Critical Considerations of an Investigation


When an allegation of fraud is first made, it can feel daunting. Especially if it’s a serious one that would potentially warrant a large, unwieldy investigation. Your brain kicks into high gear. A series of panicked questions starts firing through your synapses.

Where do I start?

Where do I stop?

How much should I do to prove or disprove this allegation?

How will I get my hands on every piece of evidence and information and data that I need?

In her 2019 ACFE Fraud Conference Europe session titled “Dos and Don’ts in Investigations,” Cindy Hofmann provided attendees with practical explanations of how fraud examiners should prepare for an investigation. With a calm, measured approach, Hofmann methodically worked through each consideration a fraud examiner should make before, during and after an investigation.  

The very first thing to do is decide whether or not there even needs to be an investigation. Before delving into the thick of it, there are seven key questions you and your team should ask:

  1. What are the suspicions based on? If they’re based on hard evidence like accounts records, bank statements or financial reports, that would be a solid basis to open an investigation. However, if the suspicions are based on rumor or hearsay, it would be prudent to take a slower approach or speak to other people before jumping into an investigation.

  2. Can the suspicions be proven? Ask yourself what sort of crucial evidence you will need to gather in order to conduct the investigation. Then ask yourself if the evidence is traceable and reliable. Be realistic about your ability to get access to the evidence. Looking into these aspects will help you decide if there is enough meat to conduct an investigation.

  3. Who has expressed the allegation? This question is important because the source of an allegation could be a big part of how quickly you need to respond. For instance, if a journalist comes to you with an allegation, you may need to consider how they got the information and if it could be correct. That might influence how quickly—or how desperately, Hofmann jokingly pointed out—you investigate the allegation. 

Other important questions to ask yourself before beginning an investigation are:

4. Against whom are the allegations?
5. Where can evidence be found?
6. What is the potential damage to the company?
7. Do the allegations include an infringement on the law?

After you’ve decided that, yes, there’s basis for an investigation, you have to plot out a course of action. Hopefully, this is not the moment where you start figuring out who’s going to investigate it, who’s going to know about it, who’s going to help you and who’s going to be responsible for what, Hofmann advised. “It’s ideal to have a fraud response plan ready in your drawer,” she said. “That really helps in a crisis-type situation to keep the storm calm and to not forget about some very important steps.” In other words, it’s a useful tool to have before a fraud ever happens.

Hofmann walked attendees through these considerations for determining the scope and course of an investigation:

  • The immediate action you need to take

  • Any personnel measures that should be addressed

  • Data protection and data privacy laws that could affect your work

  • The technology and tools you’ll use

  • How you will secure the necessary evidence

  • Designing a proactive approach, especially in a raid-type situation where evidence will be seized

One of the most daunting aspects of an investigation can be the sheer amount of data that will need to be reviewed and assessed. Hofmann spoke about a few tools she uses in particular, even including some really cool screenshots of beautifully visualized data, but she ultimately advised that each organization has their own technological requirements. “You need to have a very defined scope of what you’re going to investigate,” she emphasized. The technology you use should augment the investigation and improve the efficiency of your work. It should help you determine which documents are the most relevant and which “evidence custodians” are the most important. Hofmann advised that this will help you cut through the noise and hone in on where to focus your attention and what specific actions to take.

Hofmann acknowledged that conducting a fraud investigation is never a nice thing to live through, and it’s never a nice situation to be in. You might have to hire new people or completely evolve your standard operating procedures. There could be strong emotions tied to a sense of betrayal and broken trust. While highlighting these difficulties, she also emphasized the importance of using the investigation as a learning tool. “It’s often after the fact that our clients realize they need to do more in the prevention or detection space, but I think it’s the best time to reflect and see what can be done.” This is the time to implement new controls, educate your employees and take prevention efforts to the next level, she shared.

Several times throughout her session and in responding to audience questions, Hofmann reiterated that each investigation will be different. There will be different levels of urgency and difference levels of scope. But if you know what to consider and how to consider it, you can greatly increase the efficiency and effectiveness of your investigations.