Financial concerns rarely become a crisis overnight. Warning signs often appear first, such as a whistleblower complaint, an audit finding, an employee concern, or unusual financial activity. Yet many forensic accounting engagements begin only after those warning signs have escalated into a high-stakes situation that has attracted the attention of regulators, lenders, boards of directors, or other stakeholders. By that time, organizations are often faced with determining whether a concern has merit, assessing potential financial and legal exposure, and deciding how to respond appropriately under heightened scrutiny.
Financial investigations serve important purposes beyond uncovering whether misconduct occurred. They can help organizations assess potential financial exposure, strengthen governance and internal controls, satisfy legal and regulatory requirements, and protect stakeholder trust. In some cases, boards, lenders, and regulators expect organizations to investigate significant allegations or financial irregularities. Once a concern is raised, how and when the organization responds can affect the course of the investigation and the decisions that follow.
Benefits of early action
Early action can provide organizations with valuable information before concerns escalate. It allows management to assess the nature and scope of a concern, determine whether additional investigation is warranted, and make informed decisions based on facts rather than assumptions. Responding promptly may also help reduce financial, operational, and reputational risks.
Determination of the problem: One of the primary benefits of early action is the ability to determine whether a problem exists. Employee concerns or workplace conflicts may be characterized as fraud but might simply be a misunderstanding, mischaracterization, or mistake. Early fact-finding can help organizations determine whether further investigation is necessary.
Reduction of losses: Early action can help minimize potential financial loss. The longer a fraud scheme continues, the more costly it tends to become. The Association of Certified Fraud Examiners’ (ACFE) Occupational Fraud 2026: A Report to the Nations (2026 Report) found that the median fraud scheme lasted 12 months before detection. The findings underscore the value of early intervention: Schemes detected within six months caused a median loss of $40,000, whereas schemes that remained undetected for more than five years generated median losses exceeding $1.1 million.
Preservation of information and facts: Early action may also improve the organization’s ability to efficiently gather reliable information. Speaking with employees who have relevant knowledge of the allegations early in the process can be beneficial, as individuals may become less willing to speak openly once concerns escalate. Early fact-finding interviews can help organizations better understand the underlying issues and preserve institutional knowledge that may be difficult to reconstruct later.
Organizations may also be able to preserve potentially relevant electronic information. Taking these steps early can help ensure that important information remains available if the matter requires further investigation.
Reinforcement of tone at the top and accountability: Proactively addressing concerns can also reinforce an organization’s culture of accountability. Tone at the top remains one of the most important fraud prevention measures. When management demonstrates a willingness to investigate credible concerns and takes appropriate action when misconduct is substantiated, it can send a message throughout the organization that unethical behavior will not be tolerated. The ACFE’s 2026 Report found that termination was the most common internal action taken against fraud perpetrators, occurring in 68% of cases. Management’s consistent response to substantiated misconduct can reinforce accountability, strengthen employee confidence in reporting mechanisms, and help deter future misconduct.
Common mistakes
While early action can provide significant benefits, organizations that move too quickly without a clear plan may create unnecessary disruption or increase costs. Several common mistakes can arise during the initial response to allegations of financial irregularities.
Failing to exercise appropriate discretion: Early in the process, organizations should carefully consider who needs to be involved, what information should be communicated, and how information will be gathered. Some organizations prefer to keep the matter at the corporate level and limit involvement to a small group, while others prefer to speak directly with employees who may have firsthand relevant information. Each approach involves trade-offs that should be evaluated based on the circumstances.
Defining the scope too broadly: When concerns arise, it is often more effective to focus on a defined period and specific allegations rather than immediately undertaking a broad review covering multiple years. The scope can be expanded if additional issues are identified. A targeted approach not only helps control costs but also allows the organization to focus on the issues that prompted the investigation.
Overlooking operational continuity: Organizations should also consider operational continuity when personnel actions are involved. While immediate action may be appropriate in certain circumstances, management should evaluate whether the employee possesses institutional knowledge, information, or responsibilities that are important to both the investigation and ongoing operations. In some situations, a more measured approach may allow the organization to preserve access to critical information, facilitate knowledge transfer, and avoid unnecessary disruption to the business while investigative efforts are underway.
Neglecting digital preservation: If potentially relevant information may be deleted, altered, or become unavailable, organizations should consider taking steps to preserve electronic data as early as possible in coordination with counsel and digital forensic professionals. While investigations once focused primarily on paper documents, relevant information today may exist in emails, digital files, search history, and data stored across multiple devices such as laptops and phones. Addressing these considerations often requires expertise from many disciplines.
Building the right investigative team
While forensic accountants often play an important role in financial investigations, they are frequently only one part of a broader team of advisers. Depending on the circumstances, organizations may also require assistance from legal counsel, digital forensic specialists, compliance professionals, and communications advisers. Each brings a different perspective and skill set, and their involvement should be tailored to the matter:
- Legal counsel can help structure the investigation, advise on employment and regulatory considerations, and evaluate whether certain communications or analyses may be protected by attorney-client privilege.
- Forensic accountants can analyze financial records, quantify potential exposure, and assist in understanding how transactions and controls operated in practice.
- Digital forensic professionals can assist with preserving and examining potentially relevant electronic information.
A well-coordinated advisory team can help ensure that information is gathered efficiently, legal issues are addressed appropriately, communications remain consistent, and investigative efforts are not unnecessarily duplicated.
Organizations should also consider whether a communication plan is necessary, particularly when personnel actions, regulatory inquiries, or other sensitive matters may arise. Thoughtful communication may help reduce inconsistent messaging and speculation. In many cases, how an organization communicates with internal and external stakeholders during an investigation can be nearly as important as the investigative findings themselves.
Key takeaways
Organizations often benefit from obtaining reliable facts early. Waiting too long to address a financial concern may allow a manageable issue to evolve into a regulatory, operational, reputational, or legal crisis. By that point, costs may be higher, and important information may be more difficult to obtain.
Early action does not mean every concern requires a full-scale investigation. In many cases, the objective is simply to gather the facts, preserve information, and determine whether additional inquiry is warranted. Organizations that approach concerns thoughtfully and engage the appropriate advisers when needed are often better positioned to make informed decisions before a manageable issue becomes a crisis.
Jessica Scouten, CPA, CFE, CIRA, MAFF, is principal and director of forensic services at PYA, an accounting and consulting firm. She has 20 years of litigation, forensic, audit, assurance, and advisory experience.
Michelle Smith, CPA, is manager of forensic services at PYA, an accounting and consulting firm. She focuses on forensic accounting, business valuation, and transaction support.
