Filing Charges Against a Fraudster

After occupational fraud has been discovered, some companies choose to quietly terminate the employee, hoping to cut the company’s losses, preserve its reputation and move on with daily business consequences. Most notably, it does not help the company recoup its losses, and it does nothing to prevent the criminal from stealing from other employers in the future. What is more, it sends a negative message to co-workers and can “poison” a company’s culture.

Pursuing civil or criminal legal action is a more time-consuming and costly alternative. As a result, the Association of Certified Fraud Examiners (ACFE) estimates that only 23% of victims file civil suits against white collar criminals and only 58% refer their cases to law enforcement. But, over the long run, prosecuting a fraudster can provide a major upside: justice. 

Civil vs. Criminal 
There are fundamental differences between a civil fraud case and a criminal one. The biggest difference is who is pursuing the legal action. In a civil case, the victim-organization files a lawsuit against the perpetrator, alleging intentional misrepresentation and financial gain and seeking recovery of damages. To pursue a civil case, the plaintiff must have incurred actual damages.

Conversely, criminal cases are filed by local, state, or federal prosecutors, who must prove that the perpetrator intended to commit the misrepresentation and gain from it. These cases can be litigated even if the fraud was not successful and nobody was actually harmed. A successful criminal prosecution provides punishment for the wrongdoer, including possible incarceration, probation, fines, and restitution to any victims that may have been damaged. 

Team Effort 
attorneys play a fundamental role in helping victim-organizations determine what is appropriate. They can also put clients in touch with the appropriate government agency if they decide to report the incident to law enforcement.

However, working with criminal prosecutors can sometimes be a frustrating experience – for both sides. To ensure that law enforcement receives the support it needs to pursue a case, the victim-organization usually designates a primary contact person to answer questions and gather additional documentation as needed.

During a criminal fraud investigation, it is important to organize documents so they’re easy to follow and avoid industry jargon. If the case is particularly complex, flowcharts or other visual media can help explain the theory behind how the funds were stolen. If in-house accounting personnel lack the time or resources to conduct this analysis or act as the point person – or if management suspects that the accounting department was involved in the fraud scheme – an outside forensic accounting expert can be hired to assemble the paper trail and investigate potential leads.

Depending on their caseloads, detectives or agents assigned to a case may ask to meet at off times, such as early in the morning or on weekends. So, the point person needs to be as accommodating as possible to help move the case forward. 

Management’s Role   
Note that the victim-organization does not make the decision about whether to prosecute an alleged fraud perpetrator. That call rests with the attorney general or another government prosecutor. management’s role is to facilitate the investigation, not conduct it or decide on its resolution.

To that end, company personnel should be careful when interacting with the fraud suspect. Management should check with legal counsel if the case’s lead detective asks them to participate in interviews of the alleged perpetrator or provide a list of questions to ask the perpetrator. Participating in a law enforcement interview or asking questions on behalf of law enforcement could violate an employee’s constitutional rights and give rise to a “state action” claim. 

Forensic Expertise is Key 
When management suspects fraud, it is time to assemble a team of legal and financial advisors. The appropriate course of action depends on the facts of the case. A fraud expert can help investigate the incident, estimate losses, and gather evidence that will stand up in court. 

theKFORDgroup litigation team holds extensive knowledge and experience in expert witness engagements, forensic accounting, and business valuations. Our experts are trained and experienced in fraud investigations and can help build a solid case. For more information, please call us at (210)340-8351.

Additional information included in this report was provided by PDI Global/Thomson Reuters © 2020 

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