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Handling Initial Digital Allegations or Indicia of Fraud

Posted in Forensics and Investigations on April 29, 2024
Initial Digital Allegations

When faced with initial digital allegations or indicia of fraud, it’s important to approach the situation with caution and follow proper procedures. Companies and organizations give equal importance to internal and external sources, including information systems and electronic devices from which initial clues or evidence are obtained regarding electronic or digital financial crimes or frauds.

Digital fraud investigations are usually performed by the fraud investigation department, which is part of the company or organization. In most cases, digital frauds are initially discovered due to routine audits, changes in employees’ jobs, internal transfers, or employee resignations. Very few frauds are discovered as part of a deliberate attempt to uncover the fraud because, in most organizations, the implementation of a proactive fraud detection process is missing.

Initial Digital Allegations

Handling Initial Digital Allegations or Indicia of Fraud Actions

The following actions should be taken when a digital fraud suspicion or complaint is received, whether from inside or outside the company or organization:

  • Fraud incident manager should be alerted that an allegation or suspicion exists; and
  • Appropriate information to be obtained about the allegation to the maximum possible extent

The details about the initial digital financial crime or fraud information should include the name of the person providing initial information and full details concerning the alleged fraud, including suspects, timings, place, the amount involved, tools used, type of fraud, etc. A formal written statement from an informant should be taken, which should prove to be an important piece of evidence in case any legal action is to be processed later. Such information is obtained through an interview process or series of interviews by the appropriate fraud expert.

The following are some important considerations that must be ensured at the time of initial assessment of digital financial crime, such as fraud being reported by internal or external sources:

  • The suspect should not be alerted that an allegation has been made.
  • A list of all the circumstances surrounding the fraud suspicion should be developed.
  • A log of all actions taken to obtain initial information should be maintained.
  • Accurate file notes should be prepared for any conversations or correspondences which has occurred. These notes may be used for court proceedings later in the fraud investigation process.
  • Only such people should be involved who need to know.
Initial Digital Allegations

It should also be noted that if the suspect is an employee working in the company, then at the time of devising an investigation strategy, the full background searches and history of the employee should be checked even in the following circumstances:

  • The suspect is aware of the suspicion or allegation;
  • The suspect is an employee in the company or organization;
  • The suspect works in the premises or location where the fraud occurs;
  • Whether the reported fraud activity is ongoing or was a one-time fraud activity; or
  • The management is taking the allegation or suspicion as serious or not.

Such instances may enable the fraud investigator to get more useful insights about the case or may expose other related fraudsters. Because in many cases, at the level of initial investigations, it appears that only one employee is involved in the fraud. However, more interconnected persons may be discovered through appropriate background and employment history searches of the suspect.

Many companies get their legal advisors involved at this point to devise the investigation strategy. The purpose of the involvement of lawyers is to get information about possible and available legal options and other employment-related matters. Such legal advisers may be in-house or external lawyers. Legal advisors help organizations provide feedback on the relevant legal provisions applicable in particular circumstances. Initial opinion from legal advisors also mitigates the risk of potential legal risks and disputes which the suspect or related employees may file against the company.

After this initial stage of the investigation, the competent authority or fraud expert should decide whether the suspicion or allegations warrant further investigation. Suppose it is decided that an allegation or suspicion cannot be dismissed as false. In that case, further action should be taken to investigate the case to find the real culprit and recover the amount of fraud.

Initial Digital Allegations

Final Thoughts

Handling initial digital allegations or indicia of fraud involves a series of steps to investigate and respond to potential fraudulent activity. The process begins with identifying the allegation or indication of fraud, which can come from a variety of sources such as internal audit, whistleblowers, or data analytics. Once identified, the allegation should be evaluated to determine its credibility and the potential impact on the organization. This evaluation may involve reviewing relevant documentation, conducting interviews, and analyzing data.

If the allegation is found to be credible, a response plan should be developed that outlines the steps to be taken to investigate and mitigate the fraud. This plan may include securing evidence, notifying appropriate parties such as law enforcement or regulatory agencies, and implementing controls to prevent future occurrences. Throughout the investigation process, it is important to maintain a chain of custody for all evidence and to ensure that all actions are properly documented. Additionally, all communication and actions should be conducted with sensitivity and confidentiality to protect the rights of all involved parties.

Ultimately, the goal of handling initial digital allegations or indicia of fraud is to identify and address fraudulent activity as quickly and effectively as possible to minimize its impact on the organization.