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Chapter 1

This document discusses methods for investigating theft acts, including developing vulnerability charts to coordinate elements of possible fraud. It describes starting investigations discreetly and working inward toward suspects. Surveillance, invigilation, physical evidence, and electronic evidence are discussed as investigation methods. Surveillance can be stationary, moving, or electronic. Invigilation involves close supervision during examination. Physical evidence includes inventory and electronic evidence includes computers, texts, emails, and social media.

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131 views19 pages

Chapter 1

This document discusses methods for investigating theft acts, including developing vulnerability charts to coordinate elements of possible fraud. It describes starting investigations discreetly and working inward toward suspects. Surveillance, invigilation, physical evidence, and electronic evidence are discussed as investigation methods. Surveillance can be stationary, moving, or electronic. Invigilation involves close supervision during examination. Physical evidence includes inventory and electronic evidence includes computers, texts, emails, and social media.

Uploaded by

Thermen Daren
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BKAB3013 FORENSIC ACCOUNTING

SEMESTER A181

TOPIC 4 – FRAUD INVESTIGATION


(PART 1: INVESTIGATING THEFT ACTS)

NOR ZALINA MOHAMAD YUSOF


21 NOVEMBER 2018
LEARNING OBJECTIVES
After studying this topic, you should be able to:
• Understand the various ways frauds are investigated and when to use each
investigation method.
• Discuss theft investigation methods and how they are used to investigate
suspected fraud.
• Understand how to coordinate an investigation using a vulnerability chart.
• Describe the nature of surveillance and covert operations.
• Understand the effectiveness of invigilation to investigate fraud.
• Explain how to obtain physical evidence and how it can be used in a fraud
investigation.
• Understand how to seize and analyze electronic information from cell phones,
hard drives, e-mail, social networking sites, and other sources.

2
Deciding When to Investigate
• Some of the factors that are considered in deciding whether or not to
investigate are the following:
• Perceived strength of the predication
• Perceived cost of the investigation
• Exposure or amount that could have been taken
• The signal that investigation or non-investigation will send to others inside
and outside the organization
• Risks of investigating and not investigating
• Public exposure or loss of reputation from investigating and not investigating
• Nature of the possible fraud

6
Fraud Triangle Plus Inquiry Approach to
Investigations

7
Beginning an Investigation
• Investigations should usually begin by using techniques that will not arouse
suspicion and will not wrongly incriminate innocent people.
• When starting an investigation:
• Involve as few people as possible
• Avoid words such as “investigation”
• Use techniques that will not likely be recognized
• As the inquiry proceeds, investigative methods will work inward toward the
prime suspect.
• Waiting to interview the primary suspect allows you to gather sufficient evidence to
conduct a powerful, directed interview without giving your case away prematurely.
• Figure 7.2 provides an illustration of this pattern.

8
Figure 7.2 Example Theft Act Investigative
Pattern

9
Developing a Vulnerability Chart
• When beginning a fraud investigation, it is often useful to develop
hypotheses about:
• What kind of fraud could have occurred
• Who the possible perpetrators could have been
• What their motivations might have been
• How much might have been taken
• One way to develop such hypotheses is to use a vulnerability chart, a
tool that explicitly considers all aspects of the fraud.

10
Purpose of a Vulnerability Chart
• A vulnerability chart coordinates the various elements of the possible
fraud, including:
• Assets that were taken or are missing
• Individuals who had theft opportunities
• Theft investigative methods
• Concealment possibilities
• Conversion possibilities
• Symptoms observed
• Pressures of possible perpetrators
• Rationalization of perpetrators
• Key internal controls that had to be compromised for the theft to occur
• The following table provides an example of a vulnerability chart.

11
Example Vulnerability Chart

CHAPTER 11 12
Theft Act Investigation Methods
• Theft act investigation methods are those activities that directly
investigate the fraud act, such as:
• Surveillance and covert operations
• Invigilation
• Obtaining physical evidence
• Gathering electronic (computer) information

13
Surveillance and Covert Operations
• Surveillance or observation means watching and recording (on paper,
film, or other electronic device) the physical facts, acts, and
movements, which are part of the theft act of a fraud.
• The three types of surveillance are:
• Stationary or fixed point
• Moving or tailing
• Electronic surveillance
• Some form of surveillance is often used in investigating most frauds,
including even financial statement frauds.

14
Invigilation
• Invigilation (in-vij-uh-ley-shun) is an investigative technique that
involves close supervision of suspects during an examination period.
• Such strict temporary controls are imposed on an activity that, during the
period of invigilation, makes fraud virtually impossible to commit.
• When controls are made so strict that opportunities to commit fraud are
eliminated, a fraud-free profile can be established.
• Changes seen between the control periods and the non-control
periods highlight where fraud may be occurring.
• The use of detailed record keeping before, during, and after invigilation is key
to this method.

15
Physical Evidence
• Physical evidence can be useful in some cases, especially those
involving inventory where physical stock can be counted and a search
for missing inventory can be conducted.
• Physical evidence is more commonly associated with non-fraud types of
crimes, such as property crimes, murder, and armed robbery.
• Because fraud is rarely seen and has few physical symptoms, physical
evidence can often be difficult to find.

16
Gathering Physical Evidence
• Gathering physical evidence involves analyzing objects such as:
• Inventory, assets, and broken locks
• Substances such as grease and fluids
• Traces such as paints and stains
• Impressions such as cutting marks, tire tracks, and fingerprints
• Gathering physical evidence also involves searching computers.

17
Electronic Evidence
• The gathering of electronic evidence is usually termed computer
forensics.
• Confiscating and searching of computers are often associated with a
fraud investigation.
• Because of the wide variety of electronic media available today, the
process for gathering electronic evidence varies from device to
device.

18
Electronic Communications
• Today, many different communication methods are being analyzed
during investigations.
• Texts
• E-mail
• Social media
• Be sure to work with IT support and legal counsel to collect data from
these sources correctly; some are likely unavailable without a search
warrant.

19

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