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Take action if wrongdoing is suspected within your business

Initiating a forensic accounting investigation is critical for entrepreneurs facing suspicious activity within their business, says forensic accountant and chartered business valuator Patricia Harris.

Harris, partner with Fuller Landau LLP, tells AdvocateDaily.com that indicators such as discrepancies in the books, an employee purchasing big-ticket items that seem beyond their pay grade, and unexplained transactions, could be red flags triggering a call to a forensic accountant.

If the situation arises, business owners should take three initial steps, says Harris, who has more than two decades of experience as a chartered professional accountant.

Stay calm

Fraud can be frustrating and often feels very personal, particularly when trusted employees are suspected. However, the most important step is to keep a level head, she says.

“Don’t publicly announce your suspicions, and maintain strict confidentiality,” Harris says. “Contacting a forensic accountant and your legal counsel are good first steps.”

Stop the bleeding

She says letting alleged fraudsters know that you suspect their actions will only provide a window for them to destroy evidence and make the investigation harder.

“However, you need to stop the bleeding,” says Harris, who specializes in forensic accounting, litigation support, business valuation, and damage quantification. “Freezing signing authority may be necessary if the allegation is a misappropriation of funds. Securing inventory in the warehouse, if applicable, is another example of a step you may need to take.”

Be careful who you trust

“A fraud conspiracy can span company departments and seniority levels. A forensic accountant will conduct interviews and assist you in developing a hypothesis as to what has happened,” she says. “It’s vital to maintain confidentiality to the highest degree.”

Harris says an experienced forensic accountant can work to determine if and how funds or other assets have been misappropriated from the business.

They can also assist in developing a plan to secure, extract, and test financial and other data from your systems, she says.

“In conjunction with your legal counsel, your forensic accountant will look at potential sources of recovery. Does the business have insurance coverage? Is freezing/securing the assets of the accused required? In addition, a forensic accountant may prepare a report that could support your insurance claim or civil action,” Harris says.

She says a forensic accountant can also help to develop a formal fraud response plan for companies without one.

“Such a plan will have detailed steps on how to address suspicious activity, who to assemble to ensure a comprehensive, unbiased investigation committee, and the steps to ensure that the collection, custody, and preservation of evidence is done properly,” Harris says.

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