In: Accounting
1.) You are called upon to conduct an investigation concerning a possible embezzlement at a large company of over one million dollars. The source of the information regarding the alleged embezzlement is anonymous, but a check on your caller ID indicates that the call came from a large CPA firm which you know conducts independent audits. No other information is given and you have no suspected target mentioned. What steps, and in what sequence, would you take to conduct a thorough investigation.
2.) Assume that you decided to conduct interviews of personnel as part of your investigation in #1 above. Who would you interview, where would you conduct such interviews, and what would be your question sequence?
3.) While conducting your investigation in #1, why is it important to obtain evidence? What is evidence? What types of things can be considered as evidence? What does the term “chain of custody” mean and why is it important in fraud investigations?
4.) During the course of your investigation in #1, would you consider reviewing any public records? If so, what records, from what agencies, and why?
1. The following will be the steps involved in sequence, to conduct a thorough investigation.
-First will be to identify any sign of embezzlement and indicators of the same by way of unusual transactions, missing documents, etc.
-Check for any unusual behaviour amongst any employee i.e working late, working alone etc and collect such information from records maintained by the company.
-Third, you will make a list of employees who could have possibly been involved in the embezzlement i.e find out who has access to such resources and narrow down the list of employees.
-With the information available, the next step would be to draft a plan for the investigation.
-Collecting documentary evidence is vital for any investigation and the next step would be to do that. This should be done discretely as well as quickly.
-Conducting interviews with relevant persons is very important to understand the motive behind the possible embezzlement.
-Next step would be to analyze the evidence and if required to take any outside professional expert's assistance with the investigation.
-Once a detailed analyses is done, the next step would be to decide on the further course of action and write a report accordingly.
-In case of actual embezzlement, this needs to be reported to the appropriate authorities.
-And finally, in case the embezzlement is proved, the risk assessment has to be revised and a plan for reporting fraud has to be set-up.
2. The interview will be conducted with persons who have been identified as possible suspects. The interview will be conducted at the office premises only and it is very important that the interviews are well documented. During the interview, the suspects have to be interviewed in such a mode that there is no fear created. The actual culprit should not get any cues from the interview and get away with the fraud. Hence a tactical interview approach has to be followed.
The question sequence will be reconfirmation of the employees routine activities, the roles and responsibilities of the employees in the list, their back-ground verification check to be verified again, the trend of the employees performance with respect to work and discipline, what knowledge the employee possesses related to the embezzlement and check whether such information is really required to be know by the employee. By reiterating this activity, the culprit could be narrowed down.
3.Evidence is important to be collected as its proof that a wrong is committed and necessary action has to be taken. There are four types of evidence, documentary, testimonial, real and demonstrative.
Chain of custody is the maintaining of documents collected as evidence, in a chronological order. Further if any electronic evidence is collected, it is important to have an audit trail of all electronic transactions and verify them as required by law. Since the chronological order provides a sequence of events and how the fraud could have been committed, chain of custody is very important part of any investigation.
4.Yes. I would consider reviewing public records from agencies such as background verification agencies regarding the specific employee, whether the employee is involved in any other company under any other freelance opportunities and if yes, the capacity in which he/she hold the position and further track record of the individual with the other organization. Public documents such as annual reports of a company will provide the changes in key personnel if any and this will enable to approach the right persons for the right answers. Further the financials could also be verified for any abnormality and internal discrepancy, if any. Apart from these, the relationship between the CPA firm, with the organization where the embezzlement has taken place and better understand the reason for the anonymous call.