Navigating Stormy Seas: How Can You Anticipate the Unexpected in Investigations?

Investigations are pivotal to fraud examination. Though fraud examiners prepare as much as they can before launching an investigation, CFEs understand that things are unlikely to go exactly as planned — new evidence arises and interviews yield surprising discoveries. CFEs also often must navigate difficult personalities, change their expectations for the scope of work, deal with organization restructuring and more that they cannot readily anticipate.

“When you work on these types of investigations … the context always changes,” said Alexander Nasr, CFE, at the 2019 ACFE Fraud Conference Asia-Pacific. “This is normal. It’s unusual when it doesn’t … it’s unusual when the goal posts don’t change.” Nasr, the director of Blackpeak, told attendees that to be most effective, they need to assume that priority shifts and shifts in dynamics are likely to occur when undertaking a new investigation. Nasr approached the subject from the context of working with clients but stressed that these shifts can occur for fraud examiners who only engage in in-house investigations, as well.

He discussed three scenarios where priorities can shift during the course of an investigation: 1) dispute to settlement 2) dismissal to discipline and 3) senior management intervention.

The shift from dispute to settlement can change the focus of an investigation greatly. When a settlement is reached, the dynamic of the investigation will quickly shift towards a compliance-driven investigation, often with insurance coverage in mind. “A lot of the time you’ll be preparing for battle and helping lawyers … [and it’s a] huge change in context,” said Nasr.

Dismissal to discipline can occur when a senior-level employee breaks the code of conduct but didn’t do anything illegal. While HR or the legal department may be pushing an investigator to dig, other parties in the organization may opt to not dismiss the offender. Instead, they may change the rule the offender broke or punish them in a less serious way.

Senior management intervention occurs when they have a different attitude towards risk and compliance than that of the legal department. Senior management’s involvement can cause a significant shift in priorities and focus.

How can fraud examiners prepare for the unknown when these scenarios loom, potentially changing the course of an investigation? “The key thing is being technically capable,” said Nasr. “Having the capacity on your team, knowing what you’re doing, having the experience that’s necessary to get this all done. That’s number one.” Nasr recommended going through every step of the investigation ahead of time and laying out potential shifts at each step, especially in the following areas:

• Engagement: Who is engaging you and why? Do not make assumptions based on scope alone. Is the client, or in-house party who requested the investigation, process-driven? Or are they results-driven?

• Scope of work: Scopes of work for complex investigations need to be technical and specific. Avoid using one-size-fits-all templates. Do not assume you’ll be able to make small tweaks to a generic investigation outline as it progresses. Avoid vague, general, catch-all scopes as they are open to interpretation, which can cause issues when priorities or goals change.

• Fee structure: When working for a client, make sure you’re clear that complex investigations are dynamic and include a fee structure that accounts for the evolution within the investigation. Transparency and managing expectations ahead of time can prevent your clients from disputing costs later in the investigation.

• Reporting: Remember that your reporting has legal implications and that you may lack the context to know what may or may not be material. It’s up to the investigator to clarify and establish deadlines and expectations about the format and process of reporting ahead of time.

Whether you work for a client or as an in-house investigator, it is important for fraud examiners to take an in-depth look at all the potential areas for change in an investigation before starting one. Determine important areas where shifts can occur and you’re likely to be more successful in your investigation and end with satisfied parties.