Confront Fraud Head On: 5 Crucial Insights to Consider When Conducting an Internal Investigation

A recent Washington Post story provides a stern reminder that employee misconduct is an unfortunate reality in the nonprofit sector. As in industries traditionally more prone to fraud, individual offenders can often be left unnoticed by organizations, leading to violations and subsequent financial penalties for the nonprofit. The best approach for dealing with fraud, therefore, is to have in place sound protocols for internal investigations. Confronting potential instances of fraud with a delineated plan allows organizations to avoid common pitfalls that can undermine the investigative process. Recognizing these pitfalls is an important first step. Before beginning an investigation, read up on the following five blunders and our suggestions on how to avoid them:

1. Investigative Bias – When a manager initially assesses the situation, their first step is to assign a leader to the investigation and clearly determine to whom the details of the project will be accessible. To minimize biases and ensure sound judgment in all matters, managers should consider whether the leader is far enough removed from the circumstances to provide unbiased judgment. Does the candidate’s relationship with the suspect provide them with sufficiently impartial discernment? Does the candidate’s job title provide them with the resources necessary for obtaining all relevant information?

2. No Suspect Isolation – Depending on the seriousness of the fraud allegations under investigation, your organization should consider limiting or cutting off entirely the suspect’s access to possible evidence. The idea here is to safeguard evidence as best as possible. What are some best practices? To start, place the suspect on a leave of absence during the investigation and prohibit their access to your organization’s books, records and internal computer networks.

3. Evidence Slip-Ups – Handle all evidence with caution; you don’t want the lynchpin of your investigation to be considered invalid by the court. How can you best protect your evidence’s integrity? Consider the following four steps:
A. Understand your organization’s privacy policy to make sure the investigative team is collecting all materials appropriately.
B. Weigh the option of issuing a document preservation order.
C. Have the team document how, when and where exactly it obtained, handled and transported all evidence.
Ensure the investigator understands best practices for electronic data collection.

4. Reliance on Background Checks – These checks are limited in scope and effectiveness. Not only do they tend to miss critical details about the suspect’s lifestyle and litigation history, but it’s also difficult to take their findings and contextualize them within the investigation.

5. Timing Gaffes – Interviews can be crucial to securing actionable, insightful information for investigations. Before interviewing the suspect, though, make sure that the team has collected and reviewed all available information. This way, investigators will bring to the table richer, more pressing questions for the suspect that incorporate hard facts. Always interview suspects with multiple people present, as well, as it will provide witnesses and a reliable way to document findings.

Stay tuned to this blog for more information on best practices for reporting nonprofit fraud to the IRS.