1. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-1 Today’s Topics n Methods for Investigating Fraud n Theft Investigation Methods n Concealment Investigation Methods n Miscellaneous Articles and Cases

2. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-2 Fraud Investigation n Evidence Square Approach n Testimonial evidence n Documentary evidence n Physical evidence n Personal observation n Fraud Elements Plus Inquiry Approach n Theft investigation n Concealment investigation n Conversion investigation n Inquiry investigation

3. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-3 Theft Investigation n Surveillance and covert operations n Invigilation n Physical evidence n Generally costly and time-consuming

4. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-4 Theft Investigation Bull’s-Eye n Check records n Interview former employees, vendors n Search public records n Interview employees, buyers etc. n Interview suspect

5. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-5 Coordinating the Investigation n Vulnerability Chart (spread sheet) n What was taken? n Who had the opportunity? n How were assets moved? n How was it concealed? n How were the assets converted? n What were the red-flags? n What were the possible motives? n What were the sources of rationalization? n What internal controls exist?

6. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-6 Surveillance and Covert Operations n Fixed, tailing or electronic n Legal, but subject to the 4th Amendment protection against unreasonable searches n Avoid fishing expeditions

7. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-7 Invigilation n Observation that takes away virtually all opportunities for fraud n Before and after comparisons n Use only with management approval n Costly

8. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-8 Physical Evidence n WTC example n Northern Exposure example

9. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-9 Concealment Investigation n Examination of documents n Routine audits n Extended computer searches n Physical asset counts

10. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-10 Documentation n Documents do not forget …but n Keep in mind these cautions n Maintain chain of custody n Provide unique markings n Organize the evidence effectively n Strive to obtain original documentation n Consider use of Document Experts

11. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-11 Auditing & Sampling n Recalculation n Reasonableness n Documentation n Confirmation n Observation n Physical examination n Inquiry Statistical sampling plays a significant role here. But be careful of sampling and non- sampling errors. See discussion of discovery versus computer sampling.

12. FORENSIC ACCOUNTING - BA124 - Fall 2008Slide 7-12 Hard-To-Get-Documents n Subpoena n Search warrant n Voluntary consent