What Do You Do When You're a Witness to Fraud?

One of my least proud moments was when I was a young professional witnessing a fraud. I didn’t report it. Neither did a half dozen other people who observed it, too.

It’s easy to think that when we encounter someone committing wrongdoings, we’ll do the honorable thing and report it to authorities.

But what happens when it’s the authorities who are cooking the books? What if you knew that reporting it would cost you your job and the financial well-being of your family?

Does sacrificing yourself make you a hero? Does not sacrificing yourself make you a bad person? Who’s the judge?

Experiencing fraud

I began my career in dispute analysis and forensic accounting.

I investigated money laundering. I would sit in windowless conference rooms reading through peoples’ work emails, searching for evidence of malfeasance. I tracked the paper trail of cash deposits and payments. I examined electronic files on computers locked up by US Trustees. I audited journal entries, looking for inconsistencies.

But all of these engagements came to me after fraud was already identified or flagged. I had never actually witnessed it in person.

So when it happened live, it was one of those moments of wondering what the response should be. If there was no risk of reporting it, the response would be clear. But the risks at hand were enormous.

For obvious reasons, I’m not able to share many details here — I will not be sharing names of people, companies, or outcomes.

But I will share the feelings of experiencing mental gymnastics and the reasons why my experience and others’ experiences with fraud can be so challenging.

There was no whistleblower mechanism in place

To allow us to report the fraud anonymously would have required a process for reporting anonymously.

There wasn’t one.

In addition, because of the small number of witnesses, it would have been obvious where the alarm was sounded. These circumstances insulated the experience and made it next to impossible to raise concerns anonymously.

The fraudster was in a position of influence

No one wanted to be seen as being behind a person’s downfall. The idea that one of us could have removed this person was a heavy psychological burden. And it wasn’t a burden that anyone was eager to take on.

There was no psychological safety net

Risks to the witnesses of the fraud were very high. We were in vulnerable positions and the perpetrator could have undoubtedly exploited that and pursued retribution.

The consequences of being found out as a whistleblower could have had huge implications on a whole multitude of factors — employment, family, earnings, and reputation.

The cost of speaking up was higher than saying nothing

Every day, we make unconscious and subconscious calculations in our minds about our decisions. We weigh benefits and costs, advantages and disadvantages, and guess what likely outcomes will be.

While some people define ethics as “doing the right thing when nobody’s looking,” how does that definition change when it’s “doing the right thing even if doing so will cost you your reputation and livelihood?”

What did I learn? And what advice would I give to others?

Working with the right people, the right clients, in the right environment, and in the right circumstances matters. The burden of someone else’s pressure and rationalization for their actions can pay a toll on physical and mental health.

Everyone has different risk profiles at different stages of life. For people who are in positions of vulnerability, the costs of reporting fraud can be significantly higher than for people in positions of authority and influence.

Reporting malfeasance, as a young professional, could arrest the progress of their career if the proper protections aren’t in place. For a more senior professional, the stakes may not be as high. There can be significant consequences to the innocent others, no matter what their tenure, simply by being associated with the guilty party.

Whatever the angle, proper safeguards need to exist so that questionable behavior can be addressed. Companies should set up call lines, emails, or addresses where anonymous tips or reports can be received.

In some professions, like law, it had become malpractice to NOT report ethics violations.

Rules require lawyers to inform the appropriate professional authority if they know another lawyer has committed a violation of the Rules of Professional Conduct that raises questions about the other lawyer's honesty, trustworthiness, or fitness as a lawyer.

In other words, if an attorney witnesses another attorney’s breach of ethics, the first attorney is obligated to report it.

Company policy matters and should be upheld

Company policy should make clear what professional behavior is expected and what will not be tolerated. If such behavior is exhibited, leadership or those in positions of authority need to take responsibility for enforcing the agreed-upon standards—even if they mean a PR nightmare or a loss of revenue.

The alternative could be much worse.

Is not reporting fraud wrong?

I’m not able to share the outcome of what happened with any of the frauds I experienced. But the one I experienced live, in-person and first-hand was one I’ll never forget.

It weighed on me tremendously at the time. I found my brain doing ethical ‘what if’ calculations while struggling to do the quality work I was hired to do.

It also revealed to me the mental burden that people feel every day when faced with extremely difficult mental choices that don’t have great answers.

Until next time,

Carl

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