Discovering potential fraud within your organization is never easy — and deciding what to do next can be even harder. Emotions run high. Reputational risks loom large. But timely, decisive action is critical to minimize losses and demonstrate a strong ethical culture.
So, what should you do when fraud is found?
How to Respond When Identifying Fraud
If you have discovered that fraud may have occurred inside your organization, your first step is to report it to the appropriate internal channels, such as a hotline, compliance officer or human resources department. Document what you have observed with as much detail as possible and record things such as dates, behaviors, communications — anything that can help build a clear record for the investigation. Your tip can help stop the damage from growing.
Initiate an Internal Investigation
Once a tip has been received the next step is critical: launching a thorough internal investigation. The scope of fraud needs to be determined before organizations can take disciplinary or legal actions. Your organization should rely on internal audit professionals or Certified Fraud Examiners (CFEs) to lead a complete investigation. These first stages demand both evidence preservation and confidentiality to achieve proper results, which requires the right skillsets and training.
Staff members at the organizational level were more likely to receive the most severe consequences in cases of detected fraud, according to
Occupational Fraud 2024: A Report to the Nations. Staff-level employees faced termination in 77% of cases whereas managers received termination in 65% of cases; owners or executives experienced termination in only 53% of cases. The disparity in levels of disciplinary action proves that investigations need to remain unbiased and fair regardless of the perpetrator's position.
Internal vs. External Resolution
Not every case escalates to law enforcement — nor should it. Of the 43% of organizations that did not make a criminal referral, nearly half (49%) of victim organizations said they opted against referring fraud cases to law enforcement because internal discipline was deemed sufficient. Others cited concerns about negative publicity (34%) or chose private settlements (24%).
The majority of occupational fraud cases (57%) resulted in criminal prosecution. The decision to increase the matter depends on three main variables: the amount of money lost, the nature of the crime and the company's willingness to engage in a public legal process.
The median loss in cases referred to law enforcement was $250,000, which is significantly higher than the $63,000 median loss for those not referred.
Know What to Expect from a Criminal Referral
Referring a fraud case for criminal prosecution can yield strong results. Of those referred in the
Report to the Nations, 72% resulted in a guilty plea or were convicted. However, prosecutors declined to pursue 14% of referred cases, while 3% resulted in an acquittal.
The success rate of a fraud case largely depends on proper case preparation through complete documentation combined with expert testimony when necessary. The partnership between legal professionals and investigators often determines whether a prosecution succeeds or fails.
Take Preventive Measures Moving Forward
Finally, use the experience as a catalyst for change. The implementation of these measures should lead to real change by enhancing internal controls, developing stronger whistleblower programs and
delivering thorough anti-fraud training to all departments.
Active fraud risk management by organizations creates organizational cultures that promote transparency and accountability and build resilience. The forward-thinking approach not only reduces future fraud risks but also demonstrates the organization’s commitment to integrity and sets the stage for long-term success. Organizations that effectively respond to fraud risks establish a lasting foundation for growth which maintains their ethical framework into the future.
