Pragmatic Fraud Information

• Never suspected - Clean act, very rare, damage did not become exposed timely
  
• Suspected not accused - Risk of exposure caused collateral damage greater than fraud
  
• Suspected not litigated - Risk of exposure caused collateral damage, poor chance of recovery
  
• Suspected not prosecuted - Risk of exposure caused collateral damage, law enforcement disinterested  
  
• Relationship stopped, no action taken - Numerous factors contribute to this quiet resolution strategy allowing company to return to normal activities soonest
  

• Long Term Equity Lost - lower sale value
• Blackmail - causing collateral damage
• Minimized or Sacrificed Growth - for immediate concealed revenue
• Government Investigation – caused directly or indirectly
• Undisclosed Suspicion – risk to ongoing operations
• Secrecy
• Concealing Gains – causing company losses and instability
• Continuity – operational, decision making
• Covert Diversion of Interests
• Collusion Cooperation – “sharing” arrangements
• Suspicious and Unexplained activities
• Loans or Credit Lines get called or not renewed without expressed accusation or suspicion
• Revenge – covert directed acts that damage the company
• Lawsuit and Discovery – with material damage to company operations

Stages of Executive Fraud Discovery and Resolution

Discovery

1)  Suspicion -- Intuition indicates a situation may exist.  No evidence yet or disclosure

2)  Detection -- Focused covert search for clues or strong confirmation to warrant further exploration

3)  Evidence Search -- Covert collection of tangible, intangible or hearsay evidence for confirmation.  This is not litigation support for legal proceeding.

4)  Approaching the Client -- Determination of strategy based on level of suspect
         A.  Is the suspect an executive?
         B.  Is the suspect a part owner or partner?
         C.  Is the suspect a hired president?  Is there an active and involved Board of Directors?
         D.  Is the suspect a sole or majority controlling owner?  Is the suspect also the client?
      
NOTE:  At this stage the only one aware of the situation may be in a precarious position.  There may be others with as yet undisclosed knowledge.  

Resolution

1)  Stop the Act -- Indirect and non-accusatory approach.  Avoidance of retaliation litigation and starving the gossip grapevine is essential.

2)  Stabilizing the company --
        A.  Removal of the suspect.  This is the riskiest function.  See “4 A-D” above.  
        B.  Dissolution of the colluders.   
        C.  Immediate contact with the primary involved or at risk organizations including lenders and investors.  
         D.  Assessing financial damage and requirements for continuity.

NOTE:  A publicly owned company must adhere to public disclosure requirements and be exposed to possible collateral damage.  A privately held company may require no disclosure                                                    
3)  Reorganization --
          A.  Determination of public disclosure requirement.  Containment within legal boundaries.  
          B.  Implementing new control and management systems.
          C.  Necessary discussion with employees.  Containment of legally risky disclosure.                  

4)  Resolution -- Assessment of loss and risk of legal remedy.
          A.  Forensic study for loss calculation and litigation support.  Does this justify positive results or partial recovery from insurance or legal process?  
           B.  Does the culprit have assets to gain recovery?
           C.  What is the risk of collateral damage to business operations through exposure caused by a civil lawsuit?  
           D.  Is it possible to attempt to gain a criminal complaint against the suspect? Will this enable recovery, show strength or extend the damage?