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LEGAL REPORT/FORENSICS & CRIMINAL LAW It takes a team to uncover a fraud Forensic accountants, external counsel, outside IT people are all necessary to conduct a bulletproof investigation. BY GRETCHEN DRUMMIE go off like a gunslinger on his own to nail the bad apple that breached the company's trust. These days, a savvy in-house counsel A knows the rules of an internal investiga- tion have evolved; that a troubled eco- nomic environment, a changing regula- tory climate, and dramatic technological advancements are conspiring with the usual factors to create a perfect storm when there's a potential fraud blow- ing up. So now, instead of simply lock- ing down the filing cabinet, the best course of action is to have a plan that revolves around a tight team of special- ists — including outside experts — that can land on the investigation running, advises forensic accountant Peter Steger, principal at Cohen Hamilton Steger & Co. Inc. "In-house counsel are wise to bring in the specialized resources that can come in and handle it in a nice, compact way, hitting all of the buttons they need to hit, rather than trying to deal with it from scratch," says Steger. He compares what he's suggesting to a wheel with a hub n allegation of fraud within a company used to be handled some- thing like this: a mid- level supervisor would and spokes, with the in-house lawyer quarterbacking, or appointing, external counsel to the role. Adopting the team- like approach helps avoid the "traps and pitfalls, for example, of a neophyte in- house counsel who perhaps hasn't tack- led an internal fraud and can get easily overwhelmed with the extensiveness of it," he says. Steger says an allegation of fraud should be handled like this: pull togeth- er a finite team drawing initially from inside the company including the in- house lawyer, the human resources lead- er, a manager from the business and accounting sides, and put internal IT on notice. Then, reach out to specialized resources like external lawyers with their areas of expertise depending on the case, forensic accountants, external IT, and even public relations professionals in some instances. He likens it to a detective mindset "embarking on unbiased fact finding." Mary Jane Stitt, a partner in the litiga- tion group at Blake Cassels & Graydon LLP, agrees with Steger that the team approach is the way to go in these cir- cumstances. She says most larger com- panies now have a plan in place that includes bringing in people like her to join the investigative team. And she advises what in-house counsel at smaller firms who have yet to embrace the con- cept should do is, "learn from the best practices and know that if there's a fraud or suspected fraud in their workplace, this is a team that you should put in place." She says it's part of risk management for those in-house lawyers who have pol- icies in place outlining what will occur in the event of a suspected fraud. "They go out, they buy insurance, they have audits done and try and put controls in place to prevent fraud and this is the next aspect of it, what do you do if there is a prob- lem. This is a type of disaster planning. Instead of your plant burning down, you've got somebody stealing money out of your bank account and you've got to move quickly to mitigate your loss, to investigate and contain it," she notes. Says Stitt: "I think in-house counsel have to understand that [an internal investigation] is legally more complex. They have an important role to play as the client and in giving the direction, but there really is the need to reach out to experienced external legal advisers." For his part, Steger adds that even large public companies still struggle when something like an internal fraud strikes and "they reach out to experts www.CANADIAN Lawyermag.com N O VEMBER / D ECEMBER 2011 51 ENRICO VARRASSO