirements;
  • Detail other key business policies and legislated requirements that are to be followed;
  • Consider the necessity for employee dishonesty/theft insurance coverage under the business insurance policy; and
  • Identify personnel who are responsible for overseeing the implementation and ongoing review of the policy.

BDO’s Forensic team can review your existing fraud and misconduct procedures and help you put effective policies in place to mitigate risk. Contact your local BDO adviser for a confidential discussion.