Tag Archives: Fraud Audit Report Writing

You Are Your Report

The ACFE tells us that organizing and writing the final fraud investigation report is one of the most challenging tasks that CFE’s report routinely performing in connection with their examinations. Thus, the whole process of communicating the results of our investigations is, and must be, an integral part of any CFE’s practice. As I’m sure every reader of this blog knows, any communication can be challenging, even when the news being delivered is positive, but when the news to be delivered is negative (e.g., analyzing the facts of an embezzlement or presenting the results of an investigation of a complex management fraud), the job of delivering it can be super stressful. In such situations, the CFE’s ability to communicate takes on increased importance. An organized, thoughtful approach can make that task easier and more constructive for all concerned. Therefore, in my opinion, practitioners would do well to apply some key steps to any kind effective communication.

We can take some comfort in realization of the fact that the responsibility for delivering bad news is certainly not unique to fraud examiners. Professionals of all disciplines have developed protocols for communicating news perceived to be negative. These protocols are generally built on the keys to effective information transfer common to all types of communication and stress the importance of having a plan. Where they differ from the general communication guidance with which assurance professionals may already be familiar is their emphasis on specific keys that are particularly helpful in face-to-face meetings and situations requiring investigators to deliver negative news. One such protocol exists under a variety of names but is most frequently dubbed the “ABCDE” mnemonic. Let’s go through the letters of the mnemonic one by one.

The “A” stands for advanced planning. Advance preparation is an especially important element of effectively communicating bad news. It should go without having to be said that CFE’s can avoid wasted time and potentially embarrassing mistakes by having a solid grasp of the facts before delivering any of their findings to others. This includes carefully reviewing findings and confirming their understanding of critical issues well in advance of any reporting. Although fraud examiners often are sometimes familiar with their audience as the result of past interactions (especially if they’re employed by an attorney or an investigative firm), it’s always helpful to gather background information about the target audience of the findings, their level of involvement with and understanding of the issue, and their communication styles so the CFE can tailor the report and/ or related meeting accordingly. Examiners also may consider visualizing the point of view they expect the audience will have regarding the issue in question, because this will likely guide their reactions and questions. And as always, practice makes perfect. It’s better to work out any bugs alone or with a colleague (if you’re lucky enough to have one) than in the midst of a highly charged meeting with attorneys and management present.

“B” addresses the protocol process of building the environment and is especially relevant to face to face presentations of the report. The setting for the meeting also is an important factor, as it should allow the examiner to maintain control over the meeting’s direction. Optimally, the meeting should occur in a place that’s private, where the participants are not distracted, and where interruptions are kept to a minimum. These factors may not be as difficult to control in the case of meetings with an audit committee or in your employing attorney’s office which generally occur in a private conference room, but examiners should consider the practical complications that can arise when meeting with a client manager in his or her office. Distractions created by telephones, e-mail, employees coming and going, or the possibility of being overheard can limit meeting productivity. With this in mind, CFE’s should try to schedule the meeting at a time and place where the participants can devote their full attention to the challenging issues at hand.

Communicating well is the “C” in our mnemonic. To try always to employ direct, clear language to communicate bad news, while still being sensitive to the audience’s feelings, is an imperative skill for investigators to possess. Although it’s sometimes tempting to temper an issue or to use euphemisms to try to soften the blow, that approach can add confusion, and ultimately, only delay the inevitable. A straightforward, honest delivery of the facts is generally the best policy and is, after all, what we’re being paid to do. Never lose sight of the fact that some words (e.g., scam and scheme) are emotionally charged and may elicit negative reactions from the audience. Instead, words such as “suspected scenario”, or “suspected irregularity” better convey the message without unnecessarily offending anyone. Striking the right balance between directness and sensitivity can be difficult, but it’s critical to the successful delivery of bad news. Providing the audience with specific examples from her report can help clarify the CFE’s message without the need for personal, un-objective, or emotion laden words. We know from many ACFE publications and training courses that the majority of communication comes from body language, facial expressions, eye contact, and tone of voice. As fraud examiners and forensic accountants, we need to be aware of these nonverbal cues and keep them in check so they do not undermine delivery of our results. An important and often overlooked aspect of good communication is ensuring that the message sent equals the message received. Remember the old politician’s maxim; “Tell them. Tell them what your said. Tell them again”! It’s important, particularly in the case of bad news, for the examiner to verify that the audience fully understands the message being delivered, both its content and seriousness. Eliciting feedback from the audience will give the CFE an opportunity to confirm what they heard and will enable her to clear up any miscommunication immediately.

Dealing with reactions is the “D” in our mnemonic. As we all know, in the case of fraud reports, there will always be reactions. It’s inevitable, and healthy, that the audience will have questions and want you, the examiner, to provide actual transactions and/or evidence supporting the report findings. CFE’s should be prepared, based on “A” their advanced preparation, to anticipate questions and by gathering supporting documentation in advance, to provide these items during the meeting. Examiners should also expect audience members to offer their own responses or explanations to counter the report findings. Because emotions will be running high, these responses may take the form of a personal attack on the examiner, but s/he must take care not to react defensively or place blame. Above all, we CFE’s must keep in mind that our role is to communicate factual information so that appropriate due diligence can be taken and never to in any way speculate as to guilt or offer value judgments; stick to the facts which will always speak for themselves far more eloquently than you can.

It’s important for management and counsel to identify the immediate impact of the bad news. For example, does this apparent instance of fraud as revealed by the fraud report have immediate regulatory ramifications? Does this situation result in the need for a restatement of financial statements? Should we move forward immediately with terminations or prosecution? The fear of unknown consequences can make bad news seem even worse. By doing some advance research to help address these types of questions, the CFE can make a valuable contribution to the organization by helping to at least begin to define the extent of the unknown. Once the immediate impact has been assessed, the next logical step will be to develop a long-term plan for fixing or mitigating the control problem. Because of the examiner’s familiarity with the mechanics of the underlying issue confronting management and counsel, s/he is in an excellent position to work with other assurance professionals to provide alternatives or suggestions for remediation and for the eventual strengthening of the client’s fraud prevention program. Examiners should be sure to emphasize their willingness to provide additional information or assistance as needed as we assist management and others to arrange the timetable for following up on the results of our investigations.