Final Basics fo Fraud Investigations

CCH® CPELink Basics of Fraud Investigations

You will see controls at the bottom of the screen for adjusting

the volume and advancing slides.

The sidebar shows an outline of each slide and review

questions. You may use the sidebar to jump to a particular

slide at any time.

Materials, including a copy of your final exam questions, are

available to download from the top bar. The final exam is

available to take at the end of the course.

Basics of Fraud Investigations

[webinar Title] 2©2021, CCH Incorporated. All Rights Reserved.


Dr. Robert K. Minniti, DBA, CPA, CFE, Cr.FA, CVA, MAFF, CGMA, PI

1

2


3Basics of Fraud Investigations

Webinar Objectives

• After completing this webinar, you will be able to:

1. Recognize which states require PI licensing

2. Recognize illegal investigative activities

3. Understand the predication of fraud

4. Review the procedures for conducting a fraud investigation


Accepting an Engagement

• Do you have the appropriate knowledge of the industry and type of fraud?

• Do you have the required licenses?

• Have you conducted a conflict check?

• Developing the scope of the engagement.

• Best Practice - Retainers

3

4



Do You Need a PI License?


PI License Requirements

• Requirements for a PI license vary by state but generally include:

1. Must be 21 Years old

2. Must have a high school diploma or GED

3. No criminal record

4. FBI fingerprint check

5. Experience and testing requirements vary by state

5

6



States Requiring a PI License With No Exceptions

• Nebraska

• New Jersey

• Oklahoma

• Pennsylvania

• Rhode Island

• Connecticut

• Delaware

• Massachusetts

• Montana


States Requiring a PI License With Exceptions for CPAs

• Kansas

• Kentucky

• Louisiana

• Maryland

• Michigan

• Missouri

• Alabama

• Arkansas

• Colorado

• Florida

• Illinois

• Indiana

7

8




• Oregon

• Tennessee

• Texas

• Utah

• Virginia

• Nevada

• New Hampshire

• New Mexico

• New York

• North Dakota Ohio



• Note:

▪ The Virginia CPA exception only applies to Virginia CPAs

▪ CPAs licensed in other states must obtain a Virginia PI license

9

10



States Requiring a PI License With Exceptions for Attorneys

• New York

• North Carolina South Carolina Vermont

• West Virginia Wisconsin

• Florida

• Georgia

• Iowa

• Louisiana

• Maine

• Minnesota


States Requiring a PI License With Exceptions for Specific Types of Investigations

Arizona

California

Hawaii

Maine

Washington

11

12



States That Do Not Require a PI License

Some municipalities in Alaska and Wyoming do require licensing at the local level

Alaska

Idaho

Mississippi

South Dakota

Wyoming


PI License Requirements for CFEs & MAFFs

• Generally speaking, a CFE or MAFF needs a PI license to conduct an investigation

• Except for the 5 states that do not require licensing

• Maine, Ohio and Tennessee have exceptions if you are investigating for expert witness testimony

13

14



Interstate Investigations

• The reciprocity for licensing varies between states.

• Generally, you must report to the licensing authority of the state you will be working in

• You should check with the state in question prior to commencing an investigation


What Could Go Wrong?

• There could be both civil and criminal penalties for operating without a license.

• California has a special unit called the Unlicensed Activity Action Unit (UAAU) which is part of the Bureau of Security and Investigative Services (BSIS) whose sole mission is to investigate and punish individuals and firms conducting investigative services without proper licensing.

15

16




• Motion to exclude testimony at trial

• Inadmissibility of evidence

• Sanctions and loss of CPA and other professional licenses



• In some states anyone can report unlicensed activity by completing a form on the internet

• The penalties for performing unlicensed activity can be severe, in Michigan, for example, it is a felony punishable by up to four years in jail and/or a $5000.00 fine

• In Indiana, although it is only a misdemeanor the penalty is forfeiture of all compensation earned while performing unlicensed activities

17

18



Pretexting

• One thing to avoid when conducting an investigation is pretexting for information.

▪ Although pretexting used to be a common method for locating financial assets it is now illegal as it was banned by the Gramm-Leach-Bliley Act of 1999 and pretexting should not be used to find financial assets.

▪ Pretexting is defined as the practice of presenting oneself as someone else in order to obtain private information.


Three Types of Surveillance

1. Stationary or Fixed Point

2. Moving or Tailing

3. Electronic Surveillance

▪ KNOW THE LAW

19

20



Recording Conversations

• Federal law allows you to record a conversation or phone call as long as one party to the conversation consents.

• See 18 U.S.C. 2511(2)(d)


Recording Conversations

▪ Massachusetts

▪ Nevada

▪ New Hampshire

▪ Pennsylvania

▪ Vermont

▪ Washington

• States that require two party consent:

▪ California

▪ Connecticut

▪ Delaware

▪ Florida

▪ Illinois

▪ Maryland

21

22



Review Question 1


Video Recordings

• Video recordings without sound are usually legal

• Except when there is an expectation of privacy

23

24



Public Records

▪ Court Records

▪ Social Media

▪ Internet

• Searching public records is always legal including:

▪ Driving Records

▪ Criminal Records

▪ Real Estate Records

▪ Bankruptcy Records


Consent Required

• Consent is required to search:

▪ Credit Reports

▪ Medical Records

▪ Tax Records

▪ Academic Records

▪ Clue Reports

25

26



Consent Required

• When consent is required, although it is not required, it is recommended that you have the suspect sign a written consent agreement.

• Suspects often forget verbal conversations


Illegal Investigation Activities

• Trespassing

• Wiretapping

• Tampering with Mail

• Hacking

• Bribery

• Impersonation of a law enforcement officer

27

28



Gathering Evidence

Direct Evidence

VS

Circumstantial Evidence


Gathering Evidence

• Types of Evidence

1. Documentary Evidence

2. Physical Evidence

3. Testimonial Evidence

4. Personal Observation

29

30



Review Question 2


Documentary Evidence

• Consists of information obtained from paper and electronic documents, found on hard drives, data storage media (for example, CDs, DVDs, and jump drives), communication networks (phone systems and servers), online (web sites and social media), and mobile devices and other sources of data.

31

32



Physical Evidence

• Includes items such as canceled checks, signed documents, misappropriated assets, signatures, fingerprints, DNA, photos, video, and other tangible evidence that can be associated with the investigation.


Testimonial Evidence

• Is provided by individuals who are interviewed for information.

▪ These individuals can include suspects as well as other individuals who have information pertinent to the investigation.

▪ t can also include evidence from deposition testimony.

33

34



Personal Observation

• Is evidence that is personally observed by the forensic accountant and can include surveillance and covert operations.


Obtaining Evidence

➢Consent

➢Subpoena

➢Warrant

➢Deposition

➢ Interrogatories

➢Public Domain

➢ Interviews

35

36



Gathering Electronic Evidence

➢Use a hardware blockers

➢Mirror all devices

➢Metadata

➢Removable media analysis

➢Recycle bin and deleted files

➢Review backup media

➢The cloud


Data Formats

• Unstructured data

▪ Email

▪ Documents

▪ Social Media

▪ Demographics

▪ Geographic

▪ Internet

• Physical documents

▪ Electronic information

• Structured data

• Transactional data

• Audit trails

• Databases

• Spreadsheets

37

38



Data Analysis

• Quantitative Analysis

▪ Performed on numerical data

➢ Accounting data

➢ Performance data

• Qualitative Analysis

▪ Performed on unstructured data

➢ Information from questionnaires

➢ Customer, employee, and vendor surveys

➢ Email, text messages, etc.


Data Mining

• Data mining uses algorithms to identify data in large data bases. There are many types of algorithms, some of the most common are the following:

▪ Classification Algorithms

▪ Regression Algorithms

▪ Segmentation Algorithms

▪ Association Algorithms

▪ Sequence Analysis Algorithms

39

40



Data Analysis

➢Descriptive Analytics (Past Performance)

➢Diagnostic Analytics (Causes)

➢Predictive Analytics (Future)

➢Prescriptive Analytics (Best Options)


Review Question 3

41

42



Obtaining Credit Reports

• TransUnion: www.transunion.com, 1.800.680.7289

• Experian: www.experian.com, 1.888.EXPERIAN (397.3742)

• Equifax: www.equifax.com, 1.800.525.6285

• Consumers can get a free copy at annualcreditreport.com


Public Records

▪ Court Records

▪ Social Media

▪ Internet

▪ UCC Filings

▪ Shell Companies

• Searching public records is always legal including:

▪ Driving Records

▪ Criminal Records

▪ Real Estate Records

▪ Bankruptcy Records

43

44

http://www.transunion.com/

http://www.experian.com/

http://www.equifax.com/

annualcreditreport.com



Archived Public Records


Search Images

45

46



Search Images


Facial Recognition

The Best 8 Free and Open Source Face Detection Software Solutions (goodfirms.co)

47

48

https://www.goodfirms.co/blog/best-free-open-source-face-detection-software-solutions



Interviewing Suspects

➢REID (North America)

➢PEACE (Great Britain)

➢Motivational Interviewing (Psychologists)

➢Physically Coerced Confessions

➢No longer widely used in USA

➢Cognitive Interviews


Review Question 4

49

50



Interviewing

• Look Into

➢ Clubs

➢ Professional Associations

➢ Dating Sites

➢ Sports

➢ Hobbies

• Interview

➢ Friends

➢ Relatives

➢ Neighbors

➢ Coworkers

➢ Associates


Lifestyle Audits

➢ Income Probes

➢Cash T

➢Net Worth Method

➢Bank Deposit Method

51

52



Other Methods for Verifying Evidence

➢Surveillance

➢Covert Operations

➢Polygraphs


Documenting Evidence

➢Case name or reference number

➢Bates number or item number

➢Date and time the evidence was collected

➢Location where evidence was collected

➢Name of individual who collected evidence

➢Name of individual who provided evidence

➢Written description of evidence

53

54



Managing Evidence

➢Do not alter evidence

➢Document evidence carefully (prior slide)

➢Place documents in clear sheet protectors

➢Use evidence bags for physical evidence

➢Secure original documents


Managing Evidence

➢Password-protect electronic data

➢Encrypt files sent over the internet

➢Store backup copies in separate location

➢Digitize paper documents

➢ Inventory evidence to facilitate searches

55

56



Chain of Custody

• A chain of custody form is used to document who has care, custody and control of the evidence from the time it is collected until it is delivered to the court.


Review Question 5

57

58



Finding People

• Order a background check:

▪ Instant Checkmate

▪ Been Verified

▪ Intelius

▪ People Finders

▪ Truth Finder

▪ US Search


Background Reports

http://www.proformascreening.com/files/Sample-Background-Check-Report.pdf

59

60

http://www.proformascreening.com/files/Sample-Background-Check-Report.pdf



Some Tools for Analyzing and Presenting Evidence


Timelines

61

62



Link Analysis


Genograms

CEO

VPHuman

Resources

Payroll Manager

COO

VP Operations

Production Manager

Warehouse Manager

CFO

Controller

Senior Accountant

63

64



Flowcharts


Fishbone Diagram

65

66



Federal Rules of Evidence

• Rule 701 – Opinion Testimony by Lay Witnesses

• Rule 702 – Testimony by Expert Witnesses

• Rule 703 – Bases of an Expert’s Opinion Testimony

• Rule 704 – Opinion on an Ultimate Issue

• Rule 705 – Disclosing the Facts or Data Underlying an Expert’s Opinion


Review Question 6

67

68



Federal Rules of Evidence

• Rule 706 – Court-Appointed Expert Witnesses

• Rule 603 – Oath or Affirmation to Testify Truthfully

• Rule 607 – Who May Impeach a Witness

• Rule 612 – Writing Used to Refresh a Witness’s Memory


Thank You for Attending Today’s Program

69

70



Final Exam

71