Be Aware of Ethical Pitfalls in Forensic Investigations

By Marc Courey, CPA/CFF, JD, LLM, CFE, CICA, CCEP, CIA

For practitioners who concentrate their practices in tax and audit work, the prospect of taking on a fraud investigation can be daunting, intriguing or both. But if you come across some potential wrongdoing in the course of your work, one thing you should never do is look the other way. Accountants have an ethical obligation to see that the suspect activity is looked into appropriately, even if it falls outside your usual scope of practice.

Handling allegations of waste, fraud or abuse includes more than making strategic and tactical decisions related to any ensuing investigation. Often underestimated or overlooked are important ethical implications related to such forensic inquiries, whether they are led by someone at your firm or an outside forensic examiner.

Professional standards

Forensic investigators are guided by various professional ethical standards depending on the specific credentials they hold. Certified public accountants (CPAs) are subject to general ethics standards promulgated by the Association of International Certified Public Accountants (AICPA) as well as state boards and societies.

As of Jan. 1, 2020, the AICPA stepped up its commitment to protect the public interest by releasing the Statement on Standards for Forensic Services (SSFS) No. 1. Applicable to all forensic engagements, the statement outlines steps for preserving and enhancing the quality of practice for members performing forensic services.

This principles-based guidance addresses various aspects of forensic accounting services, including these:

• Professional competence

• Professional care

• Planning and supervision

• Sufficient relevant data

• Integrity and objectivity

• Serving the client’s interest

• Understanding and communicating with clients

Certified fraud examiners (CFEs) are subject to similar ethical guidelines through their association’s Code of Professional Ethics, highlighting, among other things, the need for professionalism and diligence and the importance of avoiding undisclosed conflicts of interest, as well as a reminder that the final determination of fraud always lies with the trier of fact.*

Check relevant state laws

Beyond the professional standards applicable to CPAs and CFEs are laws pertaining to specific jurisdictions. For instance, it’s necessary to keep in mind the relevant state law on privacy. What can an investigator or client do with various information that may be discovered during the course of an investigation? What’s the law on recording conversations without express consent? And who does the law pertain to?

Some investigative techniques may require a private detective or private investigator license. The requirements vary by state, so these activities may be permissible if engaged by an attorney rather than the CPA or CFE. To perform digital forensics, some jurisdictions may require a private investigator license.

Before engaging in an investigation, be sure your client has considered consulting with an attorney and having counsel engage you, which can extend the attorney-client privilege and work product doctrine to your work.

Moral considerations

Forensic investigations are also governed by the philosophy of procedural justice, which seeks fairness in the processes that resolve disputes. The four pillars of procedural justice cover:

• Objectivity and neutrality

• Preserving dignity and respect

• Trustworthy motivation

• Giving voice to participants

An examiner’s personal ethics and morality can always weigh on the investigative process. Given that individuals have different personal codes, which can be similar to or vary significantly from professional, legal and societal expectations, taking time to assess whether the investigation aligns with one’s personal values is imperative.

If the personalities or conduct of the individuals you are engaging with or the products or services sold by their organizations don’t line up with your own values, consider whether taking on the investigation is the right ethical decision for you.

Will your personal code influence your ability to meet the professional standards? Will it interfere with meeting the expectations of your client? An awareness of the interplay between a personal code and the various obligations and expectations of a forensic investigative engagement should affect your decision in order to meet your ethical responsibilities and client objectives.

Impact on the target

A forensic investigation almost invariably turns people’s lives upside down and should never be undertaken lightly. The impact for the target and their family is enormous, as it may lead to the end of someone’s career and the severing of longstanding relationships both in and outside a workplace.

When targets experience financial losses as well as potential civil litigation or criminal prosecution, other unfortunate side effects can include workplace violence and sometimes even suicide. These potential impacts serve as a reminder to keep your eyes on the big picture and remember why the investigation is necessary. There must be compelling greater good served by the investigation.

Similar to the impact investigations can have on a potential target, they can have a major impact on your client, who is likely the victim of a potential wrongdoing. Beyond the question of whether there is a finding of inappropriate activity, the investigation itself affects staff and the reputation of the organization and possibly its day-to-day operations. The investigator’s conduct or actions have the potential for the investigator to incur legal liability for the client. If you come across some kind of contraband — such as child pornography or illegal drug possession — which is not a focus of the investigation, you may face an ethical dilemma about what can and should be turned over to law enforcement if these discoveries were incidental to the purpose of your investigation.

Investigators sometimes receive threats of physical harm from targets, which pose dilemmas beyond the risk of truly being injured. Do you report the threat to law enforcement if the client has requested confidentiality pending the investigation? Can you continue the investigation with no change to your objectivity and diligence? How much risk to self and family can you accept?

The range of ethical issues that arise from providing forensic services can catch accountants off guard. It may be wise to partner with an experienced forensic professional to learn about and navigate the land mines that can distract investigations and create liability for many involved parties.