Suspicions of fraudulent activity are alarming for any business owner. Whether there’s an inkling because something doesn’t seem right with the business financials, or the puzzle pieces are coming together to form a full-fledged fraud allegation, it’s important to know what the next steps are when you suspect financial fraud, how a fraud examination identifies business fraud, and what the fraud examination process looks like. First, let’s start with a basic explanation of what a fraud examination is, and then we will dive deeper into the examination process.
This process is most relevant for business owners, executives, and boards facing unexplained financial irregularities, whistleblower allegations, or concerns about internal controls.
What is a Fraud Examination?
When a company suspects fraud, a forensic accountant is typically hired to perform a fraud investigation, typically referred to as a fraud examination. A fraud examination involves undertaking certain hands-on fraud detection procedures by obtaining evidence, conducting interviews, and potentially writing a report and testifying findings. Fraud examinations may be broad or narrowly focused on a single alleged issue.
Some forensic accountants also hold Certified Fraud Examiner (CFE) credentials through the ACFE (Association of Certified Fraud Examiners), reflecting advanced fraud detection training.
For companies to assess whether a fraud examination is the right next step for them, it helps to understand what the process entails, at least at a high level. Based on our experience in forensic accounting and fraud examinations, no two investigations are the same, but there are some commonalities that are helpful to understand when deciding to move forward with a fraud examination.
Fraud Examinations Are Emotional
The fraud examination process is an emotional one for business owners, employees, and even the alleged fraudster themselves. Feelings of anger, betrayal, grief, and regret are common during these investigations. For each new issue uncovered, the wounds are reopened and deepened. For this reason, we recommend engaging an attorney, internal auditor, and/or a forensic accountant to assist in the project, as charged emotions often lead to decisions that are not in the best interest of the company long term.
Fraud Investigations Take Time
The fraud examination process requires a fraud professional to form a theory of what happened and test that theory through the evidence collected. It often takes a significant amount of time to collect and assess evidence, probably longer than you hope or expect. It may also require a number of interviews, each taking time to prepare, schedule, execute, and complete follow-up work. While you might be ready to have all the answers, hastily preparing a report can be extremely costly to your company in the long run.
Business Owners Must Be Involved
What do trips to Las Vegas, expensive tickets to sporting events, and luxury vehicle purchases have in common? These are all real-world examples of purchases that were fraudulent in one case but perfectly acceptable business expenses in another. Context matters.
A forensic accountant is incredibly useful in applying their skills to detect potential fraudulent transactions, but there is no substitute for intimate knowledge of the business. Business owners and managers know more about their company than any forensic accountant ever will, and these key business representatives should expect to have significant input into the process.
Expect the Unexpected
Years ago, I performed an investigation into the underfunding of a health insurance fund that the company was certain was due to employee theft. After we began our investigation, we found that the shortfall was due to a simple mistake in an Excel spreadsheet which caused the employer to withhold too little from its employees’ paychecks.
There are often surprises you would never expect during an investigation. We have shown up to begin an investigation into one issue, and when word started circulating around the company that fraud investigators were present, confessions concerning completely unrelated issues started pouring in.
You may think you know exactly what happened going into a fraud investigation, only to find that the evidence does not support your original theory. A forensic accountant must keep an open mind and avoid “tunnel-vision” which biases their conclusion and skews the results of the forensic examination.
You Learn a Lot About Your Company
Even in cases that find no financial crimes, there is incredible value in the deep dive process of a fraud examination.
Business owners may learn about potential internal control weaknesses, discover potential process improvements, or uncover data insufficiencies. In almost every case, a business owner learns valuable lessons to help them run their business more effectively and efficiently going forward.
It Is Not All “Accounting”
While we call ourselves forensic accountants, the truth is financial accounting is just one aspect of a fraud examination. While there is a lot of useful information in financial statements and records, there is also a lot of evidence that is contained outside of the debits and credits of the general ledger.
As mentioned above, a fraud examination is an evidence collection and analysis exercise that includes evidence of all kinds that sometimes makes or breaks a case. Evidence may include financial records, communications, digital activity, system data, and interviews.
Business owners, with the assistance of their forensic accountant, should prepare to access all types of evidence during this process, accounting and non-accounting alike.
A Definitive Answer Is Not Always Possible
At the beginning of an investigation, assuming fraud occurred, one of the first questions that comes to mind is how much has been stolen. Unfortunately, it’s not always possible to arrive at a definitive answer for many reasons. Sometimes there is insufficient data or evidence, sometimes the fraud is so well concealed that it is practically impossible to discover all of it, and sometimes financial transactions fall into a grey area, where they are questionable, but not clearly fraudulent.
A company should prepare itself for the possibility that a fraud examination may not resolve every open question; for every answer found, there may be more that was not.
That said, a well-designed fraud examination conducted by a professional forensic accountant should uncover all the evidence and answers that are possible.
It Takes Time to Recover
The conclusion of a fraud examination is often the beginning of a longer recovery process. Once an examiner’s audit determines what type of fraud took place, whether that be financial statement fraud, asset misappropriation, money laundering, etc., the question then becomes: how does the company respond? This can involve termination of employment, contacting law enforcement, civil lawsuits, criminal prosecution, tax return implications, and the need for internal controls or process improvements. The company should consult their attorney before making any final decisions.
The legal process can be frustratingly slow. Both civil and criminal fraud cases frequently take months or even years to play out. Improving internal processes requires employee training and may take months to implement. At Anders, we always encourage our clients to consider the ultimate goal of the fraud examination at the onset and help prepare for the steps involved in achieving that goal. Ultimately, not only will you take steps to address fraudulent behavior but will help you put fraud prevention strategies in place to mitigate future risks and provide deterrence to future fraud schemes.
While the recovery process takes time, it is worthwhile and makes your company stronger and more resilient in the end.
We Are Here to Help
When you’re facing potential fraud, you deserve clarity, confidence, and a path forward. With the right guidance, you can navigate the process prepared and in control. Anders’ fraud and forensics team supports you every step of the way with an efficient, experience-led approach—helping you understand what to expect and make informed decisions. We even provide litigation support if the time comes. If you’re ready to take the next step, connect with an Anders advisor to learn more about the fraud examination process.