Let a Contingency Plan Steer You Through a Fraud Disaster

The first thing every Boy Scout or Girl Scout learns is to “be prepared.” Business owners would do well to remember this motto when they’re developing fraud control procedures. Even if you don’t believe your employees are capable of defrauding the company, it could happen. And if you have a fraud contingency plan in place, you’ll be prepared to handle it.

Keep a Clear Head

A fraud contingency plan is your disaster road map. When you learn that a trusted employee has been stealing from you, you’ll likely be distressed — which is no time to trust your instincts for damage control. With a well-designed contingency plan, you won’t have to rely on knee-jerk reactions.

No contingency plan can cover every fraud possibility, but yours should be as comprehensive as possible. Work with your senior management team and financial advisor to devise as many fraud scenarios as you can dream up. Consider how your internal controls could be breached by an enterprising fraudster, whether a rank-and-file employee, manager, executive or outside party. Look at how someone could defraud the company acting alone or how employees and outsiders might work in collusion.

Next, decide which scenarios would be most likely to occur and which would be most damaging from a financial and public relations standpoint. Then decide what you’ll do about them if they happen.

Name Names

Your plan should be specific to the risks your company faces and assign distinct responsibilities. Designate one person to lead the overall investigation and coordinate with staff and any third-party investigators. After that, assign specific tasks to knowledgeable managers. Your IT manager, for example, may be tasked with protecting your network to prevent loss of electronic records and your head of human resources may be responsible for maintaining employee morale.

Employee communications are particularly important during a fraud investigation. Staff members who don’t know what’s going on will speculate and they may not be particularly circumspect about it. Consult your legal and financial advisors to clarify whether any information should be withheld, but be as honest with your employees as you can.

It’s equally important to make your response visible because it strengthens your fraud-prevention efforts. If employees know you take fraud seriously, they’ll be less likely to attempt it themselves and more likely to report suspicious activities on the part of others.

Don’t Lose Your Standing

Fraud can wreak havoc with your company’s reputation and weaken its standing in the community. Therefore, designate someone to manage external communications. This person should be prepared to deflect criticism and defend the company’s stability as well as control the flow of information to the outside world.

You’ll also need to define the objectives of a fraud investigation. Some companies want only to fire the person responsible, mitigate the damage and keep news of the incident from leaking. Others may want to prosecute offenders as examples to others. Your fraud contingency plan should include information on working with law enforcement officials in either event.

Change With the Times

After you’ve created and implemented your fraud contingency plan, review it regularly because change — such as employee turnover and new suppliers and products — is a constant in most companies. Be sure your contingency plan is flexible enough to change with the times. As any Scout will tell you, it’s wise to be prepared.