CFE Exam Quiz 49

Once the evidence has been acquired and evaluated and conclusions have been drawn from it, the fraud examiner must report the outcomes to the people appointed for instance management, board, or audit committee. A fraud review report is a narrative of the particular operations, results, and suggestions of the fraud examiner.

The method of fraud examination involves a range of duties including:
-Obtaining evidence
-Reporting
-Witnessing the findings
-Support in the identification and prevention of fraud

Fraud reviewers are often called upon to testify and report their results in a deposition, trial, or other legal proceedings. Fraud examiners must be truthful when giving testimony. They should also interact clearly and succinctly.

Fraud examiners are not liable for fraud prevention; management or other suitable authority is liable for such duties. Nevertheless, it is anticipated that fraud examiners will actively follow and advise suitable fraud prevention policies and processes.
Certified Fraud Examiners are uniquely eligible to help organizations in fraud prevention and detection because of their education, experience, and training.

While fraud testing shares certain features with forensic accounting, they are not the same discipline. Forensic accounting is the use of professional accounting abilities in matters concerning civil or criminal litigation opportunities or real. Forensic accounting is in fact support for accounting proceedings.

Many fraud checks can be regarded forensic accounting, but not all forensic accounting checks are fraud checks. An person employed to assess assets in a minority shareholder derivative suit would participate in forensic accounting even if the undertaking is not fraudulent.

Forensic accountants carry out tasks like:
-Forensics for computers
-Electronic finding
-Insolvency, bankruptcy, and reorganization
-Investigations into fraud at work
-Economic loss calculations
-Valuations of business
-Professional negligence

Fraud examination is a methodology used to resolve indications or allegations of fraud from start to finish. The methodology for fraud examination provides a uniform, legal method for prompt resolution of indications or allegations of fraud. It offers that fraud exams should move from the general to the particular in a linear order, gradually concentrating on the perpetrator through evidence assessment.

Predication is the totality of conditions that would lead a rational, professionally qualified and cautious person to think that fraud has happened, is happening or is going to happen. Predication is the foundation on which the examination is started and every move taken during the examination.

A fraud examiner operates on prediction when there are adequate grounds and lawful grounds for taking each step in an exam. The prediction should be re-evaluated by fraud examiners as fraud investigations proceed. As fraud review advances and fresh data emerges, fraud examiners should continuously re-evaluate whether appropriate predictions are in place to take each extra step in the review.

Fraud exams begin when the facts are unknown or unclear, so they should proceed from the general to the specific. That is, checks on fraud should start with general information known, starting at the periphery, and then move to the more specific details.

In most exams, fraud examiners should begin interviewing on the periphery of all possible candidates for interviews and move towards the witnesses who appear to be more involved in the subject matter of the exam. The usual order of interviews is therefore as follows:
-Neutral third-party witnesses, beginning with those having the least knowledge to those who are more aware of the issues at issue
-Parties suspected of being complicit, beginning with the least guilty and going to the most guilty
-The investigation’s primary suspect(s)

The method of fraud theory is an investigative instrument intended to assist fraud examiner to organize and direct exams based on the data accessible at the moment. The fraud theory strategy offers that fraud examiners should make a theory of what might have happened based on the known facts when conducting inquiries into accusations or indications of fraud. Once a hypothesis has been created by fraud examiners, they should test it by acquiring new information to determine whether the hypothesis is proven.

The approach to fraud theory includes the following steps:
-Analysis of accessible information
-Creating a hypothesis
-Testing the hypothesis
-Refinement and modification of the hypothesis

A fraud response plan describes the activities an organization employees will take when there is a suspicion of fraud. The response plan should not outline how to conduct the fraud check since each fraud is distinct. Instead, it should help organizations to manage their responses and create environments to minimize risk and maximize success potential.

To develop a fraud response plan, elements that needed are:
-Reporting protocols
-A response team responsible for carrying out an initial evaluation
-Procedures for litigation
-Factors used to determine how action should be taken
-A template or form for reporting incidents of fraud
-Principles of the response plan

To enable a prompt response, reporting protocols are needed to ensure that designated individuals are notified immediately. Depending on the nature and severity of the allegations, reporting protocols should outline notification principles and triggers for escalation.

Each organization will have different criteria to decide whether a formal investigation qualifies for allegations or suspicions, but common ones include:
-The allegation’s credibility
-Incident type
-The allegation’s subject matter
-The business purpose of the activity at issue
-The allegation’s seriousness or severity
-Potential adverse effects
-The likelihood of the incident ending in court
-How previous, similar incidents were handled

A litigation holding relates to the measures that an organization takes to notify employees when they need to maintain data occurs to stop the destruction of possibly appropriate documents.

Management should proceed following, to establish litigation hold procedures
-Identify the scope of litigation proceedings (i.e. the locations covered by litigation proceedings)
-Examine the movement of information through the organization
-Determine how relevant documents can be identified
-Develop a process for preserving such information

The log of the report should contain the following information:
-How the organization, including the name of any complaining party, became aware of the suspected fraud
-The date of raising or reporting the issue
-The nature of the fraud suspected
-Divisions or departments involved
-Suspect employees or parties
-Actions that are being taken

Time is critical when responding to suspected and detected fraud incidents. Management and fraud reviewers need to be prepared in a short time to solve several problems, sometimes under stressful circumstances.

Digital spoliation is a major concern of litigation organizations. Digital spoliation holds extra hazards when compared to the spoliation of concrete papers. Management often lacks sufficient knowledge of the inventory of digital information, and only for a short time could electronic data be available. Additional issues include company procedures intended to create more data storage space accessible by deleting digital information, the fact that electronic data can reside in countless places and the fact that it can be challenging and expensive to identify appropriate electronic data in today’s big and complicated data systems.

The response team and management shall take action to preserve evidence as soon as the investigative decision is taken. Management should work with legal counsel to issue a litigation hold to notify staff to stop the destruction of possibly appropriate documents.

To protect data, the IT department may need to be part of an investigation until the information can be analyzed. IT staff can also assist define what information is accessible and where, and if licensed to do so, they may be able to operate as forensic investigators.

Once an allegation or problem is determined, those accountable must commence the official inquiry. Steps involved in this are:
-Completion of letters of commitment or agreements
-Issue of letters of advice
-Assembling the team of fraud
-Learn about the organization in question
-Development of an investigating plan

Engagement letters should be written with certain norms in mind, addressing a range of things regarding information of the client and the case. There are two main forms of letters of engagement: the long form and the short form. The long form details what exam methods the fraud examiner intends to follow, whereas the short form does not.

The terms paragraph of engagement letter should include the terms of payment; fee structure; payment method; a retainer if necessary; and how many hours of examination time the client initially agreed.
The opening paragraph should state the objective of engagement. Whether the letter is an engagement or a letter of the proposal should be particular.

It is essential to involve legal counsel and, in most instances, to conduct fraud examinations, at least as regards the legal elements of the process. This is because many legal issues can be generated by a fraud examination, and the team needs legal counsel to assist answer these questions. Otherwise, the organization investigating risks exposing itself to greater danger than the threat it investigates.

Investigators from the security department are often allocated the fieldwork duties of the investigation, including interviewing outside witnesses and acquiring from third parties’ public records and other documents.