Tag Archives: investigation

How to conduct a remote fraud investigation

Posted on by

Before the COVID-19 pandemic, most fraud investigations took place in the office or other work facility. This made it easy for investigators to gather and analyze data and interview suspects and witnesses in a face-to-face setting.

But if your company allows employees to work from home — either temporarily or permanently — you may need to conduct a remote fraud investigation. In addition to suspects and witnesses working remotely, those tasked with conducting investigations (including outside experts) may also be remote. Here’s how to manage these situations.

Policies and procedures

First, develop policies and procedures for remote investigations. If you already have written polices for traditional fraud investigations, use them as a starting point. Some features, such as the role and processes of investigators may remain basically the same.

Cover the entire process, including:

  • The technology solutions you’ll use to communicate with employees and investigators,
  • Backup options in the event of technical problems, and
  • How you’ll share relevant files and documents — both electronic and paper.

Once you’ve developed a draft, have legal counsel review it.

Conducting interviews 

Before conducting interviews, prepare subjects for the process. Let them know approximately how long the interview might take and whether they must review documents before or during the discussion. Stress the importance of sitting in a quiet location with minimal background noise where they can remain undisturbed throughout the interview.

To provide your team with ample opportunity to detect verbal and nonverbal signs of deception, subjects need to keep their video feeds on the entire time. Most computers, smartphones, tablets and wireless connections can facilitate video calls, but be sure to test subjects’ devices and Internet connections before interviews. Consider having a trusted member of your IT department perform the test, instructing this employee not to discuss anything specific about the interview or the fraud allegations.

There are a couple things you should keep in mind. First, any conversation conducted via video conferencing will be recorded and can be used in a subsequent court case. So discuss interview plans with your attorney.

Second, expect the unexpected. For example, how will you proceed if a fraud suspect declines to answer questions, turns off his or her video or audio feed or consults with an unknown third party in the room? Subjects attempting to dodge uncomfortable questions may pretend to have connectivity problems. 

Unique challenges

Remote fraud investigations present unique challenges — many of which can be anticipated and mitigated. But even if you normally would conduct a preliminary fraud investigation in-house, consider engaging a forensic accounting expert early in the process to help ensure you don’t miss anything.

© 2021 Covenant CPA

Welcome to 21st century forensic accounting

Posted on by

Forensic accountants are engaged for a wide variety of assignments, among them investigating fraud, auditing internal controls and quantifying damages associated with legal disputes. All of these require attention to detail and a diverse set of skills including mathematical, technological, legal and investigative. But the accounting landscape and client needs are constantly changing. Here’s how the profession has adapted to digitization in the 21st century and how it’s applying the latest technological solutions.

Embracing the digital revolution

Technology has radically changed how forensic accountants do their jobs. Businesses used to be awash in paper. Today, most companies run on a digital backbone and discourage employees from printing to save money and reduce environmental damage. Consequently, forensic accountants must be able to gather, analyze and make sense of vast amounts of electronic data.

In addition to processing company data to, for example, calculate financial ratios, build spreadsheets and determine legal damages, many experts routinely attempt to recover data that perpetrators have deliberately deleted. During an investigation, a forensic accountant might:

  • Search for and piece together deleted files,
  • Analyze suspicious user activity on company servers,
  • Identify relevant electronic files within a company’s network, and
  • View suspected perpetrators’ social media accounts.

Newer developments, such as cloud-based storage solutions and a shift from working in offices to working remotely, mean that forensic accountants now must look outside the traditional confines of a company’s IT perimeter.

Glimpse of the future

As for the future, artificial intelligence (AI) increasingly looks like it will play a significant role. Most forensic accountants must harness vast amounts of electronic data to do their jobs. Expenses associated with a forensic investigation can quickly add up.

AI and machine learning enable forensic accountants to continue to deliver cost-effective services. These tools allow experts to analyze large data sets faster and can even “make decisions” such as determine what constitutes a suspicious invoice and flag those records. Or AI might review a set of contracts, seeking certain words or features that suggest higher risk. In general, the more records an AI system reviews over time, the more it “learns” and the higher its accuracy rate.

Other tools

Other technologies predicted to play a greater role in forensic accounting in the future include predictive analytics, blockchain, robotics and bots. But whatever tools forensic accountants use, the underlying issues — fraud and legal disputes — remain basically the same. If you or your business is grappling with these issues, contact us.

© 2020 Covenant CPA

3 steps experts follow when investigating fraud

Posted on by

When business owners suspect that an employee is stealing assets or manipulating financial results, it’s time to call a fraud expert to investigate. Although the complexity of the incident will determine the investigation’s scope, there are three basic steps forensic accountants generally follow to build a fraud case that can stand up in court.

1. Conducting interviews 

Fraud interviewers know how to spot warning signs, detect deception and pin down suspicions when talking with suspects and their coworkers. But they usually start with management interviews, by asking owners, executives and audit committee members what they know about:

  • Possible fraud ploys,
  • The company’s fraud risks, and
  • Internal controls that have been implemented to mitigate specific fraud risks or to generally help prevent, deter and detect fraud. 

An expert may interview not only your company’s management and audit committee, but also anyone who can provide information about financial fraud risks. These interviews might include employees involved in initiating, recording or processing complex or unusual transactions, as well as operating personnel not directly involved in the financial reporting process.

When interviewing suspects and potential witnesses, experts encourage interviewees to do most of the talking and use silence as a tool to elicit information. Before concluding the interview, they confirm the information they’ve gathered.

2. Gathering evidence

Fraud experts also collect physical and digital evidence of possible fraud from the company’s internal sources. Examples include personnel files, phone and email records, security camera recordings, and physical and IT system access records.

Locating this evidence may require computer forensic examinations. Expect your expert to ask to access your accounting system to search for suspicious journal entries, credits, reversals and overridden controls. Experts may also collect external sources of evidence, such as public records, customer and vendor information, media reports and private detective reports.

3. Analyzing facts

Fraud specialists have been trained to review and categorize internal and external evidence, conduct computer-assisted data analysis and test various hypotheses. Rather than rely on gut instinct, your expert will formally document every step in the investigation and follow formal procedures to ensure a comprehensive investigation.

When experts finish conducting interviews and gathering evidence, they report their findings. You and your attorney may determine the appropriate format for a report and how distribution will be affected by the need to protect legal privileges and avoid defamation.

Avoid a botched investigation

A proper investigation is essential to building a strong fraud case. Indeed, botched investigations could prevent your company from recouping losses and prosecuting the perpetrator. Contact us if you suspect fraud in your organization. 

© 2020 Covenant CPA

When the fraud suspect is an executive

Posted on by

Businesses and fraud experts often face a long, arduous process when investigating any occupational fraud incident. When the suspect is a member of upper management, it’s exponentially harder.

In theory, investigating executives shouldn’t differ from the process of investigating rank-and-file employees. In reality, the authority and influence of an executive can slow — even shut down — a fraud investigation. You need a plan to prevent interference and facilitate the collection of evidence that can be used in court, if necessary.

Human element

The first step is to brief the executive’s chain of command. As soon as allegations surface, work with your company’s human resources and legal departments to make the suspect’s superiors aware of the situation. If you believe the fraud may involve the executive’s immediate boss, brief someone higher up the chain of command.

To minimize the potential for rumors and information leaks, limit the number of employees with knowledge of the investigation. Instruct them to refrain from discussing the case with anyone within or outside the company. Better yet, hire a fraud investigator to handle most of the investigation. An outside expert knows how to protect confidential information and is able to remain professional and impartial when interviewing suspects and potential witnesses.

If employees participate in the investigation, involve only experienced and trustworthy people. An investigation of an executive inevitably attracts greater scrutiny from the senior executive team and stakeholders such as investors. So make sure the team conducts the investigation in strict compliance with your company’s personnel policies and employment law. Investigation-related electronic files should be password-protected and physical documents stored on-site should be secured in a locked filing cabinet.

Closing in

Many companies are hesitant to discipline (particularly, to terminate), an executive involved in wrongdoing due to potentially negative publicity. In fact, many senior executives expect to see overwhelming evidence of wrongdoing before they agree to take action against a colleague. Keep this in mind as your team conducts its investigation.

You should try to assemble convincing evidence of fraud before formally interviewing the suspect. To avoid being overwhelmed or overpowered by the executive, a professional fraud examiner or a superior executive should conduct the meeting. Should the need arise to suspend the executive pending further review, make sure someone with the appropriate authority is present.

Cost is too high

Investigating allegations of wrongdoing by an executive can be stressful, but it’s critical. According to the Association of Certified Fraud Examiners, the median loss associated with fraud perpetrated by an owner or executive is $850,000, compared with $100,000 for non-management employees. If you suspect executive fraud, don’t hesitate to contact us.

© 2020 Covenant CPA