Smoke, Heat, or Fire? — Choosing the Right Forensic Service When Something Doesn’t Look Right

How to tell when you need a fraud risk assessment, a targeted forensic examination, or a full investigation—and what each one delivers.

Leaders of small and mid‑size businesses, nonprofit boards, and local governments often ask a reasonable question: “Isn’t our annual audit already looking for fraud?” Audits are valuable, but they are not designed to hunt for every instance of wrongdoing. Most schemes come to light because someone speaks up or because an organization uses active detection methods like monitoring and management review. Meanwhile, a “typical” fraud runs close to a year before it’s detected—long enough to damage finances, morale, and reputation. In short, your anti‑fraud program needs tools that are different from (and complementary to) the financial statement audit.

Discussed below are three tools you can employ: Fraud Risk Assessment, Forensic Examination, and Fraud Investigation. Since they differ in purpose, timing, and scope, one way to look at it is in terms of fire prevention and response:

• Fraud Risk Assessment is the fire inspection: find hazards, rate the risk, and fix what’s most important or risky.
• Forensic Examination is the targeted inspection when a particular room or appliance seems to be running hot.
• Fraud Investigation is the arson investigation after a blaze: preserve evidence, determine cause, identify who’s responsible, and quantify the loss.

Fraud Risk Assessment (Proactive)

Purpose: Identify where and how fraud could occur in your organization and how your controls and culture help—or hinder—prevention and early detection.

When to use it: On a cadence (annually or every two years), before major system or leadership changes, during rapid growth, or when the board wants confidence that the basics are covered.

Scope and approach: A risk assessment maps your processes (purchasing, payroll, revenue, cash handling, P‑cards, grants, etc.), interviews people who actually do the work, reviews control design and user access, and pressure‑tests reporting channels (like hotlines and web forms). The result is not an accusation or a hunt for culprits; it is a prioritized remediation roadmap that tells you what to fix in the next 90 days, six months, and 12 months.

What you get:

• A clear heat map of vulnerabilities ranked by likelihood and impact.
• Practical fixes (policy tweaks, added approvals, dashboard alerts, access changes) sized for your resources.
• A training and awareness plan that makes it safe and simple to speak up.
• Board‑level talking points that fit neatly into finance/audit committee updates.

Why it works: Like a fire inspection, it reduces the chance of ignition and limits the damage if something does spark. Even lean organizations can separate duties with workflow tools, simple second‑person reviews, and lightweight dashboards.

Forensic Examination (Targeted Deep Dive)

Purpose: Take a focused, data‑driven look at a specific area to confirm or clear concerns and to understand root causes.

When to use it: You notice unusual patterns (round‑dollar invoices, weekend activity, vendor ties, overtime spikes), you’re doing due diligence on a high‑risk function, or leadership wants clarity without launching a full investigation.

Scope and approach: A forensic exam defines the slice (for example, six months of accounts payable, a year of payroll, or all P‑card transactions over a limit), extracts the data, and applies analytics: duplicate testing, sequence and gap checks, split‑transactions, velocity and outlier tests, holiday/weekend reviews, and more. Findings are corroborated with invoices, approvals, receiving documents, and limited interviews.

What you get: A concise findings memo that ranks issues, explains the “how” and “why,” quantifies exposure where appropriate, and—crucially—tells you how to fix the underlying control gaps. If red flags remain after testing, the work often becomes the springboard for a formal investigation.

Why it works: Like peeking into the suspicious utility closet, this is the fastest way to determine whether there’s heat, smoke, or nothing at all—without pulling the fire alarm for the whole building.

Fraud Investigation (Reactive)

Purpose: Confirm or refute specific allegations, preserve evidence, identify perpetrators, quantify losses, and support recovery and disciplinary actions.

When to use it: There’s a credible allegation (e.g., kickbacks, falsified documentation, missing assets), a regulatory inquiry, or obvious anomalies that point to wrongdoing. Time matters here.

Scope and approach: Counsel typically directs the scope. The team issues legal holds and secures systems, preserves email and device data, reconstructs transactions and flows, and conducts structured interviews. Where appropriate, the work may include lifestyle or net‑worth analyses and coordination with HR, insurers, and, if warranted, law enforcement. Chain‑of‑custody and documentation rigor are paramount so that results withstand scrutiny.

What you get: A formal investigative report that documents what happened, when, how, and by whom; quantifies losses; and compiles evidentiary exhibits. It also outlines control fixes to prevent a repeat event and recovery options.

Why it works: After a fire, the priority is to secure the scene, determine the cause, and plan remediation—thoroughly and defensibly.

Choosing the Right Path

If you have a specific allegation or credible indicator, start with an investigation—preserve data first and involve counsel. If there’s no allegation, but a process or period looks off, commission a forensic examination of that slice to get fast clarity. If you simply want to strengthen prevention and detection, schedule a fraud risk assessment and use the results to drive a focused, affordable improvement plan.

For many organizations, the best approach is staged: begin with a risk assessment, monitor key areas with simple dashboards and reviews, and deploy targeted exams when something starts to “run hot.” That rhythm builds a culture of vigilance without creating bureaucracy.

Special Considerations for Small Organizations and Nonprofits

Small teams can still build strong deterrence:

• Reporting channels: A well‑promoted web form and dedicated email address can be as effective as a third‑party hotline at a fraction of the cost.
• Training: Short, role‑based refreshers (employees, supervisors, and the board) reduce losses and speed detection—especially when paired with clear, no‑retaliation messaging.
• Vendor and payroll hygiene: Tighten onboarding, verify tax IDs and bank details, and run simple alerts for same‑day vendor setup and payments, or for unusual pay changes.
• Board oversight: Ask for a 2-minute anti‑fraud update at each committee meeting, covering activity, training coverage, and the status of remediation items.

Building a Stronger Anti-Fraud Strategy

Fraud rarely announces itself, and waiting until smoke turns into fire can cost your organization time, money, and trust. The proper response depends on your situation, whether that means a proactive risk assessment, a targeted examination, or a full investigation. If you’re unsure where to begin, reach out to your CRI advisor today. Together, we can determine the right approach to safeguard your organization and strengthen your resilience against fraud.