In fraud investigations, one of the most critical elements Certified Fraud Examiners (CFEs) must prove is the misrepresentation of a material fact. It is not enough to show that information was inaccurate; investigators must demonstrate that a false statement was made intentionally about something that would have influenced the victim’s decision.

At the ACFE Pacific Northwest Chapter, we emphasize that establishing misrepresentation with precision and credible evidence is fundamental to the success of any fraud case. Below are the key steps for CFEs to prove this element effectively, using financial fraud as an example.

1. Identify the Material Fact

A material fact is a fact that would influence a reasonable person’s decision to act — to invest, lend money, approve a transaction, or take some other action with financial consequence.

In a financial fraud case, a material fact might involve the misstatement of revenue on a company’s financial statements. For example, if a company falsely reports millions of dollars in nonexistent sales to appear more profitable and attract investors or secure loans, the revenue figures are unquestionably material. Investors and lenders heavily rely on reported revenue to assess financial health and make funding decisions.

Investigators must clearly articulate what the false statement was and why it mattered to those who relied upon it.

2. Prove the Fact Was False

Once the material misstatement is identified, CFEs must gather objective evidence that the information was false at the time it was presented.

Evidence may include:

• Source financial records (general ledger entries, sales invoices, bank statements)

• Confirmation letters from customers showing no such sales occurred

• Emails or communications from internal personnel discussing fabricated transactions

• Audit trails showing manual adjustments to accounting systems

• Discrepancies between reported revenue and third-party records (e.g., shipping documents, payment receipts)

Whenever possible, evidence should be corroborated from multiple independent sources to increase credibility.

3. Establish Knowledge and Intent

Fraud requires intent. Investigators must demonstrate that the individual(s) responsible for the misstatement knew it was false and intended to deceive others for financial gain.

Indicators of intent may include:

• Internal communications instructing staff to record fictitious sales

• Evidence that accounting policies were deliberately overridden or ignored

• Patterns of recording revenue just before financial reporting deadlines

• Pressure from senior management to meet unrealistic earnings targets

Intent is rarely proven by a single document; it often emerges from a pattern of behavior supported by circumstantial evidence.

4. Demonstrate Reliance and Damages

Investigators must link the misrepresentation directly to the victim’s decision and show the resulting harm.

In the falsified revenue example:

• Investors may have purchased stock at inflated prices, suffering losses when the fraud was revealed.

• Banks may have issued loans or lines of credit that they otherwise would have denied.

• Employees may have made career decisions based on the false perception of company stability.

Documenting how the false information influenced decisions and quantifying the damages strengthens the case significantly.

Conclusion

Proving misrepresentation of a material fact is not simply about identifying errors. It requires building a clear, well-documented narrative that connects the falsehood to intent, reliance, and harm. Each element must be supported by credible, admissible evidence.

At the ACFE Pacific Northwest Chapter, we are committed to advancing investigative excellence. A rigorous approach to proving each element of fraud not only increases the likelihood of successful resolution but also reinforces public trust in the investigative process.

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