Why Silence About Fraud Only Makes It Worse
Business owners generally experience a range of emotions — including anger, bewilderment and embarrassment — if fraud occurs in their organization. Fraud can feel personal because it may imply management incompetence or misplaced trust. For their part, managers and ordinary employees often fear punishment when fraud is revealed. So they may minimize or rationalize the incident, or simply keep their mouths shut. Such silence can be dangerous.
Emphasize accountability
If you and your managers downplay a fraud incident or try to keep information from employees, it will likely only fuel the rumor mill and lower morale. Silence and inaction (such as failing to upgrade internal controls) can also empower fraud perpetrators. Those bent on theft may feel reassured they won’t be exposed or suffer consequences, even if misconduct is discovered.
When potential fraud comes to light, promptly interview witnesses and gather physical and digital evidence in a way that preserves integrity and chain of custody. Instead of accusing a person who might have enabled the fraud, you should investigate how it was possible. What decisions, controls and signals — for example, inadequate management oversight or infrequent audits — helped facilitate the fraud? Just keep in mind that identifying which management or employee decisions or actions contributed to the incident should be a byproduct of your investigation, not its primary focus.
In the immediate aftermath
Within 24 to 48 hours of learning about a fraud incident, initiate the following actions (potentially with assistance from your attorney or a forensic accountant):
Determine what happened, who did it and how,
Trace the movement of money or data and attempt to recover it,
Identify any red flags management missed,
Assess where internal controls helped — and where they failed, and
Work with your public relations team to decide what information you want to share.
Then prepare a one-page summary that outlines the scheme and the facts you’ve uncovered. Give copies of this document to legal counsel, law enforcement and other third parties that need the information, such as your CPA firm, insurance provider or bank. As your knowledge of the incident evolves, update the summary.
Postmortem and future steps
After you’ve handled the most urgent tasks (including, if applicable, terminating the guilty party), discuss lessons you’ve learned with your managers and put them in writing. If you determine your business needs more effective internal controls, make immediate changes. Also create a log for new fraud incidents and “near misses.” This document should include dates, methods, amounts, root causes and resolutions.
In addition, talk to workers about the threats your business faces. Where appropriate, communicate high-level information about recent incidents and encourage employees to submit tips anonymously via a web-based portal or hotline. You can normalize fraud discussions by sharing a “scam of the month” or recent fraud news. And be sure to praise early reporting of emerging threats and averted incidents.
When to seek help
Despite your best efforts to determine what happened and how policy and procedure changes can prevent it from happening again, some schemes may be too complex to handle internally. Work with your attorney and consider hiring a forensic accountant to investigate. This is particularly critical if you suspect a high-level perpetrator, have significant financial losses, are worried about protecting sensitive customer or employee data, or require an overhaul of internal controls. Contact us for help.
© 2026