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Bank Fraud Newsletter January, 1996

Investigator's Corner

by David E. Zulawski and Douglas E. Wicklander


Investigation-- a Team Approach

When management becomes aware of a possible impropriety within the organization, it must ascertain the truth and scope of the problem. This means mounting an investigation, a seemingly simple solution. However, consider the bank's image, political and personal relationships, the violation of trust, management confidence, and a myriad of other issues. The simple solution is not really simple!

Unfortunately, when indications of impropriety arise, managements often react emotionally because of the violation of trust. An emotional, knee-jerk reaction can compromise an inquiry before it begins.

The first danger faced is a rush to judgment about potential involvement and scope of the problem. Innocent behaviors become suspect, and the futures of innocent people are jeopardized. Suspicion and wild theories of conspiracy abound when a fraud is discovered. Senior executives must put aside the emotional baggage and approach the problem as a management issue. This is critical to the success of the inquiry. Careful planning is at the heart of every successful investigation.

Secrecy

Information about the suspected fraud should be limited to those with a need to know. Exactly who these people are depends on the suspected associate's position and type of fraud. As with any item of sensitive information, the more people who know the greater the likelihood of an inadvertent leak.

Secrecy in the early stages of the investigation increases the options available to investigators looking for evidence. A perpetrator who is unaware that his or her fraud has been exposed continues to offer opportunities to identify conspirators and the scope of the loss. Traditional investigative methods monitoring an ongoing fraud often develop critical information that would otherwise be unavailable in the subsequent audit trail.

Finally, secrecy is critical to protect the bank from a defamation lawsuit by the target of the investigation. Defamation may result from slanderous or libelous statements made to a third party, which damaged the target's reputation. The truth is always a defense in a defamation case. However, in the early stages of an inquiry, the exact truth has yet to be established.

Forming the Team

The selection of investigative team members may vary with each case, but certain people will almost always be included as advisers:

• Senior Management: A senior bank officer should be responsible for the day-to-day contacts with investigators and act as liaison to the president and board of directors.
• Internal Audit: A senior internal auditor will secure documents and provide background information on the responsibilities of each employee.
• Human Resources: A senior human resource representative will provide background information on the individuals involved. Human resources will also be asked to identify what must be proven to terminate the employee.
• Legal: Depending on the scope of the loss, management may elect to include an attorney as an advisor. This is often helpful if the bank intends to proceed civilly to recover its loss from the dishonest associate.
• Investigator: The investigator directs the investigation and resources available. The investigator should also conduct the final interviews with dishonest associates. Depending on the expertise of the institution, this person may or may not be a bank employee.
• Public Law Enforcement: On occasion, the investigator may be a public law enforcement officer. However, once a police report is made, the bank's ability to control the investigation may be significantly impaired.

Investigative Goal

After the team has been selected, the first task is to define clearly each participant's role in the investigation and the various reporting relationships. During the initial meeting, the goal of the investigation and desired outcome must be agreed upon. Depending on the bank, the desired outcome could range from suspension, to termination of employment, to prosecution of the dishonest employee. Identifying the intended result helps define the timing, scope, and method of investigation.

Another issue the team must consider is the length of time and resources to be allocated to the inquiry. Management, understandably, desires a prompt resolution to limit further losses, which often is in direct conflict with investigative needs. Balancing and allocating the resources available is best left up to an experienced investigator.

Clearly identifying at the outset where termination of employment may be made, or a civil or criminal proceeding initiated, helps senior management accept the timetable and supply resources necessary to do the job. A clear plan of action which makes the best use of the talent available can lead to the successful conclusion of the investigation.




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