Accounting symptoms or anomalies involve problems with source documents, faulty journal entries, and inaccuracies in ledgers. These also include any record, electronic or paper, that is unusual.
How should you react to discovering an internal control weakness in the company you are auditing?
You are responsible to report internal control weaknesses to the BOD or management. If the company is a public company, you are required under SOX to audit the IC. The severity of the weakness determines the extent of your reaction.
Analytical anomalies are present in every fraud.
False: Analytical anomalies help to detect fraud, but they do not have to be present for fraud to occur.
Recording an expense is a possible way to conceal the theft of cash.
Auditors can best help detect fraud in conversion.
False: Auditors can best help detect fraud in concealment.
Because of the nature of fraud, auditors are often in the best position to detect its occurrence.
False: Employees and coworkers are usually in the best position to detect fraud.
Studies have found that the most comon internal control problem when frauds occur is having a lack of proper authorizations.
False: The most common control problem when frauds occur is the overriding of existing internal controls.
What are the risks of sampling when searching for fraud?
Since fraud is often found in very few transactions, sampling at a 5% rate guarantees at a 95% level that the investigation will miss the fraud. Fraud requires full population analysis whenever possible.
Theft investigation methods
help to investigate fraud because they allow the investigator to determine specific facts about the fraud such as how the fraud was perpetrated and how the fraud was concealed.
4 main methods are used to investigate theft in suspected frauds
Surveillance and covert operations: can be stationary or fixed point, moving or tailing, and electronic surveillance
Invigilation: used to determine if fraud is occurring
Physical evidence: used to analyze objects such as inventory, assets, and broken locks.
Seizaing and searching computers
theft act investigative technique that involves close supervision of suspects during an examination period. Strict temporary controls are imposed on an activity that makes fraud virtually impossible to commit. Changes in the invigilation which is between the control periods, highlight where fraud may be occurring.
can be useful when coordinating a suspected fraud.
coordinates the various elements of the possible fraud, including assets that were taken or are missing, individuals who have opportunities to commit fraud, promising methods to use in the theft investigation, concealment possibilities, conversion possibilities, symptoms observed, pressures on possible perpetrators, potentioal rationalizations for the fraud, and key internal controls that had to be compromised for the theft to occur
detailed record used in an observation.
includes date and time of observation, name of observer, names of corroborating witnesses, position from which observation was made, distance from scene, and time observation began and ended, along with detailed time of all the movements and activities of the suspect
4 steps in collecting electronic evidence
1. after ensuring you have the right to seize, secure the device and perform initial tasks
2. clone the device and calculate a CRC checksum (cyclic redundancy check)
3. Search the device manually
4. Search the device using automated procedures
4 methods of investigation constitute the fraud triangle plus inquiry approach
Theft investigative methods
concealment investigative methods
conversion investigative methods
inquiry investigative methods
The fraud triangle plus inquiry paradigm is an effective way to understand the various types of investigative methods.
Tailing includes the use of video, email, wiretapping, and access to PCs.
False: Email, wiretapping, and access to PCs are used in electronic surveillance. Tailing involves following someone with audio or video recording devices.
In determining which investigative method to use, it is most important that investigators focus on the costs of each possible method.
False: Investigators should focus on the strongest type of evidence in determining which method to use.
What are the most common ways perpetrators conceal their frauds?
manipulating documentary evidence, such as purchase invoices, sales invoices, credit memos, deposit slips, checks, receiving reports, bills of lading, leases, titles, salses receipts, money orders, cashier's checks, or insurance policies
Primary aspects of documentary evidence include
chain of custody of documents
marking of evidence
organization of documentary evidence
coordination of evidence
rules concerning original versus copies of documents
Why do fraud experts choose documents over expert eyewitnesses?
Documents do not forget, they cannot be cross-examined or confused by attorneys, they cannot commit perjury, and thy never tell inconsistent stories.
The 3 most common ways that investigators can obtain hard-to-get documentary evidence are
Checks are excellent sources of physical evidence.
False: Checks are documentary evidence.
only study handwriting
focus on many aspects of documents including date, machine prepared on, etc.
Discovery sampling is probably the most difficult of all statistical sampling variations to understand.
False: Discovery sampling is one of the easiest.
Even if photocopies of original documents are allowed to be introduced as evidence in a court of law, they are still considered secondary evidence.
Bates numbers are ID numbers used by attorneys involved in litigation to track all documents.
The best way to obtain documentary evidence in a computer database is to use discovery sampling to find the appropriate records.
False: The best way to obtain documentary evidence in a computer database is to analyze full populations with queries (data mining).
Which of the following is not true regarding document experts?
Programs like CaseMap, CaseCentral, ZANTAZ, Ringtail, and DatiCon are examples of:
software packages used to index and store evidence
Misappropriation of assets
the use of one's occupation for personal gain through the deliberate misuse or theft of the employing organizations resources or assets
deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or ommission of amounts or disclosures in the financial statements in order to deceive financial statement users
The proof of intent must (2)
establish that the target (or suspect) knowingly committed a wrongful act
make any other conclusions seem improbable
All evidence must pass 2 hurdles beforing using it to prove a fraud
relevancy: helps to prove or disprove a factual basis in the case
competency: relates to the quality of evidence
materiality: relates to whether there is enough evidence to prove or disprove a factual basis in the case