FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-1

1
Todays Topics

• Methods for Investigating Fraud
• Theft Investigation Methods
• Concealment Investigation Methods
• Miscellaneous Articles and Cases

2
Fraud Investigation

• Evidence Square Approach
• Testimonial evidence
• Documentary evidence
• Physical evidence
• Personal observation
• Fraud Elements Plus Inquiry Approach
• Theft investigation
• Concealment investigation
• Conversion investigation
• Inquiry investigation

3
Theft Investigation

• Surveillance and covert operations
• Invigilation
• Physical evidence
• Generally costly and time-consuming

4
Theft Investigation Bulls-Eye

• Check records
• Interview former employees, vendors
• Search public records
• Interview employees, buyers etc.
• Interview suspect

5
Coordinating the Investigation

• Vulnerability Chart (spread sheet)
• What was taken?
• Who had the opportunity?
• How were assets moved?
• How was it concealed?
• How were the assets converted?
• What were the red-flags?
• What were the possible motives?
• What were the sources of rationalization?
• What internal controls exist?

6
Surveillance and Covert Operations

• Fixed, tailing or electronic
• Legal, but subject to the 4th Amendment
  protection against unreasonable searches
• Avoid fishing expeditions

7
Invigilation

• Observation that takes away virtually all
  opportunities for fraud
• Before and after comparisons
• Use only with management approval
• Costly

8
Physical Evidence

• WTC example
• Northern Exposure example

9
Concealment Investigation

• Examination of documents
• Routine audits
• Extended computer searches
• Physical asset counts

10
Documentation

• Documents do not forget
• but
• Keep in mind these cautions
• Maintain chain of custody
• Provide unique markings
• Organize the evidence effectively
• Strive to obtain original documentation
• Consider use of Document Experts

11
Auditing Sampling
Statistical sampling plays a significant role
here. But be careful of sampling and
non-sampling errors. See discussion of discovery
versus computer sampling.

• Recalculation
• Reasonableness
• Documentation
• Confirmation
• Observation
• Physical examination
• Inquiry

12
Hard-To-Get-Documents

• Subpoena
• Search warrant
• Voluntary consent