So the initial shock of uncovering a fraud has subsided. What do you do now? Here are some steps to consider.
First, preserve all relevant records in both hard and soft form. You may want one to hire an outside vendor that specializes in electronic discovery. These technicians possess special skills and resources that will advance this effort, and, at the same time, provide an audit trail that the firm can share with inquiring regulators.
Second, decide who is conducting the investigation. The supervisor of the target should not conduct the investigation. If the supervisor was involved, having him conduct the investigation is a sure fire way not to learn what happened.
Third, consider hiring an outside legal team, other than the law firm that typically handles you work, to assist with the investigation. By doing so, you may better preserve the attorney-client privileged and have a more objective investigation.
Fourth, interview the fraudster and anyone who worked with him. You may be able to determine the scope of the problem and the participants. You should also speak with impacted customers as they too may be a source of useful information.
Fifth, assuming you concluded there was improper conduct, terminate the employees who participated in the fraud and, where applicable, accurately describe the reason for termination in the Form U-5.
Sixth, depending upon the improper conduct and its scope, report the person to law enforcement and make regulatory disclosures, where appropriate.
Seventh, implement a remedial plan of action to address any uncovered gaps. As important as implementing this plan, you must see it through its course.
Any fraud can have a devastating impact on any firm. If you conduct a proper and complete investigation, you may succeed in lessening the impact on the firm.