Article: Investigating Employee Misconduct - Fair and Accurate Credit Transactions of 2003

by Bill Acuff

When investigating suspected illicit income, one of the more useful tools is the suspect’s credit report. The report can provide information on banking activity, purchases and spending habits. In addition, the report can help establish a timeline for when the wrong doing likely began. 

Credit information is regulated by the Fair Credit Reporting Act (FCRA) and, in 1997, amendments to the FCRA began regulating consumer reporting agencies’ dissemination of consumer information to third parties without first providing notices and obtaining a signed consent from the subject. Of course, this posed a serious concern for fraud investigators. Fortunately, the Fair and Accurate Credit Transactions Act of 2003 (FACT) amended the FCRA to provide employers, or a third party agent such as Decosimo, and exemption of the requirement to request an employee’s consent prior to obtaining a credit report when the report was considered necessary to aid in investigating alleged theft or financial misconduct. 

Under 11 U.S.C. 1681, an employer or agent of the employer is not required to obtain consent when conducting an investigation of:

1. suspected misconduct relating to employment
2. compliance with Federal, State or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.

This exclusion is not applicable to an employer who performs an investigation for the purposes of determining an employee’s credit worthiness, credit standing, or credit capacity. It should be further noted that pursuant to 11 U.S.C. 1681, if adverse action is taken (i.e. firing, demotion, etc.) based, at least in part, on the credit report, then the employee is entitled to a summary of the report’s nature and substance.

Recently, we were engaged by a large retail business to conduct an investigation of a cash sales skimming scheme. The suspect had taken advantage of a weakness in the system of internal accounting control, and the fraud had been ongoing for almost two and a half years. As is often the case in employee misconduct cases, the company received a tip from another employee.

Our analysis and reconstruction of daily sales indicated substantial losses. There were no surveillance cameras or other direct evidence to prove who was responsible. However, one employee had the best opportunity to commit the crime and, on the days the employee was not working, our analysis indicated there were no shortages.

Our investigation revealed the suspect owned several cars and a recreational vehicle. The employee produced loan documents indicating the money to purchase the items had been borrowed, and the provided bank statements indicated no excessive deposits or disbursements.

Based on the FACT Act provisions, we obtained a copy of the suspect’s credit report. It showed a pattern of borrowing money beginning almost two and a half years ago, as well as a number of credit cards with large credit limits and zero or credit balances.

The suspect’s modus operandi was to maintaining cash at home or in a safe deposit box; not using a bank account to deposit skimmed cash. The individual would borrow money from various financial institutions to purchase jewelry, cars, boats and other times; then use cash to pay down the loans. Subsequently, the items were sold and the money invested.

Our use of the FACT Act provided the information necessary to show the scope of the scheme. By utilizing an indirect method of income reconstruction, we were able to prove the case and extent of the losses.

Thorough and accurate workplace investigations are becoming increasingly important in today’s environment. FACT gives employers and fraud examiners more latitude in conducting investigations, but each must be mindful of the scope limitations of FACT and, as a result, should consult appropriate legal counsel to ensure necessary procedures are followed for FACT compliance. In concert with such counsel, Decosimo professionals are well versed in the act’s compliance requirements and procedures. If you suspect fraud in your business, your client’s company, or you would like to take the preventative measures a fraud risk assessment can provide, please contact us in confidence at 800.782.8382.