No matter what type of fraud you’re dealing with, starting your investigation with a solid foundation will help you assess the situation, remediate the issue, and document evidence to report your findings. Conducting thorough investigations allows businesses to reduce damage quickly and potentially avoid fines, financial loss, and reputational damage. Failing to discover the early signs of fraud can have a devastating impact over time.
Activity that triggers a fraud investigation will vary depending on the type of fraud. For example, expense claim scams are discovered through receipt discrepancies, while investigators can uncover identity theft through address verification and charge disputes. A fraud investigation is a process to determine whether fraudulent activity has occurred. Fraud investigation aims to understand what behavior occurred, who was responsible, and how it was done.
Types of Fraud
There are many types of frauds in business and the government, and even types of financial frauds that affect everyday citizens. Courts classify these acts under two major categories of frauds:
Civil fraud
Criminal fraud
Civil fraud occurs when there is an intentional or negligent misrepresentation of facts. A statement is intentionally fraudulent when the perpetrator is aware of its falsehood, while a statement is negligent if the perpetrator believed it to be actually true but lacked reasonable justification for the belief. For example, if an individual lies on their income tax form and states that they owe a lesser amount than is due to the government, whether knowingly or under false belief, they have committed civil fraud. Most forms of civil fraud are punishable by a fine and/or by paying the amount owed to the victim (restitution).
Criminal fraud takes place when deception and theft are committed. Identity theft, credit card fraud, and healthcare fraud are just a few types of frauds that are considered criminal. Criminal frauds are punishable as a felony crime, and they can include penalties such as serving jail time, serving probation, or paying fines. The degree of punishment varies based on the severity of the crime.
The most common types of fraud are civil frauds and financial frauds, or those which involve falsely representing or paying money due to another party. Some of the common (and less common) types of frauds that victims may be subject to, with examples of how each may be presented, include:
Identity theft: The act of stealing another person's identity, credit card, social security information, or driver's license to pose as the victim and take advantage of their financial or personal resources.
Mail fraud: Fraudulent activity involving the usage of the postal service. This could include creating fake invoices to mail, sending letters to scam money from another individual, or stealing and opening another person's mail.
Insurance/healthcare fraud: Action taken by or against an insurance company or healthcare provider for financial gain. These types of fraud include claiming more than what is really needed or the embezzlement of insurance premiums (premium diversion).
Tax fraud: Actions taken to deceive the government via tax forms in order to make financial gains. This includes falsely reporting information or failing to submit a tax form.
Check fraud: The act of writing or cashing a fake check which banks are lawfully obligated to pay. Check fraud is typically hard to detect because they are largely based in trust.
Internet/internet sales fraud: The act of using the internet to take advantage of someone else, typically through selling fake goods, phishing, or breaching data.
Website misdirection: The act of making a fake website to create the illusion that something is legitimate, often leading to identity theft or internet sales fraud.
Pyramid schemes: Actions taken to make money over a short amount of time through illegitimate means.
Work-from-home fraud: Actions that place an individual in a home setting at a disadvantage, such as work-from-home ads that require additional payment to view a piece of information.
Charity fraud: The act of posing as a charitable organization or an act taken by a charitable organization in which donations never reach their intended recipient. They are instead taken by the fake company.
Elder fraud: Acts of fraud target older individuals because they are more vulnerable. Elder fraud includes phone scams requesting the wiring of finances to unknown sources out of the kindness of the victim's heart.
A final type of fraud that is becoming more popular among perpetrators requires social manipulation and technological skill. Most often, it occurs over the phone through a series of questions. If the victim responds yes during the recorded call, the perpetrator can use that recording to authorize actions such as making purchases or making calls in the victim's name without the victim's knowledge. Inevitably, the victim pays for any authorizations that they supposedly made, even as a result of fraud.
What is the fraud investigation process?
The fraud investigation process begins with a mere suspicion that a fraud has occurred. Fraud investigation processes are not standard police-type processes. It is because there is little initial available evidence that fraud has occurred. In most cases, the frauds leave a trail or a series of indicators highlighting that fraud has occurred. Identifying fraud risk indicators is crucial in the fraud investigation process, and the investigators plan to identify the fraud indicators as early as possible.
During a fraud investigation, performing the research is an essential skill set required from the fraud investigation team. It requires the fraud experts to publicly source the required information concerning the individuals, employees, and entities suspected of involvement in the fraud incident or activities. Identification of the right suspects makes the fraud identification process easier and more structured.
Fraud investigative agents are required to quickly identify ownership structure, directors and management profiles, negative media searches, bankruptcy and disqualifications, previous court cases and judgments, asset profiles and locations, and internal controls and processes.
Response to fraud incidents
After initial assessment and interviews during fieldwork, the appropriate investigative plan is designed. It should be followed in the assessment of suspicion of fraud incidents.
Every reported fraud incident differs from the other, and the reactive feedback or responses vary depending on the initial information and facts gathered. Following is the plan, which may be a typical response used as the basis for further investigating and responding to a fraud incident.
When fraud is first suspected in a company, the incident could be more serious than was initially expected. It is because fraudsters do not restrict or limit their fraudulent activities to only one modus operandi. Therefore, the investigator needs the maximum possible information and evidence through interviews, observations, checking, inspection, and counting assets or cash.
In organizations with a close working environment where all employees support each other, the fraud investigation team may encounter issues such as getting the right answers through interviews, documentary evidence, and electronic records. Such types of organizations are exposed to a larger number of frauds by their employees. Simply asking questions from the employees is not enough in such cases.
Organizations establish a dedicated fraud investigations department. The department operates with fraud investigation specialists who not only possess fraud investigation experience. They are aware of the business processes and systems. These professionals understand the internal controls system of the organizations and regularly analyze the process and controls to identify the loopholes and apps that the fraudsters may exploit.
Legal action
If the responsible parties refuse to return the client’s funds, the fraud investigation findings can be shared with legal counsel, law enforcement, and regulatory agencies. The expert investigation report becomes a critical tool for civil litigation and criminal prosecution, providing an easy-to-follow roadmap of complex schemes backed up by the testimony of a licensed investigator.
What are the consequences of fraud?
The consequences of fraud for the perpetrator may vary based on the category of fraud which the act falls under and the severity of the act against the victim. Instances of civil fraud rarely receive a harsher penalty than paying hefty fines or repaying the victim what is rightfully owed. Criminal acts of fraud often result in a combination of jail time, probation, or heavy fines.
Do you need a fraud investigation?
Are you a victim of a scam, or are you in danger of losing a significant amount of money? Our team of investigators can help you gather the evidence you need for court. Our team is qualified, experienced, and highly dedicated to you and your company. We will help you receive the compensation you deserve. Call our Zurich Private Investigators today.
Swiss Detective Agency
Schaffhauserstrasse 550.
CH-8050 Zürich
Switzerland
T. +41 44 586 60 33
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