Ch. 8
Generally, how is the problem of management override and collusion addressed?
Depending on the individuals involved, internal controls cannot prevent management override or collusive behavior by and among senior management. Since prevention, through segregation of duties—approvals and authorizations—Is not possible in a collusive environment, the principal internal control procedures will be centered on detection. The fear of detection may be an effective deterrent, but that does not eliminate the concern that traditionally designed internal control systems (centered on prevention) will not be effective when management override or collusion is present. Thus, internal and external auditors, fraud examiners, and forensic accounting professionals must design procedures to detect such activity.
What is predication, and how is the threshold for it determined?
Predication is defined as the totality of circumstances that would lead a reasonable, professionally-trained, and prudent individual to believe a fraud has occurred, is occurring, and/or is about to occur. Suspicion, without any corroborating circumstantial evidence, is not a sufficient basis for conducting a fraud examination. Something, as innocuous as an anonymous tip or complaint with some supporting evidence to substantiate the claim, may be enough to meet the predication threshold. In other cases, missing cash or other assets is usually sufficient to launch an examination.
What are the five types of interview and interrogation questions?
There are five general types of interview and interrogation questions: introductory, informational, assessment, closing, and admission-seeking.
Be able to describe each!
What are the two major approaches for testing IT system controls?
First, the IT systems can be audited around. This is often referred to as the “black-box” approach, where the professional relies on interviews and flow charts to develop an understanding of the systems but primarily tests the integrity of the data and the system by reconciling inputs to outputs. The second alternative is the “white-box” approach. With this system, the specialist normally creates a relatively small test dataset and uses it to test the system. Some of the tests performed include authenticity, accuracy, completeness, redundancy, access, audit trail and rounding error tests.
What are some red flags that may indicate that fraud is occurring?
The red flags that can lead to a formal fraud investigation include tips and complaints, behavioral red flags, analytical anomalies, accounting anomalies and internal control irregularities and weaknesses.
What are the three types of evidence that may be offered at trial?
Three types of evidence may be offered at trial:
Testimony – these are oral statements made by witnesses under oath.
Real – physical objects, such as documents, blood, footprints, fingerprints, or DNA, that are relevant to the facts at issue
Demonstrative – These are generally tangible items incorporated by counsel to illustrate important points. This type of evidence is created for presentation during a trial and includes maps, charts, summaries, and PowerPoint presentations.
Why are introductory questions so important to an interview’s success?
The introduction establishes the tone of the interview. If the witness feels comfortable, he or she is likely to provide information. If the witness feels threatened, this will inhibit fact-finding. Additionally, only by the person being relaxed can you observe non-threatening behavior and calibrate the witness.
What is computer forensics?
Computer forensics involves using specialize tools and techniques to image and capture data and information housed on computer hardware and embedded in software applications so that the integrity and chain of custody of such evidence is protected and can be admitted into a court of law.
What is meant by behavioral red flags?
Behavioral anomalies are exhibited in lifestyles and unusual behaviors. Lifestyle symptoms can be observed—cars, homes, boats, jewelry, clothing and other material possessions—and which they could not, or should not, be able to afford. Also, the fear of getting caught and the ramifications associated with that fear, generally, cause a person to exhibit unusual behavior. The underlying cause may be guilt or fear but either way, stress is created. Stress then causes changes in a person’s behavior. Such changes include insomnia, alcohol abuse, drug abuse, irritability, paranoia, inability to relax, inability to look people in the eye, signs of embarrassment, defensiveness, argumentativeness, belligerence, confession to a trusted confidant, pointing failure at others (scapegoats), excessive (or starting) smoking and other anxiety-based symptoms.
What is meant by invigilation?
Invigilation is an investigative technique that considers periods before, during and after a suspected fraud or civil action has occurred. This method looks for changes in patterns of performance around the time that the suspicious activity occurred. It provides evidence of the act by helping to calculate how much money may be missing and helps to provide powerful visual evidence that a fraud has occurred.
Why shouldn’t an interviewer use closed or leading questions during the information-gathering phase of the interview?
Closed or leading questions inhibit the flow of information from the witness. An open question does not restrict the subject’s response. The interviewer’s job is to allow the witness to convey as much information as necessary about the topic at hand.
What role do graphics play in an investigation?
Graphics can be used as an investigative tool. By visually putting together linkages, flows, timelines and other graphics, the investigator can gain insight into the case. Additionally, graphics can help the investigator to identify holes in the case or problem areas where further investigation is required. Graphics may also be used to identify questions that need to be answered to wrap up a case. Graphical representations of the data, like spreadsheet and examination of raw data such as source documents, can facilitate critical thinking by considering the case from differing perspectives. Furthermore, graphics can be useful in communicating investigative findings, conclusions and results.
What are the similarities and differences between analytical and accounting anomalies?
Anomalies are based on patterns or breaks in patterns. Analytical anomalies are transaction or financial statement relationships that do not make sense, such as: Unexplained cash shortages, Unexplained inventory shortages, Deviations from specifications, Increased scrap, Excessive purchases, Too many debit memos, Too many credit memos, Significant unexpected changes in account balances, Excessive late charges, Unreasonable expenses, or Unusual expense reimbursements
Accounting anomalies are unusual activities that seem to violate normal expectations for the accounting system. For example, a fraud examiner may notice transactions being recorded in odd ways or at odd times during the month. Some irregularities in documentation may include Missing documents, Old items being carried on bank and other account reconciliations from one period to the next period, Excessive voids or credit memos, Common names, addresses or phone numbers of payees or customers, Names, addresses or phone numbers that are the same as those of employees, Increases in past due accounts receivables, Increases in the number and amount of reconciling items, Alterations on documents, Duplicate payments, Second endorsements on checks, Breaks in check, invoice, purchase order and other document number sequences, Questionable handwriting, Photocopied documents
How do witness interviewing and interrogation differ?
Witness interviewing is an activity used to generate evidence in a case. In contrast, interrogation refers to those interviews where the interviewer believes that they have identified the perpetrator, are prepared to confront the suspect and are attempting to get the suspect to confess to the illegal activity.
What are some of the verbal clues to deception?
Verbal clues include: changes in speech patterns, repetition of the question, comments regarding the interview environment, displaying a selective memory, making excuses, increased use of oaths, excessive character testimony, answering with a question, overuse of respect, increasingly weaker denials, failure to deny wrongdoing, avoidance of emotive words, refusal to implicate other suspects, tolerant attitudes toward wrongdoing, reluctance to terminate the interview, and feigned unconcern about the issue at hand.
What is the purpose of timelines in an investigation?
Timelines chronologically organize information about events or activities to determine what has or may have occurred and the impact that these actions have had on the activity under investigation.
What are the main components of the fraud risk assessment process?
An overview of the fraud risk assessment process includes the following components:
Evaluate the fraud risk factors
Identify possible fraud schemes and scenarios
Prioritize individual fraud risks
Evaluate mitigating controls for those fraud schemes that are reasonably possible or probable of occurrence and are more than inconsequential or material.
When is it appropriate to use an indirect method for income reconstruction?
An indirect method should be used when: The person or entity of interest has inadequate books and records, The books do not clearly reflect taxable or other known income, There is reason to believe that the taxpayer has omitted taxable income, There appears to be a significant increase in year-to-year net worth, Gross profit percentages appear to change significantly from period to period, The person of interest’s expenses (both business and personal) exceed known income and there is no obvious cause for the difference
What are some non-verbal clues to deception?
Full Body Motions, Anatomical Physical Responses, illustrators, Hand over the mouth, manipulators, fleeing positions, crossing arms, reaction to evidence, and fake smiles.
How is case management software used in an investigation?
Case management software can be used in a number of situations to manage cases and case data, organize data in meaningful ways and even present data for use in reports or during testimony. It can also be used to initiate investigations that will likely evolve into complex cases.