Our investigations specialist, Sean Chen, based in our Shanghai office, shares his number one tactic with us: knowing when to change course when you are already waist-deep in an investigation.
One of the worst nightmares for a fraud examiner is after having spent numerous nights of hard work on an investigative case, he or she may end up empty-handed without solid proof. This could be the case even though his or her instinct tells them otherwise. More often than we would like, this is reality. Particularly in China, obtaining relevant data from public domains and available sources is even tougher with increasingly restrictive data privacy rules and fragmented information systems, such as banking information, credit reports, criminal records, property records, court records, further compounded by the fact that they are broken up by provincial, prefectural and other levels.
When such a scenario arrives, it may not be a bad idea to toss out your original plan and ask yourself the question: “Is there anything else I can do?” We often say an investigation is an art form with a common goal: To get a crook. Having said that, there isn’t any “generally accepted” approach for an investigation. Keep in mind that a crook seldom takes a break in seeking opportunities for perpetration, and inevitably will leave their fingerprints, particularly when the scheme has been ongoing for some time.
For instance, an approach for an investigative case alleging a purchasing manager taking kickbacks would normally be to probe illicit gains obtained by the purchasing manager, but your efforts could end up to be fruitless. However, if you take a detour and look into the purchasing function that they managed, you may see an extraordinary amount of corrupted behaviours marked everywhere and even smoking guns: falsified purchasing agreements, fictitious or ghost vendors, bogus bidding documents, falsified purchase requisitions and orders, buying prices higher than the market with no justification, etc. These red flags would provide you with ample alternatives that may substantiate the evidence pointing towards the corrupted purchasing manager.
When you encounter a similar situation where an investigation hits out of nowhere, consider the following:
1. Do trust your instincts
With years of professional training and experience, your instinct is most likely accurate when you smell something bad. As such, do not easily give up when experiencing a deadlock.
2. The sky’s the limit
Being flexible may not be our natural behaviour. We often frame our approach and scope an investigation with great planning with the information that made sense to us, and we are reluctant to change our approach when a situation calls for it. Unlike a normal audit, a fraud examination is dynamic in the course of actions. To put it boldly, for an experienced fraud examiner, no approach is a right approach, and being flexible is the key.
3. Brainstorming may help
Brainstorming is essential among the investigative team to predict fraud scenarios. Thinking like a criminal would help a particular scenario come to a light, and an unexpected prediction could move the investigation forward.
4. Analysing internal processes could be a good start
A broken system overtime provides opportunities for a fraudster (remember the Fraud Triangle: Opportunity, Rationalisation and Pressure). Take a close look at the internal processes and analyse control weaknesses that would tempt improper behaviours and likely result in misconduct. Keep in mind a perpetrator is targeting or taking advantage of a weak spot or loophole in an internal process.
Uncovering a fraud scam is a challenging job, and does not guarantee a success. But when you exhaust all your chips, do step back and consider these factors that may save you some good night sleep.