Fraud Author Tracy Coenen

Attorneys who ignore fraud can take heart in the fact that they’re not alone, because many of their colleagues ignore fraud too. As there are many important regulatory, operational, and legal matters to attend to daily, the issue of undetected fraud can easily fall by the wayside.

Company executives can and should be focusing on preventing and detecting fraud, but many of them aren’t doing enough either. It’s a common problem in companies, and I think it’s not because the executives don’t care or are too busy. Rather, I think management often believes the company’s controls over fraud are better than they really are. Until an actual problem surfaces, the urgency to examine policies, procedures and controls may not be there.

Yet everyday, companies around the world find that their fraud prevention controls are insufficient, ineffective, or non-existent. Wouldn’t you hate to discover this fact about your company because a key employee stole millions of dollars? Do you really want to consider fraud prevention controls after someone has put the future of the company in jeopardy?

As the topic of fraud continues to receive more publicity, executives and counsel are realizing that this issue is not going away. The key is enlisting the help of a qualified professional to shore up fraud prevention controls and raise awareness about the issue of fraud. Proactive anti-fraud measures are the right answer for executives and attorneys who want to protect the future of companies.

The best investigation of a fraud within a company often involves an experienced fraud examiner. It is important to gather and preserve the right information as soon as a fraud is discovered. It is foolish to risk the integrity of the evidence by not gathering the right information in the right manner.

In addition to identifying the best evidence to be gathered, an experienced fraud examiner can often begin analyzing the information quickly, and identify additional data that may be necessary to the investigation.

It’s best to have someone with a strong investigation background assist in gathering evidence and beginning the investigation.

While a company’s internal audit staff or accounting staff might seem the logical choice for investigating a financial fraud, it’s not usually recommended. There are independence issues to consider. What if a member of the accounting department was involved in the fraud or had knowledge of parts of it? There are experience issues as well. Has the internal auditor ever investigated a fraud or testified in court?

An external fraud examiner can be completely objective in looking at the evidence surrounding a fraud, in addition to bringing the best experience to the table. An independent investigator can ask hard questions and explore uncomfortable issues without fear of suspicion or reprisal.

Taking swift action when a fraud is discovered sends an important message to employees. It lets them know that management takes fraud seriously. It warns them that action will be taken to investigate frauds, and that thieves will be punished. Swift action further indicates to employees that management is interested in fostering an honest and ethical corporate culture.

A single fraud incident within a company is almost never completely isolated. It doesn’t just happen with the involvement of a couple of people and then go away once it is discovered. It’s not just a solitary incident that occurs alone.

When a fraud is discovered, it will surely have wider-reaching effects than anyone may have anticipated. It can affect the morale of the employees around the perpetrator, especially if the thief was a highly respected colleague or superior. It may also cause changes in the way business is done, which affects how people will carry out their job duties in the future.

An internal fraud committed by upper management can be the most devastating to a company. Not only is this fraud the most costly, it sends such a horrible message to employees. If there is not integrity in the highest levels of a company, why should employees be concerned about honesty in the lower ranks? Fraud by an executive sets the worst kinds of precedent.

A fraud within a company may also cast suspicion on more than just the immediate perpetrator or perpetrators. Others may have had information about the scheme or may have suspected something was going on, which immediately links them to the fraud. Feelings of guilt and suspicion may run rampant in the company as employees try to come to terms with the betrayal.

One fraud within a company is never necessarily just one fraud. It is likely that other frauds are occurring in other areas of a company, so for management and legal counsel to focus solely on the one fraud that was discovered is ill-advised. A small fraud is often symptomatic of bigger frauds, so it is wise to do a thorough examination of the company.

Most attorneys don’t think about the issue of fraud in companies until a client (or their law firm) is hit by employee theft. It’s simply not one of those issues that is taken too seriously unless huge risks are identified or a crime has already been committed. Until then, fraud is just another “issue” that probably isn’t as pressing as other legal and operation matters.

Once a sizable fraud is committed and detected, everyone is in fire drill mode to get to the bottom of the issue. Everyone wants to find out who stole the money, how it was done, and how in the world someone could get away with this at “our” company! While this reactive attitude is very common, it’s not the best for the long-term health of a company.

Maybe the issue of fraud in companies is ignored because it’s not something that attorneys see everyday. Maybe it’s because issues like profitability and closing new deals are so much more important to the viability of a business. Yet fraud cannot be overlooked, as companies put their livelihood at risk when they do not take steps to deter and detect fraud.

Never assume that the expert witness you engage will know exactly what to do with your case. Make sure that she or he is very clear on what needs to be accomplished, and monitor the progress toward the end goal. Never assume that things are going along just fine, because you don’t want to find out that your expert went down the wrong path on the day the final report is due.

Make sure that your expert is being paid for her or his services promptly. It is only fair that the expert be paid promptly for the services performed. Payment of invoices can often be an issue, and doing so on a timely basis will help ensure that your expert continues to work toward a final report.

Don’t be afraid of fees required in advance, especially if you are retaining a top-quality expert. You should expect that she or he is in demand, and advance fees are a small price to pay in return for guaranteed services.

Act early and decisively in your search for an expert to assist with your litigation matter. This gives you the best chance of finding the most qualified, most appropriate expert witness. Communicate well and often with your expert to make sure that you’re on the same page with the work and results. Don’t take chances by delaying your search or failing to work closely with your expert.

Lawyers must work closely with their experts on the work plan, progress, and deadlines. By monitoring the progress of the expert witness, you can avoid surprises in billings and disappointments in the work product. A close working relationship also ensures that you are heading down the right road in terms of preparing for deposition and court testimony.

An attorney always hopes for a strong and accurate report. Keeping tabs on the work of the expert can help with this. Some attorneys like the idea of the creation of a “draft” report. This allows the attorney time to sit down with the expert witness and review the preliminary opinions. Together, they can identify weaknesses in the report, as well as opportunities. Other attorneys do not like drafts, but prefer informal conferences with the expert to discuss potential opinions. Proper time management will allow these discussions to take place.

Sometimes work is impeded by a delay in document productions pursuant to discovery. Hopefully your careful selection of an expert has netted a witness who is familiar with such delays and prepares accordingly.

Once you’ve worked with a particular expert once or twice, you will have developed confidence in her or his abilities. This may allow the attorney to monitor the progress on a case less closely, and instead rely upon the expert’s experience and track record. A good expert will come through for you, even in the face of tight deadlines and less-than-optimal evidence with which to work.

One of the most challenging parts of working with an attorney is meeting deadlines. It seems that most often this is challenging because attorneys and their clients delay in seeking expert help. I work on many cases in which deadlines are tight due to the procrastination of counsel, the client, or both. With delays, you run the risk of having incomplete work performed. You may be missing out on the best analysis and results.

It is never a good idea for a litigator to wait too long to locate an expert. The best, most qualified experts are usually quite busy and often not able to accept cases with tight deadlines. Waiting too long to look for an expert means that the attorney may have to settle for someone with a weak background or qualifications.

Wouldn’t it be better to have more time to speak to a few experts and determine who might be best qualified for your case? Wouldn’t you prefer the time to ask colleagues for referrals and wait for their recommendations?

Another excellent reason to look for an expert early is the avoidance of conflicts. What if the expert you prefer has already been retained by opposing counsel? It’s better to lock in an expert with a retainer and be assured that you’ll have your first choice assisting on the case.

Ample preparation time also provides the attorney with the opportunity to quiz the potential expert on her or his knowledge of the legal system and the type of case being presented. A discussion of the parties involved, the scope of the case and the expert work, and experience in that particular industry or type of claim can help narrow down the expert’s true qualifications.

Extra time also gives the attorney ample opportunity to find the right type of expert for the case. Sometimes attorneys think they know what kind of expert is qualified to assist in a case, when in fact someone else may be more appropriate. In my case, attorneys regularly call me seeking business valuation services. While some forensic accountants do provide those services, I’ve found that better results are often achieved by a professional who specializes in business valuations. An attorney with ample time to search for the right expert will appreciate being pointed in the right direction.

Once on board and working, the expert still runs the risk of not meeting deadlines. An expert witness may miscalculate the time and effort required to complete the necessary work, and may therefore put your deadline in jeopardy. That’s why it’s so important to do a thorough search for a good expert. Don’t underestimate the power of referrals and references, as these often speak to the reliability of the expert.

There is little doubt that litigation can be stressful for clients and attorneys alike. With filings, briefs, and deadlines, the litigator has little time to worry about whether her or his expert witness is getting the job done. The attorney usually has one shot for the expert to get the case right. If the expert witness fails, it can have wide-reaching implications for the entire case.

Experts aren’t perfect. Mistakes can be made and deadlines can be missed. Pertinent documentation can be overlooked, and erroneous conclusions can be drawn. These can be fatal errors for the litigator.

Managing the expert witness is a critical part of litigation. It becomes even more important when the attorney is working with a less experienced expert or one with which she or he hasn’t worked previously.

Proper management of the expert witness process will help ensure that the attorney receives relevant, accurate, and reliable results from the expert.

Taking chances with your client’s case isn’t smart. Learning how to best utilize an expert to prevent problems down the road is. Proper preparation and guidance is the key.

As you can see, the issues surrounding a tax audit can become complex. Additionally, there are the tax rules as they are written, and there is the practical application of them. Auditors do have discretion when examining your documentation and discussing items with you.

It is advisable to develop a good working relationship with the auditor. I’ve found that utilizing a “problem-solving” approach to an audit works well. The auditor has a job to do on behalf of the government, and I have a job to do on behalf of the taxpayer. Let’s decide together what information and documentation will satisfy the auditor.

The process of an audit can seem very slow and very painful. There may be few good parts of audit, other than the end of it. Keep in mind the auditor is required to make any adjustments found to be in the taxpayer’s favor. The taxpayer may also bring up deductions that were not previously claimed on the tax return.

Stand up for your rights, but maintain a good attitude and show cooperation throughout the audit. When in doubt about your duties, rights, and documentation, consult a professional who is an expert in the audit process.

It is always up to the taxpayer to prove where a number on a tax return came from and supply supporting documentation. In the event that documentation is incomplete or missing, it is the auditor’s prerogative to disallow part or all of the deduction.

You are entitled to ask the auditor why she or he wants to see a particular document. You may also ask them to specify which items they would like to see. Make them narrow down the documentation, so that you’re not left with providing everything under the sun.

But by all means, do not refuse to provide the documentation for items under audit. If you don’t have any documentation and can’t get any, that is something that should be discussed with the auditor. There might be a compromise or alternative documentation that can satisfy the auditor’s questions.

Do not bring to the audit anything that is not directly related to the year being audited. While an auditor is typically limited to examining items for only the year under audit, if you present materials for other years, she or he is allowed to look at them.