Internal Investigations An Insider s View

Transcription

1 Internal Investigations An Insider s View Association of Certified Fraud Examiners Canadian Fraud Conference - October 30, 2012 Andrew H Kautz, National Claims Manager

2 NOTICE This presentation is intended to provide an overview of some of the issues that may arise during an internal investigation. It is not, and should not be considered to be, legal advice. You are encouraged to seek the appropriate legal advice when conducting internal investigations and in particular those involving allegations of employee misconduct.

3 THE HEADLINE WE SEE Employee fraud blamed for Nova Scotia town's financial meltdown.

4 THE HEADLINE WE DON T SEE shoddy and deceptive bookkeeping allowed an employee to divert $113, employee took advantage of existing loopholes The most unfortunate are the town residents that have had ongoing errors in their accounts.

5 INTRODUCTION Investigations Internal Issues External Issues Examples Solutions

6 GOOGLE SEARCH FRAUD POLICY City of Toronto Audit U of Alberta Audit Can West Global Audit U of Calgary - Audit Cdn Red Cross Audit (Bus. Integrity Office) U of Lethbridge Audit NAV Canada Fraud Comm. (HR-Legal-Finance) City of Hamilton Audit Isotechnika Inc Audit

7 GOOGLE SEARCH FRAUD POLICY WorkSafeBC Investigations Division NAV Canada Fraud Comm. (HR-Legal-Finance) City of Toronto Auditor General s Office U of Calgary Internal Audit City of Hamilton Internal Audit Royco Hotels Controller & Investigations Unit MTS Corporate Security City of Hamilton Audit U of Lethbridge Internal Audit

8 INTERNAL ISSUES - DENIAL See No Evil - Speak No Evil - Hear No Evil Lack of understanding: Why employees steal Who will steal Red Flags Political reasons Greater Good

9 INTERNAL ISSUES - DENIAL Examples Top salesperson expense claims Employee slow in making deposits Long-term employee suddenly error prone Solutions Education Education Education

10 INTERNAL ISSUES TOO MANY COOKS Everyone is in charge Embarrassment CYA Fraud is exciting interesting Undefined roles

11 INTERNAL ISSUES TOO MANY COOKS Examples Not confined to one type of investigation Organizations without an investigation or audit department The Retail Clerk case Solutions Board Policy -Sell yourself Outsource Legal advice

12 THE RETAIL CLERK CASE Cash and inventory shortages discovered Covert CCTV installed Management review of video Police notified 6 Employees charged 4 Guilty pleas 1 Dropped 1 Proceeded to trial

13 THE RETAIL CLERK CASE Video shown at trial US$140 removed from till $22 removed from till Merchandise sale of $24.99 reversed Convicted of theft Employment terminated Union grievance filed

14 THE RETAIL CLERK CASE Video not shown at trial US$140 removed from till Canadian equivalent of US$140 returned to till $22 placed into till $22 removed from till Merchandise sale of $24.99 reversed Related to attempt to correct size of item sold No inventory shortage identified

15 THE RETAIL CLERK CASE Civil action commenced Police did not view the entire video Company did not disclose exculpatory video Company had a summary of the video that indicated it knew of the exculpatory evidence prior to arrest Civil judgment against company

16 THE RETAIL CLERK CASE General Damages $100,000 Aggravated Damages $188,000 Punitive Damages $500,000 Loss Future Income $240,000 Loss Past Income & Legal $308,000 Family Law Act $50,000 Legal Costs & Interest Total $2,078,120.27

17 INTERNAL ISSUES TOO MANY COOKS Examples Not confined to one type of investigation. Organizations without an investigation or audit department. The Retail Clerk case. Solutions Board Policy -Sell yourself Outsource Legal advice

18 INTERNAL ISSUES TURF WARS Power Struggles Ladder climbing Undefined roles Personalities Lack of information sharing

19 INTERNAL ISSUES TURF WARS Examples Larger organizations, multi-office, governments Solutions Audit department first notified Legal department concerned about lawsuits HR concerned with privacy legislation Board Policy Proactive Team Building

20 INTERNAL ISSUES INVESTIGATIVE SKILLS I know how to investigate. Personalities Unrealistic view of abilities Reluctance to admit shortcomings Desire to gain experience Lack of training

21 INTERNAL ISSUES INVESTIGATIVE SKILLS Examples Not confined to one type of fraud/organization The Anonymous Letter case Solutions Hiring practices Management/Independent review Outsourcing

22 THE ANONYMOUS LETTER CASE Access to uncounted cash Lack of dual-custody of cash No restrictions on employee movement CCTV System Inadequate coverage Not monitored No long term archiving Not independently controlled

23 THE ANONYMOUS LETTER CASE Anonymous letter received Alleged theft by specific employee Provided specific information Workplace Magnitude Method Hinted at personal relationship

24 THE ANONYMOUS LETTER CASE Cursory review of workplace conducted Lack of controls not identified Inadequacy of CCTV system not identified Risk of loss not identified Inability to quantify loss not identified No further action taken Subsequent events identified theft Investigation conducted Employee terminated

25 INTERNAL ISSUES INVESTIGATIVE SKILLS Examples Not confined to one type of fraud/organization The Anonymous Letter case Solutions Hiring practices Management/Independent review Outsourcing

26 INTERNAL ISSUES INCOMPLETE Unanswered questions Intentional/Unintentional Under use of resources Lack of inter-departmental communication

27 INTERNAL ISSUES INCOMPLETE Examples The Helpful Teller case Solutions Independent review Outsourcing Legal advice

28 THE HELPFUL TELLER CASE 20-year employee in FI Joint account with parents Feared termination - had name removed from joint account with parents Signed parent s name on WD slips Employee suspended Investigator retained

29 THE HELPFUL TELLER CASE Investigator s Report Misappropriated funds Changed account names in computer system Forged parents signatures Parents were not contacted Employee terminated Wrongful dismissal action commenced Parents confirmed WD authorized Employee awarded damages

30 EXTERNAL ISSUES FORENSIC Lawyers Auditors - Investigators Report required for Police? Civil action for recovery? $$ Cost $$ Quality Hi-Jacked Investigation Liability for acts of agents

31 EXTERNAL ISSUES POLICE We Want Justice! Timeliness months or years Loss of control Focus criminal charges Results: conviction - jail - house arrest Restitution Order Not a collection agency

32 SOLUTIONS Education/Awareness Staff Audit/Security/Legal Action Plan Treat like any other disaster Policies Media release/contacts Internal investigations Searching desk/computers/smartphone

33 SOLUTIONS Be Proactive - Inventory of Assets Investigative Expertise Accounting Expertise Legal Counsel Be Realistic Why are you investigating? You may not get the complete answer

34 STATISTICS - FORGERY

35 QUESTIONS Andrew H Kautz, National Claims Manager (905) akautz@crims.coop