Fraud risk management and interrogation techniques part ii

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By Sako Mayrick
Elsam Management Consultants
Elsam Management Consultants-www.elsamconsult.com 1
FRAUD RISK MANAGEMENT
Training Materials
March,2015

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 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 guide
Coverage

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 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

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 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

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 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-crimes
Introduction

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 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

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COSO - Framework (Control
Framework)
7Elsam Management Consultants-www.elsamconsult.com
Case Study 1
A Car internal
control
exemplification

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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

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Credit
Risk
Market
Risk
Operation
al Risk
Complianc
e Risk
Informati
on Risk
Data Risk Other Risk
Basic Strategic ERM Integrated
Evolution of Operational Risk

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• 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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• 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?

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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

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• 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 triangle
Why people commit fraud?

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• 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

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Fraud
Pressure
or
Incentive
Rationalizati
on
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

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Why fraud happens?
Fraud Need/
Rationalization
•Every one
Does it
•Simply borrow
-money
Pressure
Unrealistic
Corporate
Target can
Force
Employees to
Commit fraud
Opportunity- due to weak
And override of controls

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• 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)

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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

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• 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

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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

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Types of Internal Fraud

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End of Session II

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 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)

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 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

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 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

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 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

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 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

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• 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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 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

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• 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)

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• 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

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• 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

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• 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

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Managing Fraud -Forces
Entity Governance and Responsibility
Code of
Ethics
Staff Regulations
Director &
Officer
Liability
Internal
Audit
Risk
Management
Business Plan
and Budget Procurement
and Finance Acts
Customer
Service
Surveys
Stakeholders
pressures
Reputation
and
Credibility

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• 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

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 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 0-10
Do we have any fraud mitigation?

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Fraud Risk Management Techniques
Management
Internal Audit Internal Controls Whistle-blowing
Reliance
?

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• 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

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Objectives of Fraud Risk
Management
Prevention
Detection
Response
controls designed
to reduce the risk of
fraud and
misconduct from
occurring in the first
place
controls
designed to
discover fraud
and misconduct
when it occurs
controls
designed to take
corrective action
and remedy the
harm
caused by fraud
or misconduct

appropria
tely if
discovere
d
occurrence
fraud and
misconduct
Fraud Risks Management - Measures
Detect
Respond
Prevent

Fraud Risk Management - components

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• 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
Significance/Impact
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

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 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

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FRM – Hotline best practices
Confidentiality
Anonymity
Availability
Assistance –
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
office
A ‘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

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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.

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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

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• 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

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• 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

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• 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

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• 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

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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/sElsam Management Consultants-www.elsamconsult.com 53
Action upon proof of fraud or error

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• 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
Action upon proof of fraud or
error

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• 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
Action upon proof of fraud or
error

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• Strong internal Control System is not a
warrant from fraud
Entityshould 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 employees
Screening job applicants
Sound corporate policy on fraud
AVOID atmosphere of distrust and paranoia
by over-emphasising fraud deterrence
measures.Elsam Management Consultants-www.elsamconsult.com 56
Fraud deterrence measures

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• 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

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 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

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• 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

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 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

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Handbook supporting
development of fraud risk
management
Fraud Risk- Good Practice Guide

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Session I
Part III

Interviewing and Interrogation
Techniques

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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 examinationElsam Management Consultants-www.elsamconsult.com 64

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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

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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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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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 that
a. 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

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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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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

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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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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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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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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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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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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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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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Interrogation techniques and approaches
 Logical approach
 Emotional approach
 Sympathetic approach
 Indirect approach
 Playing one suspect against another
suspect

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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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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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Comparison types of confession documentation
Type Advantages Disadvantages
1. Video-audiotape or movie Shows all ,including fairness,
procedures, and treatment
Easy to do
Can be relatively inexpensive
May be legal constraints
Quality equipment may be costly
2. Audio recording Can hear conversations
Can 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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Session II

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 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

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 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

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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 Aspects
Attitudes
Feelings (Fear, Anger, etc.)
Values
Norms
Interaction
Supportiveness
Satisfaction
Overt Aspects
Hierarchy
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

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 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

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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

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“Trust ,but verify” Ronald Reagan
Trust no one; question everything;
verify
Always Remember

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Elsam Management Consultants
(EMAC)
Recruitment, training and business Consultants
Website: http://www.elsamconsult.com
Email: info@elsamconsult.com
We provide risk management training for
organization and support preparation of risk
management/Internal Control frameworks
For more training inquiries

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