The key to minimising loss and maximising recovery is having a plan in place and moving quickly to protect your position. Every business should have in place a fraud response plan in order to ensure that in a situation such as this, where substantial fraud is suspected, employees know what action to take to:
- minimise the risk of inappropriate action or disclosure taking place which would compromise an investigation;
- secure evidence and ensure containment of any information or knowledge of any investigation into the matter reported;
- prevent further losses of funds or other assets where fraud has occurred and maximise recovery of losses;
- ensure there is substance and evidence to support any allegation against an employee before that employee is subject to disciplinary action;
- minimise the effect of a fraud or corrupt act by taking appropriate and timely action at an early stage;
- identify the perpetrators and maximise the success of any disciplinary/legal action taken; and
- minimise any adverse publicity by managing the flow of information.
An initial assessment should be carried by a senior manager in conjunction with HR with the aim of either substantiating or repudiating the allegation. Depending on the outcome of the initial assessment, it may be necessary to have a formal investigation and involve external parties. The investigation must answer the following questions:
- Is there substance to the allegation or not?
- (If appropriate) is there sufficient evidence to substantiate the allegation?
- If proven, what financial damage or otherwise has occurred?
- Have further losses been stopped?
- How was the fraudulent act perpetrated?
- What lessons could be learnt to stop this happening again?
Steps should be taken to preserve and extract information held on personal computers, telephones or computer systems of the Operations Manager without his or her knowledge. If necessary, surveillance and/or IT experts should be instructed to do this and at this stage it would be beneficial to also instruct solicitors so that legal professional privilege can be claimed in respect of documents created during the investigation.
A written report should be prepared following conclusion of the investigation exhibiting all relevant documents and statements relied upon during the investigation procedure. This will facilitate the instruction of external experts in the event that further action needs to be taken.
Preventing further loss and recovery of any losses incurred are the primary objectives of any fraud investigation. It is, therefore, important to quantify the losses during the investigation. Given that the loss in this particular scenario is substantial, legal advice should be obtained without delay so that a decision can be made as to whether to seek emergency court orders. In order to prevent further losses or secure documents.
If the decision is made to take steps to recover the losses through the Court, the first thing to consider is whether the Operations Manager has sufficient resources to satisfy a judgment. Does he or she own a house with equity, does he or she have cash or other assets etc… If the Operations Manager does have assets but there is a risk that those assets will be dissipated before trial, then it may be necessary to secure a freezing injunction against some or all of those assets so that they are preserved and can be used to satisfy a judgment and costs.
If there are real concerns that evidence may have been concealed, altered or destroyed, it may be necessary to obtain a search order through the Court without notifying the Operations Manager. This would allow solicitors access to the Operations Manager’s home or other specified areas to search for and seize specified documents.
It may also be necessary before or during the course of the proceedings to obtain a non party disclosure order to compel a party that is not involved in the litigation to disclose relevant documents or information in its possession or control. In this scenario, if monies have been transferred to an unknown account, details about the account holder from the bank through the use of a non party disclosure order may also be need to be obtained.
Once a freezing injunction and/or search order is obtained, then the next stage is to issue and serve the Particulars of Claim. The nature of the claim will depend on the outcome of the investigations and the evidence secured, but it may be possible to recover the lost monies by pursuing a number of claims, including for negligent and/or fraudulent misrepresentation, dishonest assistance, deceit, breach of fiduciary duty or obtaining secret profits. It may also be necessary to pursue a tracing claim if assets have been acquired with misappropriated monies.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.