When fraud is discovered in an organisation there is a need for clear, prompt and appropriate action. The preparation of a contingency plan increases the likelihood that the crisis will be managed effectively. This is according to Fraud: Risk and Precention, a practical guide compiled by Ernst & Young, in association with the South African Chamber of Business (SACOB), which has been published to help senior management understand more about the risk of fraud. Corporate fraud costs businesses hundreds of millions of Rands each year. It affects livelihoods and is an all too common cause of corporate failure.

Many organisations have disaster recovery procedures in place in the event of fire, floor or computer failure, but few have established and agreed procedures for handling suspected fraud, yet, if the suspicion of fraud and the preserving of supporting evidence are handled in the wrong way, considerable damage can be done to the organisations' profitability and reputation.

The publication highlights some aspects for consideration and incorporporation into a fraud contingency plan including: agreeing on the fraud contingency plan, leading the investigation, objectives and powers of the investigation team, identifying and dealing with suspects, obtaining and preserving evidence, working with the police and dealing with publicity.

Not every suspicion may appear to merit the mobilisation of the full plan, but the initial suspicion may prove to be only the tip of the iceberg, with much greater problems still to surface. In any event, activating the fraud contingency plan will ensure that best practice is followed, irrespective of how material the suspected fraud turns out to be.

The fraud contingency plan must provide the route map that enables the company to undertake an investigation that meets its objectives and protects its interests. As such, that plan must be approved at the very highest levels of the organisation with the buy-in of the board of directors. Once in place, the plan should be reviewed and reapproved at suitable intervals to ensure that it continues to meet the company's objectives.

In the initial stages, an investigation is likely to be undertaken by the company personnel who have the appropriate skills, experience and personal characteristics. It is suggested that companies consider making use of external forensic accountants and investigators to conduct and oversee the investigation.

Fundamental to any investigation is the documentary evidence. Apparent irregularities in documents may be what first arouses and confirms the suspicion and provides the necessary evidence that an irregularity has occured. Preserving documentary information is therefore critical.

A great deal of valuable information can be obtained from the forensic examination of documents and more importantly in today's business environment crucial information can be obtained from computer systems by using specialised computer forensic techniques and software.

It is a benefit to the organisation to use experienced forensic specialists to establish and assess the facts, which can then be handed over to the polic in the event of a criminal prosecution. As a general rule, once sufficient evidence has been obtained the fraud should be reported to the police. It is not police policy to make public their involvement with an investigation unless public and media interest render this necessary or unavoidable. However, a carefully managed media strategy can help to deflect criticism and concerns about the organisation's stability. Rapid, efficient and effective action should be emphasised, demonstrating and unequivocal stance in the public interest against crime.

The publication is available free of charge on the Ernst & Young web page at www.ey.co.za.

Source: Stuart Waymark, Forensics, 031 310 9182, www.ey.co.za

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