Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraud Examination, 4E Chapter 8: Investigating Concealment

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Describe concealment investigation methods and how they relate to fraud.  Understand the value of documents and electronic records in a fraud investigation.  List the different methods of obtaining documentary evidence.  Understand how to perform discovery sampling to obtain documentary evidence.  Explain how to obtain hard-to-get documentary evidence.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Concealment  Perpetrators must conceal their fraud by covering their tracks, obscuring evidence, and removing red flags where possible.  Accomplished by manipulating documentary evidence  For an electronic perspective, concealment can also be accomplished by modifying or deleting records in corporate databases.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Unlike witnesses, documents do not forget, they cannot be cross-examined or confused by attorneys, they cannot commit perjury, and they never tell inconsistent stories on two different occasions.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Investigators must understand the following aspects of documentary evidence:  Chain of custody of documents  Marking of evidence  Organization of documentary evidence  Coordination of evidence  Rules concerning original versus copies of documents

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Chain of custody documents  Record must be kept of when a document is received and what has happened to it since its receipt.  For computer-based evidence, professional programs like EnCase and The Forensic Toolkit calculate checksums that support the chain of evidence.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Marking the Evidence  A transparent envelope should be used to store the evidence, with the date received and the initials of the examiner written on the outside.  A copy of the document should be made, and the original document should be stored in the envelope in a secure place.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Organization of the Evidence  Fraud cases can create tremendous amounts of documentary evidence In one case, 100 people worked full time for over a year to input key words into a computer so that the documents could be called up on demand during the trial—there were literally millions of documents.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Today, in especially large cases, it is not uncommon to have electronic files of all depositions and other testimony of all exhibits with the testimony.  FBI’s Document Conversion Lab (DocLab)  Saves incredible amounts of time and space  Increases search capabilities exponentially  Enables information sharing far and wide

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Evidence database should include the following:  Dates of documents  Sources of documents  Dates on which documents were obtained  Brief descriptions of document contents  Subjects of documents  Identifying or Bates number

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Coordination of Evidence  Some investigations are simple and involve only a few people.  Some investigations are large and involve investigators, legal counsel, accountants, expert witnesses, and management representatives. In these type cases, investigation analysis software can be useful.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Two popular investigation analysis software are:  Analyst’s Notebook14  Xanalys Link Explorer

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Original Documents versus Photocopies  Originals are preferable to photocopies  In certain jurisdictions, only four situations permit photocopies

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  The original document has been lost or destroyed without the intent or fault of the party seeking to introduce the secondary evidence.  The original document is in the possession of an adverse party who fails to produce it after a written notice to do so, or when the party in possession is outside the jurisdiction of the subpoena power of the court.  The document or record is in the custody of a public office.  The original documents are too voluminous to permit careful examination, and a summary of their contents is acceptable.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Obtaining Documentary Evidence  The best way to obtain documentary evidence is through computer-based queries of accounting and other databases.  Another useful method of obtaining documentary evidence is through traditional audits, including discovery sampling.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Audits  Auditors conduct seven types of tests  Tests of mechanical accuracy (recalculations)  Analytical tests (tests of reasonableness)  Documentation  Confirmations  Observations  Physical examinations  Inquiries

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence Because gathering documentation is a normal part of their work, auditors can often gather documentary evidence as part of an investigation without arousing suspicion.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Discovery Sampling  Discovery sampling is the easiest of all statistical sampling variations to understand.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Documentation of Discovery Sampling  The investigator should document the method used for determining sample size and the method used for selecting the sample.  Evaluation of Errors  If the investigator finds errors, he or she must determine whether the errors were unintentional or are indicative of fraud.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Consideration of Nonsampling Risk  The investigator should also consider nonsampling risk, which is the risk that a finding will be misinterpreted.  Misinterpretation can be reduced by:  careful planning,  performance,  evaluation of the sampling procedure

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Hard-to-Get Documentary Evidence The most common examples are:  Web-based accounts  Private bank records  Tax returns  Brokerage records

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Hard-to-Get Documentary Evidence  Three ways to obtain documentary evidence:  Subpoena  Search warrant  Voluntary consent

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Document Experts determine whether…  a document was written by the person whose signature it bears  a document has been forged  a document has been altered by additives, deletions, obliterations, erasures, or photocopying  the handwriting is genuine  the entire document was printed on the same machine  a document was printed on the date it bears or before or after  two or more documents are significantly different or substantially the same  pages have been substituted in a document.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Aspects of Documentary Evidence  Two well-known organizations of document experts can offer in fraud investigations.  FBI: Questioned Documents Section of the Forensic Analysis Section  American Board of Forensic Document Examiners, Inc.