What to do when we find fraud

Accountants are trained to detect fraud. We are not taught what to do when we find it. Peer coaching can help.

Accountants are trained to be aware of the possibility of fraud even if we are not looking for it. Some, including CPAs and  forensic accountants, are trained in the skills required to detect it. But almost none of us are trained fully in what to do when we find fraud.

First: know that We will find fraud. Transactions based on some aspect of fraud makes up an estimated one dollar out of every seven flowing through our economy. If you are an accountant – any accountant in any field – who hasn’t come across fraud then I would say that you have just not learned to spot it. Others, like CPAs is public practice, are likely to find fraud more often. So the first thing is to not be surprised or second-guess yourself when you see possible signs of fraud. It happens and its not an extraordinary life event. Don’t take it as a personal thing. Be aware of how your natural emotions may affect your behavior as opposed to how an accountant would act if not influenced by emotion.

Second: Set boundaries. Our reaction will depend partly on our role. An auditor will have a specific formal chain of communications and actions. A volunteer board member may need to step down, at least temporarily. But in any case, define your role and set boundaries. Don’t think that you are going to be a superhero who jumps into the middle of the battle ring, solves all the problems, and emerges as the proven and vindicated leader in fraud reform. That’s a fantasy. It won’t happen that way.

Third, Set priorities. The reality of today’s world is that an accountant who discovers fraud may be at physical risk of harm. My own life story includes a violent action against me that cost many year’s of normal career and active living. Physical safety and security comes first. Local police and local prosecutors are almost always the first people to contact if you feel at risk. Protecting yourself legally including threats to your professional license and the possibility of counter-claims, comes in as the next priority. Protecting your business interests and power positions fall in lower on the priority last and should likely be dealt with later in the timeline.

This week an accountant asked for peer group support in dealing with a startling case of fraud. This was apparently the accountant’s first time dealing with a large fraud case and was understandably scared. I noticed that it becomes easy to lose focus, be drawn into the story, fixate on an outcome, and potentially make the problem worse. That caused me to reflect on these first three priorities as coaching points.