PLANNING AND CONDUCTING A FRAUD …

1 Investigation PLANNING and CONDUCTING a FRAUD examination PLANNING AND CONDUCTING A FRAUD examination . Why Conduct a FRAUD examination ? There are many reasons why organizations choose to conduct FRAUD examinations. In particular, a properly executed FRAUD examination can address a number of organizational objectives, including: Identifying improper conduct Identifying the persons responsible for improper conduct Stopping FRAUD Sending a message throughout the organization that FRAUD will not be tolerated Determining the extent of potential liabilities or losses that might exist Helping facilitate the recovery of losses Stopping future losses Mitigating other potential consequences Strengthening internal control weaknesses In some instances, a FRAUD examination might be required by law. A duty to investigate can arise from statutes, regulations, contracts, or common law duties.

2 For example, a corporation's directors and officers owe a common law duty of care to their organization and shareholders, and therefore, when suspicions of FRAUD arise, it might be necessary for them to conduct an investigation to ensure that they have full knowledge of such issues affecting the company. Likewise, some laws hold employers accountable for investigating employee complaints involving certain matters, such as retaliation, discrimination, harassment, and similar issues. Tips FRAUD can be discovered in several ways, such as via a tip or complaint, an auditing procedure, monitoring, or chance. According to the ACFE 2016 Report to the Nations, approximately 39 percent of all internal investigations originate with a tip from an employee, customer, or vendor. Management review and internal audit each initiate approximately 16.

3 Percent of internal investigations, while the remainder are discovered through other means. Because tips are the most valuable resource for discovering internal FRAUD , companies should encourage them by implementing easily accessible and anonymous (where permitted by law). FRAUD reporting tools, such as a tip hotline or dedicated Web page. Additionally, these 2018 FRAUD Examiners Manual PLANNING and CONDUCTING a FRAUD examination Investigation reporting programs should be designed to accept tips from external sources such as customers and vendors. Not all tips are valid, and while it is important to consider the motives of individuals willing to supply information of this kind, all tips must be approached as if they will provide useful information. In many instances, the tipster provides information that is of value in commencing an internal FRAUD examination .

4 In such cases, the tipster observes or becomes aware of activity that is suspicious and feels a sense of obligation to report it. What FRAUD examination Entails The term FRAUD examination refers to a process of resolving allegations of FRAUD from inception to disposition, and it is the primary function of the anti- FRAUD professional. The FRAUD examination process encompasses a variety of tasks that might include: Obtaining evidence Reporting Testifying to findings Assisting in FRAUD detection and prevention Obtaining Evidence The value of a FRAUD examination rests on the credibility of the evidence obtained. Evidence of FRAUD usually takes the form of documents or statements by witnesses; therefore, FRAUD examiners must know how to properly and legally obtain documentary evidence and witness statements.

5 Reporting Once evidence has been obtained and analyzed, and findings have been drawn from it, the FRAUD examiner must report the results to the designated individuals ( , management, the board, or the audit committee). A FRAUD examination report is a narration of the FRAUD examiner's specific activities, findings, and, if appropriate, recommendations. Such communications are necessary so that those responsible can determine the appropriate course of action. 2018 FRAUD Examiners Manual Investigation PLANNING and CONDUCTING a FRAUD examination The results of an examination can be communicated in various ways. The appropriate method of communication depends on the facts at issue, but most reports are communicated orally or in writing. When communicating the results of a FRAUD examination , the FRAUD examiner is responsible for providing clear, accurate, and unbiased reports reflecting the FRAUD examination results.

6 This need arises from the possibility that such results might end up being read or used by various groups of people, such as organization insiders, attorneys, defendants, plaintiffs, witnesses, juries, judges, and the media. Testifying to Findings Often, FRAUD examiners are called upon to provide testimony and report their findings at a deposition, trial, or other legal proceeding. When providing testimony, FRAUD examiners must be truthful. They should also communicate in a clear and succinct manner. Assisting in FRAUD Detection and Prevention FRAUD examiners are not responsible for the prevention of FRAUD ; such responsibilities belong to management or other appropriate authority. Nevertheless, FRAUD examiners are expected to actively pursue and recommend appropriate policies and procedures to prevent FRAUD .

7 Because of their education, experience, and training, Certified FRAUD Examiners are uniquely qualified to assist organizations in the prevention and detection of FRAUD . FRAUD examination and Forensic Accounting Although FRAUD examination shares certain characteristics with forensic accounting, they are not the same discipline. Forensic accounting is the use of professional accounting skills in matters involving potential or actual civil or criminal litigation. The word forensic is defined by Black's Law Dictionary as used in or suitable to courts of law or public debate. Therefore, forensic accounting is actually litigation support involving accounting. Accordingly, many FRAUD examinations can be considered forensic accounting, but not all forensic accounting is FRAUD examination . For example, an individual hired to appraise 2018 FRAUD Examiners Manual PLANNING and CONDUCTING a FRAUD examination Investigation property in a minority shareholder derivative suit would engage in forensic accounting even if the engagement does not involve FRAUD .

8 While FRAUD examinations can be conducted by either accountants or non-accountants, forensic accounting work can only be performed by accountants. In addition, while forensic accounting is litigation support work that involves accounting, FRAUD examinations only involve anti- FRAUD matters. Forensic accounting can include many professional services. Typically, forensic accountants perform assignments involving: Computer forensics Electronic discovery Bankruptcies, insolvencies, and reorganizations Workplace FRAUD investigations Calculations of economic losses Business valuations Professional negligence FRAUD examination Methodology FRAUD examination is a methodology of resolving signs or allegations of FRAUD from inception to disposition. The FRAUD examination methodology establishes a uniform, legal process for resolving signs or allegations of FRAUD on a timely basis.

9 It provides that FRAUD examinations should move in a linear order, from the general to the specific, gradually focusing on the perpetrator through an analysis of evidence. FRAUD examinations involve efforts to resolve allegations or signs of FRAUD when the full facts are unknown or unclear; therefore, FRAUD examinations seek to obtain facts and evidence to help establish what happened, identify the responsible party, and provide recommendations where applicable. When CONDUCTING a FRAUD examination , the FRAUD examiner should assume litigation will follow, act on predication, approach cases from two perspectives, move from the general to the specific, and use the FRAUD theory approach. 2018 FRAUD Examiners Manual Investigation PLANNING and CONDUCTING a FRAUD examination Assume Litigation Will Follow Each FRAUD examination should be conducted with the assumption that the case will end in litigation.

10 This will ensure that the FRAUD examiner maintains accordance with the proper rules of evidence and remains well within the guidelines established by the legal systems. Act on Predication FRAUD examinations must adhere to the law; therefore, FRAUD examiners should not conduct or continue FRAUD examinations without proper predication. Predication is the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe that a FRAUD has occurred, is occurring, or will occur. In other words, predication is the basis upon which an examination , and each step taken during the examination , is commenced. A FRAUD examiner acts on predication when there is a sufficient basis and legitimate reason to take each step in an examination . Accordingly, FRAUD examiners should begin a FRAUD examination only when there are circumstances that suggest FRAUD has occurred, is occurring, or will occur, and they should not investigate beyond the available predication.