Fraud In A Club

An Introduction To Fraud Investigation

Clubs should be prepared to act immediately on suspicions of fraud.  Whether investigations are conducted in-house of by third party, it is important that the club has a basic understanding of the investigation process and what you can and cannot do.

Introduction

A range of investigation options are available to clubs:-

• do nothing
• in-house investigation
• external investigation by professional advisers/consultants
• police investigation (potentially leading to criminal prosecution).

The option(s) pursued will depend upon the club’s objectives and appetite for taking action (disciplinary, regulatory, civil or criminal) against the suspected fraudster and a variety of other factors, such as the complexity of the case, the level of internal fraud investigation resource available, any legal and/or professional advice obtained and cost.

The investigation process can be quite complex for someone with little or no experience and it is important that clubs give due consideration to the need for external professional advice to avoid falling foul of the law, contaminating important evidence and preventing further losses from occurring.

Key risks

Badly conducted investigations can damage vital evidence, the reputation of the committee and staff morale.  Some of the key risks associated with fraud investigations include (but are not limited to):

• reticence to punish employees or investigate them for internal fraud, preferring to permit their ‘quiet’ resignation;
• unqualified staff attempting to conduct investigations and compromising evidence (which ultimately means a case will not be prosecuted via the criminal justice system);
• failure to comply with relevant legislation resulting in evidence becoming inadmissible in court;
• failing to establish contacts and credibility with law enforcement;
• assuming the police will investigate the fraud once it has been reported to them – or expecting them to conduct the whole investigation on behalf of the club.

Planning an investigation

Key issues to consider when planning an investigation should include (but are not limited to) the following:

• Are your objectives clear and have they been agreed upon.  Identify any difficulties that may be encountered during the investigation.  Has the cost (time, money and resource) of the investigation been considered?
• Who will supervise the investigation and keep a record of it?  What (if any) investigative skills are available in-house?  Should you involve the police and/or appoint external professional advisers/investigators to conduct the investigation?  Who should be aware of the fraud within the club?
• Consider the potential offences.  This will identify your points to prove and what evidence you will need to gather.  What immediate actions are needed to preserve evidence and the proceeds of the fraud?
• Evaluate your evidence; consider the quality of evidence gathered, its relevance, reliability and admissibility.  It is important to remember that there are different standards of proof that need to be met according to the type of action you wish to take against the fraudster – disciplinary, regulatory, civil or criminal.  Legal and/or professional advice may need to be sought.
• Any action towards a suspect should be measured and justified.  Particular care should be taken in cases involving employees to determine whether there are sufficient grounds to suspend them and/or restrict their security clearance/access.  If in doubt you should seek legal and/or professional advice.

Getting outside help

In order to conduct a successful investigation you will need a good level of knowledge of relevant legislation and codes of best practice.  Sometimes this expertise is not available in-house, and it may be necessary to seek external professional advice from a lawyer, accountant or other professional.

If you wish to press criminal charges against the suspect you will need to involve the police or other public body with relevant investigatory powers.  Preferably this should be done at an early stage to allow for any potential hurdles to be discussed and for evidence to be gathered to the necessary standard.  Increasingly there is a greater onus on the private sector to produce a police-style file (containing evidence and statements) for handing over to police.  You may also be expected to commit resources and time to assist the police in their enquiry.

It is important to note that involving the police will not hinder your ability to take civil action concurrently, but you should be aware of how each type of investigation will impact upon the other.

Information gathering and interviews

Expert advice should be sought if there is any doubt when dealing with evidence.  If evidence is gathered or handled improperly it could be deemed inadmissible in court.

Interviews should be well planned in advance and meet the standards set out by the Police and Criminal Evidence Act 1984 and the Code of Practice for the Detention, Treatment and Questioning of Persons by Police Officers (Code C).  The code of practice applies to anyone who is charged with the duty to investigate and who is involved within the conduct of the interview.  Following the code of practice will ensure the interview is admissible as evidence in a court of law.

Reporting

Each stage of a fraud investigation should be documented.  The written report should be accurate, relevant and chronologically referenced.  An investigation report is likely to end up in court if the case is prosecuted, so it is crucial for the report to be clear and concise.