Fraud risk management and interrogation techniques part ii

EMAC Fraud Risk Management

By Sako Mayrick

Elsam Management Consultants

Elsam Management Consultants-www.elsamconsult.com 1

FRAUD RISK MANAGEMENT

Training Materials

March,2015

EMAC

Introduction

Nature and types of fraud

Internal controls against fraud

Fraud as a risk

Evolution of Operational Risks

Fraud as a major operational risk

Why people commit Fraud

Fraud indicators

Fraud risk management techniques

FRM – Good practice guideElsam Management Consultants-www.elsamconsult.com 2

Coverage

EMAC

20% of government expenditure is lost through corruption in Tanzania equivalent to Tshs.

Corruption costs global economy $1.5 trilion every year

The detection recovers only small amount

High percentage of frauds are committed by senior management and executives

Greed is one of the main motivators for committing fraud

Fraudsters often work in finance function

Every sector is affected by fraud

It is high prevalent in developed countries

With all these facts, many organisations still do not have formal systems and procedures in place to prevent, detect and respond to fraud.


Introduction

EMAC

Fraud is a complex subject regard its

It can mean

Theft

Corruption

Conspiracy

Embezzlement

Money Laundering

Bribery

Extortion

DeceptionElsam Management Consultants-www.elsamconsult.com 4

Introduction

EMAC

Forms of fraud

Crimes by individuals e.g. substandard goods, pyramid schemes

Employee fraud e.g. payroll, expense, theft of cash, assets or IP

Crimes of business against investors or consumers or employees

Crimes against financial institutions

Grant fraud, tax evasion

Counterfeit

E-crimesElsam Management Consultants-www.elsamconsult.com 5

Introduction

EMAC

Internal control is A process consisting of ongoing tasks and activities. It is a means

to an end and not the end in itself

Effected by people. It is not merely about policy manuals, system and forms but about people at every level of organization that impact internal control

Able to provide reasonable assurance, not absolute assurance, to an entity’s senior management and board

Geared to the achievement of objectives in one or more separate overlapping categories

Adaptable to the entity structure

It is designed to provide reasonable assurance regarding the achievements of objectives; effectiveness and efficiency of operations, reliability of reporting and compliance with applicable laws and regulations


Internal Control and Fraud

EMAC

COSO - Framework (Control Framework)

7Elsam Management Consultants-www.elsamconsult.com

Case Study 1 A Car internal

control exemplification

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../15 COSO Integrated Internal Control Framework.avi

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End of session I


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• Operational risk attaches itself to people, systems and process

• Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

• It includes other risks such as legal risks, physical risks, political risks and environmental risks

• Fraud is part of operational risk in any organization

Internal fraud such as tax evasion, assets misappropriation, bribery, corruption and larceny

External fraud such as theft, forgery, hacking and information theft


Fraud as risk

EMAC

Credit Risk

Market Risk

Operational Risk

Compliance Risk

Information Risk

Data Risk Other Risk

Basic Strategic ERM Integrated


Evolution of Operational Risk

EMAC

• Joint McKinsey finds have shown that risk management has not been able to prove its value to organization

• Operational risk is seen as immature discipline that has often not proven its value to organization

• There is evidence that operational risk can be destructive as market loose faith in management and control following large events (Enron Case)

• The discipline is focused more on measurement than on management


Perception on operational Risk

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EMAC

• Fraud is a broad legal concept that generally refers to an intentional act committed to secure an unfair or unlawful gain.

• Misconduct is also a broad concept, generally referring to violations of laws, regulations, internal policies, and market expectations of ethical business conduct.

• It is an intentional act by one or more individuals among management , those charged with governance, employee or third parties involving the use of deception to obtain an unjust or illegal advantage


What is fraud?

EMAC

Fraud commonly includes activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery and extortion.

It involves using deception to dishonestly make a personal gain for oneself and / or create a loss for another.


Scope of Fraud

EMAC

• Pressure on employee to misappropriate cash or organizational assets

• Employees/people committing fraud are not career criminals, they are trusted employees

• Dr. Donald Cressey, a criminologist developed a model to get reasons for why people in trust commit fraud (Case Study II)

• Model is referred as fraud triangleElsam Management Consultants-www.elsamconsult.com 14

Why people commit fraud?

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EMAC

• Most of fraudsters are first time offenders with no criminal past and therefore don’t view themselves as criminals (See Arthur Andersen case)

• They must always justify the crime in a way that makes it an acceptable and justifiable act (rationalization) e.g. I was underpaid, my employer cheated me, my employer is dishonest, I was entitled to the money or I was only borrowing money.


Causes of Fraud - Rationalization

../Enron - Real Accounting Fraud.avi

EMAC Fraud

Pressure or

Incentive

Rationalization

Opportunity


What causes fraud?- Fraud Triangle

All the three factors must be present for fraud to occur, if any one of the three is missing, fraud will not occur

EMAC


Why fraud happens?

Fraud Need/Rationalization•Every one Does it•Simply borrow-money

PressureUnrealistic Corporate Target can

Force Employees toCommit fraud

Opportunity- due to weak And override of controls

EMAC

• It is a perceived non-sharable financial pressure

• Non-Shareable involves some sort of embarrassment, shame or disgrace

• It is the first motivation for crime

• A person may have financial problem that cannot be solved through legitimate means

Consideration for illegal acts such as stealing cash or falsifying a financial statement as a way to solve problem

It can be deep personal debt or a job/business is in jeopardy e.g. Desire for status symbol eg. Big house, nicer car; need to meet productivity targets; drug or gambling addition or inability to pay bills ( See the Enron Case Study)

It can sexual addiction and importance of status


Causes of Fraud (Pressure/Incentive)

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• It is a perceived opportunity defining method by which crime can be committed

• Involves uses of position of trust to solve financial problems

• It is critical that the fraudster be able to solve problem in secret since motivation is over the status

• Always the fraudster will act in secret e.g. forcing bank reconciliation to balance if he had paid a cheque to oneself ( See a case of TV show)


Causes of fraud (Opportunity)

../Who wants to be a Millionaire - Major Fraud.avi

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• Not applicable to professional fraudsters or predatory employees ( employees taking job with intent to stealing from the employer)

• Rationalization is only necessary for first commitment of fraud and afterwards it is abandoned

• Comprehensive case study – Fraud triangle ( see handouts and FRM Manual)


Fraud Triangle - Limitations

EMAC

• Reduce pressures on employees that might push them to committing fraud

• Reduced perceived opportunities to commit fraud

• Dispel rationalization for engaging in fraudulent conduct

• Sanctions does not work, why

Fraudsters never think that they can be caught in a perceived opportunity

Fraudsters always rationalize their conduct

Sanctions are only secondary consideration


Fraud Triangle-Deterrence measures

EMAC

22

Types of fraud

Fraudulent Financial Reporting

Asset Misappropriation

Other Questionable or Improper Business Practices

Manipulation, falsification/alteration of records or documents

Misappropriation of assets

Suppression or omission of the effect of transaction from records or documents

Recording transaction without substance

Misapplication of accounting principles

These can be elaborated on this presentationElsam Management Consultants-www.elsamconsult.com

../23 Fraud Schemes.wmv

EMAC


Types of Internal Fraud

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End of Session II


EMAC

Types Warning Signs

Organization indicators

Business risks, financial risk, environmental risk

IT risk

Data risk

Fraud Alerts

These are red frags

The list is not exhaustive

They appear in many different guises


Fraud Indicators (Red Flags)

EMAC

Business risks

Cultural issues, management issues, employee issues, process issues and transaction issues

Cultural issues include; absence of ant-fraud policy and culture, failure of management to develop sound system of internal control

Management issues include; lack of financial management expertise and professionalism, history of legal or regulatory violation, strained relationship between management, internal and external auditors, lack of management supervision of staff, lack of clear management control of responsibility, bonus schemes linked to ambitious targets


Fraud Indicators

EMAC

Business Risks Employee issues includes; inadequate recruitment process and

absence of screening, Unusual close relationship, internal and external,Potential or actual labor reduction, dissatsfied employees who have access to desirable assets, unsual staff behavior patterns, personal financial pressure on key staff, low salary levels of key staff, poor dessmination of internal controls, employees working unsocial hours unsupervised, employees not taking annual leave requirements, unwillingness to share duties.

Process issues include; lack of job segregation and independent checking, lack of identification of assets, poor management accountability and reporting systems, poor physical security of assets, poor access controls to physical assets and IT security systems, lack or inadequate internal controls, poor documentation support, large cash transactions, susceptibility of assets to misappropriation


Fraud Indicators

EMAC

Financial Risks

Unrealistic management targets

Significant pressures on management

Extensive use of tax havens without clear business justifications

Complex transactions

Use of complex financial products

Complex legal ownership

Rapid changes in profitability

Personal or corporate guarantees


Fraud Indicators

EMAC

IT and Data risks

Unauthorized systems access

Wealth of malicious codes and tools for attackers

Rapid changes in information technology

Users not adopting good computer security practices

Unauthorized electronic transfer of funds and other assets

Manipulation of computer programs

Compromised business information

Breaches of date security and privacy

Sensitive data being stolen leaked or lost


Fraud Indicators

EMAC

• Aggressive application of accounting codes• Information provided unwillingly or after unreasonable

delay• Unsupported transactions• Fewer confirmation responses• Evidence of unduly lifestyle by officers or employees• Long outstanding imprest balances• Poor documentation• False & improper entries in records• Unauthorized payments• Unauthorized use of corporate assets• Misapplication of funds



EMAC

Undue secrecy

• Questionable practices

• Significant manager or director transactions

• Drop of sales or earnings

• Aggressive accounting treatment

• Posting of transactions to headquarters

• Receipt of poor quality goods

• Related party arrangements

• Weak security checks for employees

• Delay in submission of reports



EMAC

• Flouting directives and regulations

• Personal interest

• Uncorrected entries and stock adjustments

• High fly management decisions

• Incompatible functions done by one person

• Misuse of computer for private business

• Frequent use of allocated issue voucher even when the system is available

• Questionable system adjustments


Fraud indicators (Red flags)

EMAC

• Unauthorized transactions• Cash shortages• Unexplained variation in prices• Missing documentation• Excessive refunds• Living beyond ones means• Drug and alcoholic abuse• High personal debt/loses• Compulsive gambling/stock speculation• Risk of increase IT, increases the risk of

manipulation, access control


Fraud Indicators

EMAC

• Management Environment Pressure Management style and attitude

• Competitive and business environment e.g. technology

• Employee relationship ( spouse receiving non competitive contract)

• Attractive assets • Internal controls• Lack of separation of duties• Too much trust placed on few

employees


Fraud Indicators

EMAC

• Although the level of fraud risk at an organisation may be assessed as low, individuals in the business can have a personal motivation to commit fraud– Personal pressures

– Individual performance targets

– Infiltration by organised crime

• Controls may be overridden or ignored by certain individuals:– Powerful (overrides controls, staff intimidated)

– Successful (not to be bothered, too busy earning money)

– Trusted (responsibility has moved beyond their job description)


Personal Fraud indicators

EMAC


Managing Fraud -Forces

Entity Governance and Responsibility

Code of Ethics

Staff RegulationsDirector & Officer Liability

Internal Audit

Risk Management

Business Plan and Budget Procurement

and Finance Acts

Customer Service Surveys

Stakeholders pressures

Reputation and Credibility

EMAC

• Rapid increase of activities Weak competition

• Rapidly growing sales

• Relatively high profitability

• ….. In such an environment, effective anti-fraud measures can be ascribed low priority or be undetected because the current level of profitability allows for fraud losses to be absorbed within existing profit margins.

• …. Consider tough times ahead…. More competition, changing government regulations?


Business environment

EMAC

What are they?

1. Reviewed and Strengthening of internal controls

2. Periodic compliance audit

3. Employee hotline

4. Appointed compliance personnel

5. Establish and implement code of conduct for all employees

6. Conducted background check for hires with budgetary responsibility

7. Instituted fraud awareness training

8. Tied employee evaluations to ethics or compliance objectives

What is your answer on the above from 0-10Elsam Management Consultants-www.elsamconsult.com 38

Do we have any fraud mitigation?

EMAC


Fraud Risk Management TechniquesManagement

Internal Audit Internal Controls Whistle-blowing

Reliance

?

../../../Documents/Downloads/Free YouTube Downloader/The Mysterious Deaths of Nine Gulf Oil Spill Whistleblowers.avi

EMAC

• Good controls on paper are not strictly followed in practice

• Grey areas in the rules – open to interpretation

• Lack of segregation of duties• Collusion• Management override• Failure of senior management to lead by

example• Bureaucracy &/or formulaic compliance• Failure to share knowledge of fraud

experience, control weaknesses and control improvements

• Clash of cultures


Controls Barriers

EMAC


Objectives of Fraud Risk Management

Prevention

Detection

Response

controls designed to reduce the risk of fraud and misconduct fromoccurring in the first place

controls designed to discover fraud and misconduct when it occurs

controls designed to take corrective action and remedy the harmcaused by fraud or misconduct

http://www.elsamconsult.com/

appropriately if discovered

occurrence

fraud and misconduct

Fraud Risks Management - Measures


Detect

Respond

Prevent

Fraud Risk Management - components


EMAC

• Before an organisation can develop an effective program to prevent and detect fraud, it must first understand the types of fraud risk, including specific types of frauds and schemes, to which it may be vulnerable.


Fraud risk assessment

Likelihood

Sig

nif

ican

ce /

Imp

act

Qualitative factors in the assessment include:• the accounting system• complexity, volume and nature of transactions• internal controls in place• compliance, training and monitoring

Incorporates the views of:• management;• control functions;• line employees

Management are then able to:• Prioritise identified risks and evaluate the existing controls• Link each risk to specific controls and commit resources to implement any enhancements

EMAC

Surveys suggest that:

1. Over 50% of frauds are discovered as a result of information provided by staff

2. Losses after an introduction of a whistle-blowing hotline can be reduced by up to 60%.

3. Staff prefer the following reporting channels: 57%: a telephone hotline;

20%: conventional mail; and

16%: e-mail.


Fraud Risk Management Experiences

Source: 2006 ACFE Report to the Nation on Occupational Fraud & Abuse

EMAC


FRM – Hotline best practices

Confidentiality

Anonymity

AvailabilityAssistance –Real Time

Procedures

Classify & Notify

Communicate

All matters treated confidentially; reported on a need to know basis

Process should allow for anonymous submission & resolution

Should be available in remote outposts, not just head officeA ‘live’ response – operators need to be qualified, trained & able to provide advice

Consistent protocols to gather information and manage the call

Qualified staff assess the allegation; protocols establish basis for escalation & investigation

Publicise the hotline prominently; commit to, & test for, non-retaliation

EMAC


FRM - Response• Objective is to take corrective action & remedy the

harm caused by fraud or misconduct:

• Examine the primary cause of the control breakdown, ensuring that risk is mitigated and controls are strengthened.

• Discipline those involved in the inappropriate actions, as well as those in management positions who failed to detect or prevent such events.

• Communicate to the wider population of employees that management took appropriate, responsive action.

EMAC

Consideration should be given to:• Data and information gathering;

• Interviewing techniques;

• Appropriate resource;

• Analytical tools such as data mining; and

• Organisation intelligence information.

• My first fraud investigation Video


FRM - Basis of Investigation

../../../Documents/Downloads/Free YouTube Downloader/My First Fraud Investigation.avi

EMAC

• Once the symptoms of fraud are found and additional tests have indicated that there is a strong possibility of fraud, the review enters the formal investigation phase

• Investigator must know;Results of investigation can be used later

as an educational tools for auditors, fraud investigators and other employees (See a Case of Forensic Accountant)


Fraud investigation

../../../Documents/Downloads/Free YouTube Downloader/What is a Forensic Accountant .avi

EMAC

• Briefing management, followed by terms of reference detailing the initial scope of work

• Communication with parties involved e.g. Internal audit, audit committee and accounting staff

• Determining the extent of fraud

• Interviewing the defrauder ( only if fraud is known with certainty)

• Investigating the known area with detailed audit test. E.g. Procurement tendering, wages, cash debtors and stock, payroll

• Report to the management on the findings, with copies to interested parties e.g. Internal auditor, audit committee.


Fraud investigation- stages

EMAC

• Circumstances which led to investigation

• Fraud discovered and their extent

• Identity of the defrauder

• Effects on the reported profit of the past period

• Effects on f/s of current periods


Investigation – details of report

EMAC

• IC weakness which allowed the fraud and recommendations for eliminating them

• Report of any interviewing with the defrauder, including offers of restitution etc, which may be relevant to management in deciding what action, if any they should take against him/her

• If there is any suggestion that the internal auditors has been negligent the extent of claim against him.


Investigation – details of report

EMAC

Investigator should Consider the potential effects in F/s

Where the fraud is material the auditor should modify the audit procedures so as to perform procedures appropriate to circumstances depending on the type of the fraud/error suspected, the likelihood of their occurrence and extent of damage in the F/s


Action upon proof of fraud or error

EMAC

• If some proof of fraud exists, management has several options

Cause a deeper audit to be done if amount of loss appears substantial

Terminate employee responsible if loss is minimal

File a claim to recover a loss from clients fidelity insurance agent

Arrange with law enforcement agents to probe into the matter



EMAC

• If some proof of fraud exists, management has several options

Engage a private investigator to probe into the loss and document it for claim purpose/prosecution

Disregard losses if minimal and tighten controls

Alert the directors, audit committees or the Board



EMAC

• Strong internal Control System is not a warrant from fraud

Entity should have an effective anti-fraud and corruption strategy which is aimed at encouraging prevention, promote early detection and respond to concern raised

Awareness programs to employeesScreening job applicants

Sound corporate policy on fraud

AVOID atmosphere of distrust and paranoia by over-emphasising fraud deterrence measures.


Fraud deterrence measures

EMAC

• Management should ensure enforcement of compliance with operations SOPs

• Risk management function should be embedded in business activities

• Internal audit should be proactively risk based


Fraud Deterrence –three lines of defense

EMAC

Management and other personnel on the front line provide the first line of defense as they are responsible for maintaining effective internal control day to day; they are compensated based on performance in relation to all applicable objectives

Business enabling functions such as risk, control, legal, and compliance provide the second line of defense as they clarify internal control requirements and evaluate adherence to defined standards. While they are functionally aligned to the business, their compensation is not directly tied to performance of the area which they render expert advice

Internal auditors provide the third line of defense as they assess and report on internal control and recommend corrective actions or enhancements for management considerations and implementation; their position and compensation are separate and distinct from the business area they review.


Three lines of defense

EMAC

• It is important to stick to facts, and to discount hearsay, rumour, or opinion and record what is relevant to the cause of the incident and its effect

• Audit reports on fraud and other improprieties should be addressed to the right person who can take action


Fraud Risk Reporting

EMAC

Report must contain all details of fraud

Must provide framework to analyse the fraud case

Must enable the user to develop improved management and security policies and detect and prevent fraud.

Investigation and reporting should proceed in such a way that the outcome will be litigated. Recording exact times, data, names of person and specific; description of evidence are critical in civil or criminal investigation or litigation


Fraud reporting

EMAC

Handbook supporting development of fraud risk

management


Fraud Risk- Good Practice Guide

EMAC

Session I


Part III

Interviewing and Interrogation Techniques


EMAC

Coverage

Understand the differences and similarities between interviews and interrogation

Outline the steps in preparing for an interview and an interrogation

Assess the challenges in relying on eyewitness identification

Explain the role of hypnosis in criminal investigation Describe Neuro-Linguistic Programming (NLP) Identify interviewing processes and techniques Identify interrogation processes and techniques Understand the methods and importance of

documenting an interview and interrogation Understanding chain of custody Basic of Forensic examination


EMAC

OBJECTIVES OF THE INTERROGATION PROCESS

Successful interrogation accomplishes four objectives:

Obtaining facts

Eliminating the innocent

Identifying the guilty

Obtaining a confession


Similarities between interviews and interrogations

Interviews

Planning important

Controlling surroundings important

Privacy or semi privacy desirable

Interrogations

Planning critical

Controlling surroundings critical

Absolute privacy essential


Similarities Between Interviews And Interrogations (cont'd)

Interviews

Establishing rapport important

Careful listening

Proper documentation

Interrogations

Establishing rapport important

Careful listening

Proper documentation


Differences between interviews and interrogations

Interviews

Purpose is to obtain information

Minimal or no pre-interview legal requirements; no rights warning

Cooperative relationship between interviewer and subject likely

Case Study

Interrogations

Purpose to test information already obtained

Extensive pre interrogation legal requirements; rights warning required

Adversarial or hostile relationship between interviewer and subject likely

Case Study


../Interview with Bob Dignen Part 2 Interpersonal Skills.avi

../People at Business Consulting - Nick, Part 3.avi

Differences between interviews and interrogations (cont'd)

Interviews

No guilt or guilt uncertain

Moderate planning or preparation

Private or semiprivate environment desirable

Interrogations

Guilt suggested or likely

Extensive planning preparation

Absolute privacy essential


EMAC

Preparation for interviews or interrogations

Know as much as possible about the witness

Know what crime or crimes were committed

Learn as much as possible about the victim

Evaluate what is known about the suspect


EMAC

Preinterrogation checklist

Many investigators find it useful to complete a pre-interrogation checklist to assist them in adequately preparing for their meeting with the suspect.

Do You Have These Facts Regarding the Crime? Check Here

1 The legal description of the defense

2 The value and nature of loss

3 Time, date, and place of occurrence

4 Description of Fraud crime scene and surrounding area

5 Physical evidence collected

6 Weather conditions at time of offense

7 Specific entry/exit points of perpetrator

8 Approach and departure routes of perpetrator

9 Methods of travel to and from scene

10 The modus operandi of the perpetrator

11 The tools or weapons used

12 Names of persons having knowledge

13 Possible motive

14 Details from other case files thata. point to particular suspects

b. show matching modi operandi

c. suggest a pattern of criminality(Source: John Fay, unpublished notebook, American Society for Industrial Security,

Workshop in Criminal Interrogation (Jacksonville, FL: ASIS, 1981), p. A4-1.Elsam Management Consultants-www.elsamconsult.com 71

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Challenges in relying on eyewitness identification

The significance or insignificance of the event to the witness

The length of the period of observation by the witness

The lack of ideal conditions for the witnesses


EMAC

Challenges in relying on eyewitness identification (cont'd)

The psychological factors internal to the witness

The physical condition of the witness

The expectancy of the witness


EMAC

EYEWITNESS IDENTIFICATION

Research indicates this form of identification is often unreliable.

Human perception and memory are selective do not make exact copies

(Source: Scientific American, 1974, Vol. 231, No. 6, Reprinted by permission.)Elsam Management Consultants-www.elsamconsult.com 74

EMAC

Hypnosis as an investigative tool

Hypnosis can be used by investigators to aid witness recall

Courts have disagreed on whether or not to admit information obtained as a result of hypnosis

Investigators need to be aware of the following potential problems with using hypnosis:

Hyper suggestibility

Hyper compliance

Confabulation


EMAC

Neuro-linguistic programming three basic concepts

Neuro comes from the idea that behavior originates from neurological processes involving the five senses

Then we communicate our life experiences through language

Programming refers to how we organize our ideas and actions to produce results

The investigator understands these concepts and can get in “sync” with the witness


EMAC

Steps in interview process

Interview consists of: Beginning, middle, end

Beginning should be a time: When the investigator can identify himself or herself

When the investigator can discuss the purpose for the interview

When the investigator establishes rapport

Middle The investigator gathers information

Ending Thank the witness for his/her cooperation


EMAC

Cognitive interview technique

A method of jogging the memory of an eyewitness

Encouraging the free flow of thoughts

Looking at the event from different perspectives


EMAC

Cognitive interview technique (cont'd)

Four basic techniques to elicit information

Asking the witness to think about the general circumstances

Report everything, no matter how minor or unimportant it may appear

Recall events in a different order

Change perspectives by looking at the event from the standpoint of a third person


EMAC

Requirements imposed on Investigators

The police/investigators are required to advise in-custody suspects of:

The right to remain silent

The right to be told that anything said can and will be used against him or her in court

The right to consult with an attorney prior to answering any questions and the right to have an attorney present during the interrogation

If the suspect cannot afford to pay for an attorney, the court will appoint one


EMAC

The interrogation process

Beginning the interrogation

Composing and asking questions

Recognizing and coping with deception

Verbal signals and non-verbal signals

Statement analysis


EMAC

Interrogation techniques and approaches

Logical approach

Emotional approach

Sympathetic approach

Indirect approach

Playing one suspect against another suspect


EMAC

Importance of listening during interviews and interrogations

Investigators can conduct a successful interview only if they are good listeners

Listening is as valuable a tool as questioning

To be effective, one must be an active listener


EMAC

Comparison types of interview documentation

Type Advantages Disadvantages

Memory Quick and easy Limited absorption and recall

Most information lost shortly afterward

Note taking by interviewer Sufficient in most cases

Captures salient details

Prevents need for reinterviewing

May distract or offend witness

May preoccupy interviewer, creating appearance of inattentiveness

May cause interviewer to miss nonverbal messages

Handwritten or signed statements by witness

Useful if witness cannot testify

Can be used to impeach if witness changes story in court

Request may be offensive to witness

Not necessary in routine statements

Sound or sound-and-visual recordings

Relatively inexpensive

Some equipment portable

All information recorded in witnesses’ own words

Does not rely on inaccuracies of memory or another’s notes

Does not distract

Prevents unnecessary reinterviews

Not necessary except in the most important cases

Generally not practical


EMAC

Comparison types of confession documentation

Type Advantages Disadvantages

1. Video-audiotape or movie Shows all ,including fairness, procedures, and treatmentEasy to doCan be relatively inexpensive

May be legal constraintsQuality equipment may be costly

2. Audio recording Can hear conversationsCan infer fairness

Some words or descriptions may be meaningless without pictorial support

Necessitates identifying people and things involved

3. Statement written and signed in suspect’s own handwriting

Can be identified as coming directly from suspect

Can’t see demeanor or hear voice inflections

Suspect may not agree to procedure

4. Typed statement signed by suspect

Signature indicates knowledge of an agreement with contents of statement

Less convincing than methods described above

5. Typed unsigned statement acknowledged by suspect

Contents of confession or admission are present

Acknowledgement helps show voluntariness

Reduced believability of voluntariness and accuracy of contents

6. Testimony of someone who heard confession or admission given

Contents admissible Carries little weight with juries


EMAC

Session II


EMAC

Forensic means, “ having to do with the law”

It is application of broad spectrum of art or sciences to investigation and establish facts of interest in relation to criminal or civil law

It is synonym for legal or related to the courts

Forensic auditor is someone who can look behind the facade--not accept the records at their face value--someone who has a suspicious mind that the documents he or she is looking at may not be what they purport to be and someone who has the expertise to go out and conduct very detailed interviews of individuals to develop the truth, especially if some are presumed to be lying.

Example ACCA case study on forensic accounting


Forensic Examination

../ACCA P7 Lecture 19 - Forensic Auditing.avi

EMAC

Forensic examination is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past data or other activities for settling current or prospective legal disputes or using such past data for projecting future data to settle legal disputes.

Fraud Investigator is a professional especially skilled in who is generally engaged in investigation with a view toward fraud discovery, documentation, and prevention.


Forensic examination

EMAC

Issue Audit Forensic Examination

Timing Recurring: audits are

conducted on a regular basis

Nonrecurring: fraud examinations are

nonrecurring. They are conducted only

with sufficient predication.

Scope General: collection of

sufficient, competent data to

support the opinion

rendered.

Specific: the fraud examination is

conducted to resolve specific

allegations.

Objective Opinion: express opinion on

financial statements

Affix blame: determine if fraud

occurred and who is responsible.

Adversarial in nature.

Methodology Audit techniques applied

primarily to financial data.

Fraud examination techniques include

document examination, public record

searches, and interviews.

Presumption Professional skepticism Proof to support or refute an allegation

of fraud.


Difference between auditing and forensic examination

90

Covert AspectsAttitudes

Feelings (Fear, Anger, etc.)

Values

Norms

Interaction

Supportiveness

Satisfaction

Overt AspectsHierarchy

Financial Resources

Goals of the Organization

Skills and Abilities of Personnel

Technological State

Performance Measurement

Behavioral

Considerations

Water line

Thinking as a Forensic Investigator

Structural

Considerations

The Iceberg Theory of Fraud

Source: G.J. Bologna and R.J. Lindquist, Fraud Auditing and Forensic Accounting, 2nd Edition, New York: John Wiley, 1995, pp. 36-37

Elsam Management Consultants-www.elsamconsult.com

EMAC

Chain of custody is important to be observed in fraud cases since any broken chain may lead to disqualification by court in legal litigation

Chain of custody refers to the chronological documentation of paper train showing the seizure, custody, control, transfer, analysis and disposition of physical or electronic evidence.

The main objective of chain of custody is to establish that the alleged evidence is in fact related to the alleged crime, rather than having, for example been planted fraudulently to make some one appear guilty.

The custody is normally discharged to a police officer of investigator and should be stored in a good and secured place.


Significance of observing chain of custody

EMAC

Chain of custody requires from the moment the evidence is collected, every transfer of evidence from person to person be documented and that it be provable that nobody else could have accessed that evidence. It is best to keep the number of transfer as low as possible.


Significance of observing chain of custody

EMAC

“Trust ,but verify” Ronald Reagan

Trust no one; question everything; verify


Always Remember

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Fraud risk management and interrogation techniques part ii

Business

Transcript of Fraud risk management and interrogation techniques part ii