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Planning Investigations and Legal Background for Tough Interviews 177

The first step must be an ambush

Also, unless there are exceptional circumstances, you should take no remedial – and espe-
cially disciplinary – action until you have established the facts.

DO NOT RUSH TO REPORT EXTERNALLY

Do not rush to retain, or even advise, your external auditors or to inform insurers of your sus-
picions. Remember that evidence may subsequently justify legal action being taken against
your external auditors for negligence or worse. Thus there may be a serious conflict of interest
in retaining them to investigate because you may be asking them to build up a case of negli-
gence against their audit practice.

Under most fidelity insurance policies, notice has to be given within a reasonable period
(normally ‘as soon as practicable’) after discovery of a loss. Discovery means that evidence is
available which would cause a reasonable person to charge another with dishonesty. This is
a high standard. Mere suspicion, or the fact that a loss might have occurred, is not regarded
as ‘discovery’. There is no advantage in advising the insurer too early and many possible dis-
advantages.

DODGY ACTION take a statement from him that blew holes in
the claim. The lawyers were not seen again
The victim reported its suspicions of a until the Proof of Loss was filed and then
$10 million fraud to its insurance brokers they took a very negative position, waving
and underwriters. In due course two very the statement and saying that there was
impressive lawyers turned up saying that ‘no causal link’ because the employee never
they would adjust the claim and help the intended the victim to lose.
victim recover. What they actually did was
to take the suspect employee on an all
expenses Concorde trip to New York and

The greatest risks of giving notice too early are that:

• the insurer may start to make its own enquiries and thus confuse matters;
• it may dissipate your efforts by making unjustified and increasingly onerous demands for

information;
• it may immediately deny coverage, thus cooling management’s enthusiasm for pursuing

the case.

However, dates for reporting the loss and filing a Proof of Loss must be carefully monitored so
that they are not missed and notification given at the appropriate time and form.

Never expect an easy ride with insurers

The bottom line is that you should not report your suspicions to anyone outside your
organization unless it is absolutely necessary to do so. For example, if you have to report to a
regulatory agency, do so through the appropriate channels; hopefully as set out in your fraud
policy (see page [xref]).