fraud risk management and interrogation techniques part ii
TRANSCRIPT
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.
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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
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Internal Control and Fraud
EMAC
COSO - Framework (Control Framework)
7Elsam Management Consultants-www.elsamconsult.com
Case Study 1 A Car internal
control exemplification
EMAC
• 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
Elsam Management Consultants-www.elsamconsult.com 9
Fraud as risk
EMAC
Credit Risk
Market Risk
Operational Risk
Compliance Risk
Information Risk
Data Risk Other Risk
Basic Strategic ERM Integrated
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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
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Perception on operational Risk
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
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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.
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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?
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.
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Causes of Fraud - Rationalization
EMAC Fraud
Pressure or
Incentive
Rationalization
Opportunity
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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
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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
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Causes of Fraud (Pressure/Incentive)
EMAC
• 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)
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Causes of fraud (Opportunity)
EMAC
• 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)
Elsam Management Consultants-www.elsamconsult.com 20
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
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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
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
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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
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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
Elsam Management Consultants-www.elsamconsult.com 27
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
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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
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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
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Fraud Indicators (Red Flags)
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
Elsam Management Consultants-www.elsamconsult.com 31
Fraud Indicators (Red Flags)
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
Elsam Management Consultants-www.elsamconsult.com 32
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
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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
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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)
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Personal Fraud indicators
EMAC
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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?
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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
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Fraud Risk Management TechniquesManagement
Internal Audit Internal Controls Whistle-blowing
Reliance
?
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
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Controls Barriers
EMAC
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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
appropriately if discovered
occurrence
fraud and misconduct
Fraud Risks Management - Measures
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Detect
Respond
Prevent
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.
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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.
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Fraud Risk Management Experiences
Source: 2006 ACFE Report to the Nation on Occupational Fraud & Abuse
EMAC
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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
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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
Elsam Management Consultants-www.elsamconsult.com 48
FRM - Basis of Investigation
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)
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Fraud investigation
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.
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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
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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.
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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
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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
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Action upon proof of fraud or error
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
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Action upon proof of fraud or error
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.
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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
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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.
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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
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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
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Fraud reporting
EMAC
Handbook supporting development of fraud risk
management
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Fraud Risk- Good Practice Guide
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
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EMAC
OBJECTIVES OF THE INTERROGATION PROCESS
Successful interrogation accomplishes four objectives:
Obtaining facts
Eliminating the innocent
Identifying the guilty
Obtaining a confession
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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
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Similarities Between Interviews And Interrogations (cont'd)
Interviews
Establishing rapport important
Careful listening
Proper documentation
Interrogations
Establishing rapport important
Careful listening
Proper documentation
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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
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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
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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
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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
EMAC
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
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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
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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
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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
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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
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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
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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
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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
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EMAC
The interrogation process
Beginning the interrogation
Composing and asking questions
Recognizing and coping with deception
Verbal signals and non-verbal signals
Statement analysis
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EMAC
Interrogation techniques and approaches
Logical approach
Emotional approach
Sympathetic approach
Indirect approach
Playing one suspect against another suspect
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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
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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
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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
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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
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Forensic Examination
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.
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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.
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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
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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.
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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.
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Significance of observing chain of custody
EMAC
“Trust ,but verify” Ronald Reagan
Trust no one; question everything; verify
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Always Remember
EMAC
Elsam Management Consultants(EMAC)
Recruitment, training and business ConsultantsWebsite: http://www.elsamconsult.com
Email: [email protected]
We provide risk management training for organization and support preparation of risk management/Internal Control frameworks
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