Beginning the Investigation


In this chapter:

  • Assessing the Engagement
  • Making Recommendations
  • Budgeting and Cost Control
  • Fees
  • Billing Practices
  • Engagement Letters 

As an outside consultant performing a fraud investigation, it’s imperative to have an engagement letter outlining the key points of the engagement. From the book:

An engagement letter is an important document that protects both the client and the fraud investigator. At a minimum, the engagement letter should outline the following:

Work to be done.
The amount of detail here will vary depending on the needs of the parties. Sometimes there are very specific parameters and documentation, and in that case it may be easy to be specific about the work being done. Other times, the parties may not be sure what documentation will be available or even how in-depth the work will get. In that case, it is more appropriate to have a loosely worded description of the work.

Changes to scope of work. It should be clear that if the client decides to change the scope of work to be done, the engagement will be suspended until a revised engagement agreement can be made. It’s important that the fraud investigator be protected from the client who wants to expand the scope of work without sufficient time or payment of fees. This also helps protect the fraud investigator if the client is trying to lead the investigation in an objectionable direction.

Responsibilities of parties. If the work of the fraud investigator depends on the client to complete certain tasks or provide documentation, this should be clearly stated. For example, it might be a good idea to state that the client is responsible for contacting any outside parties to obtain documentation related to the matter. If the investigation requires copies of invoices from vendors, it is probably much easier for the client to get those than for the investigator to attempt to prove to the vendor that the client has agreed to have the documents released. There is not just one right way to handle the collection of documentation, but it is important that the responsibilities be carefully outlined.

Important deadlines. If there are firm deadlines for the completion of work, these should be laid out in the engagement letter. There might also be contingencies attached to these deadlines. For example, the investigator might state that work is expected to be completed within 90 days, but that depends on timely production of documents by the client. It might even be wise to set dates by which the client must produce documents or complete tasks in order for the ultimate deadline to be met. This is especially important if deadlines are related to court activity. If the court has specified a date by which an expert report must be filed, but the client has not cooperated in a way that will allow the expert to finish the report, what happens? Obviously, the client’s case will be in jeopardy, so it is necessary that the fraud investigator protect herself or himself from such problems.

Fees and payment terms. Whether fees are being billed on an hourly or fixed basis, it is important to outline that in the engagement letter. If there are budgets or limits in place, those should be defined. Deposits or retainers should be made clear, and in the event that an engagement is terminated midway through the investigation, it should be clear how fees and deposits will be reconciled.

Termination of the engagement. If the fraud investigator intends to terminate an engagement for nonpayment of fees, deception by the client, conflict of interest, noncooperation by the client, or any other potential problems, it should be clear how that will be handled and what the rights and responsibilities of all parties are.

Start of work. State what must happen before you will start work. Does the client need to sign the engagement agreement? Does a deposit signify a client’s agreement with the terms of the engagement and authorize you to start work? Is a verbal agreement sufficient for you to move forward with your investigation? The ideal engagement agreement is often developed over a period of years and after experience with clients. Unfortunately, negative experiences with clients usually cause the fraud investigator to add clauses to the engagement letter. The professional realizes that she or he has not addressed a particular problem or concern in an engagement letter and adds appropriate verbiage to future letters.

It is not a bad idea to have your attorney look over your standard engagement agreement to ask for input. Some professionals purposely strive to avoid a lot of legalese in their engagement letters. However, the advice of an attorney can still be helpful to ensure that the provisions in your letter are legally enforceable and that you have not missed any key details.