This section details specific actions to take before, during, and after an internal fraud.
In this scenario, an employee in the Finance Division is suspected of manipulating financial records to hide payment discrepancies discovered during an internal audit.
This playbook provides a comprehensive framework for organisations to prevent, address, and recover from internal fraud. It is tailored explicitly to scenarios where financial record manipulation is detected, such as discrepancies uncovered during an audit.
Structured across three phases—prevention, response, and recovery—it emphasizes proactive safeguards like robust internal controls, employee training, and whistleblower policies to mitigate risks.
Risk Assessment & Internal Controls
Regularly assess fraud risks in financial processes (e.g., payment approvals, reconciliations).
Implement segregation of duties, dual approvals, and automated auditing tools.
Employee Training & Awareness
Mandatory ethics training and fraud awareness programs.
Clear reporting protocols for suspicious activity (e.g., anonymous hotline).
Whistleblower Policy
Secure, confidential channels for reporting concerns without retaliation.
Auditing & Monitoring
Schedule surprise audits and continuous transaction monitoring.
Use data analytics to flag anomalies (e.g., duplicate payments, mismatched records).
Incident Response Plan
Designate a cross-functional crisis team (Legal, HR, IT, Finance, PR).
Predefined roles for evidence preservation, communications, and investigations.
Confirm Suspicion
Validate audit findings with forensic accountants or internal investigators.
Secure Evidence
Isolate financial records, emails, and system logs; restrict suspect’s access.
Preserve digital evidence (e.g., audit trails, login timestamps).
Activate Crisis Team
Legal: Advice on liability, regulatory reporting, and employee rights.
HR: Suspend the employee (with pay, if required) pending investigation.
IT: Freeze accounts and preserve data.
Initial Communication
Internal: Inform senior leadership and board; maintain confidentiality.
External: Delay public statements until facts are confirmed; consult legal counsel.
Regulatory Compliance
Determine mandatory reporting obligations (e.g., SEC, law enforcement).
Thorough Investigation
Engage third-party forensic auditors for impartiality.
Interview witnesses, the suspect, and relevant staff.
Financial Impact Analysis
Quantify losses, identify affected accounts, and trace misappropriated funds.
Stakeholder Communication
Employees: Reassure transparency without disclosing sensitive details.
Regulators: Submit required disclosures (e.g., SARs, SEC filings).
Public: If leaked, issue a controlled statement (e.g., “investigation ongoing”).
Legal Action
Pursue civil recovery (e.g., restitution) or criminal charges.
Review employment contracts for clawback clauses.
Disciplinary Measures
Terminate the employee (if culpability is confirmed).
Update HR policies to address gaps.
Process Improvements
Strengthen controls (e.g., mandatory job rotations, enhanced approval workflows).
Implement AI-driven anomaly detection systems.
Financial Recovery
File insurance claims (if covered under fidelity insurance).
Recover losses through legal channels.
Reputation Management
Proactively brief key clients/investors if fraud impacts trust.
Highlight corrective actions in internal/external messaging.
Post-Crisis Evaluation
Conduct a “lessons learned” review with the crisis team.
Update the playbook and training programs based on findings.
Ongoing Monitoring
Increase audit frequency for high-risk areas.
Foster a culture of integrity through leadership messaging.
Internal Memo
“We recently identified irregularities in financial records. A thorough investigation is underway, and we are committed to resolving this swiftly. Your confidentiality is critical during this process.”
External Statement (if required)
“Our company detected potential discrepancies in financial processes. We cooperate fully with authorities and have taken corrective measures to prevent recurrence.”
Approval & Review
Update the playbook annually or after significant incidents.
Validate protocols through tabletop exercises.
This playbook outlines a structured approach to addressing internal fraud, focusing on prevention, rapid response, and recovery.
Before a crisis, emphasis is placed on proactive measures such as robust internal controls (e.g., segregation of duties, audits), employee training, and whistleblower policies to mitigate risks.
A cross-functional crisis team is pre-designated, with legal, HR, IT, and communications roles defined.
During the crisis, immediate actions include securing evidence, suspending the suspect, activating the crisis team, and adhering to regulatory obligations.
Communication is carefully managed to maintain internal confidentiality while limiting external statements until facts are verified.
Post-detection, the playbook prioritizes containment through thorough investigations led by forensic auditors, stakeholder communication (employees, regulators, and the public if necessary), and legal action to recover losses.
After resolution, recovery focuses on disciplinary measures, process improvements (e.g., enhanced controls, AI-driven monitoring), and financial restitution. Reputation management and post-crisis evaluations ensure lessons are integrated into updated policies and training.
The playbook concludes with internal and external messaging templates, annual reviews, and simulations to test preparedness and foster long-term resilience against future fraud.
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