Achmad Faizal Azmi (361160)

Chapter 7
Discussion Questions
2. What factors should be considered when deciding whether or not to investigate a case of
fraud?
Some of the factors that are considered in deciding whether or not to investigate are
the following:
• Perceive strength of the predication
• Perceived cost of the investigation
• Exposure or amount that could have been taken
• The signal that investigation or noninvestigation
will send to others in the organization
• Risks of investigating and not investigating
• Public exposure or loss of reputation from investigating
and not investigating
• Nature of the possible fraud.
3. How does a vulnerability chart help coordinate an
investigation of suspected fraud?
When beginning a fraud investigation, an investigator usually tries to develop theories about
who committed the fraud, how the fraud was committed, etc. One way to do this is to prepare
a vulnerability chart which coordinates all the elements of the fraud: which assets
were taken, who had theft opportunities, possible theft methods, concealment possibilities,
conversion possibilities, symptoms observed, pressures on various individuals,
rationalizations that were heard or could have justified someone to commit the act, and key
internal controls that were missing or could have been overridden. Often, tying these
elements together provides initial indications of who could have committed the fraud.

4. What is a surveillance log?

The detailed records which include the date and day of observation, the name of the observer,
the names of corroborating witnesses, the position from which the observation was made, its
distance from the scene, and the time the observation began and ended, along with a detailed
time log of all the movements and activities of the suspect.

Case 3

Was surveillance the proper method to use in this case? Why?

In my opinion, it was the best method to use. By using surveillance, we could know the
actual condition of the worker who get the compensation, without being recognized by
him/her. Usually, the investigator observes through direct observation, or through the
observation of a camera located in a public place, the claimant working when collecting
payments.
 What are some restrictions to be careful about in conducting surveillance?

Surveillance and covert operations are normally legal as long as they do not invade a person’s
reasonable expectation of privacy under the Fourth Amendment to the Constitution, which
protects the right of a person against unreasonable searches. Again, legal counsel and human
resource personnel should always be consulted before any form of surveillance takes place. In
addition, all corporations and institutions should implement strict protocols regarding the use
of any form of surveillance in order to ensure that controls are in place and that a “reasonable
person” test is given to any application

Case 4

Give three alternative suggestions for how the company could have investigated or prevented
this theft effectively without causing morale problems with employees

1. This problem could be addressed by doing surveillance. The use of hidden cameras
and sound recording device, which would have been useful to give the management
exact picture of the factory floor.
2. Invigilation for the activity related to the tools. Through this method, company will be
able to notice if there is any suspicious pattern in the nature of result happened before
invigilation and during invigilation so it can narrow the focus on possible suspect and
reveal the real perpetrator.
3. Tracing back some documentation may be necessary as it allow the company to identify
the employees who are responsible in handling the tools. After gathering the
information about who are assigned for that task, further interview and close
observation toward suspect can be done.

Case Study 1

Coordinate an investigation in a manner that would not arouse suspicion from Cummings and
Baptiste

Investigation could be start by doing surveillance of Cummings activity in the office.

Furthermore, we could go into the Cumming’s computer network in order to detect whether
there is suspicious activity that done by Cummings. We could also tap the phone network of
Cummings for detecting any suspicious conversation. By doing those activities, it would not
arouse suspicion from Cummings and Baptiste.

Create a vulnerability chart to coordinate the various elements of the possible fraud.

What Who had How How was How are Red flag Pressures Rationalizations Key internal
was opportunity? were theft assets symptoms? control
taken? assets concealed? converted?
moved?
Access Phillip Entering Suspicious Unlimited a. The use Greedy Nobody will get Creating
codes Cummings verified access of single hurt from my Segregation of
for credits request phone action duties for
credit by the number for service
request access many representatives
approval code request and access to
b. Request confidential
spikes in data
ford’s
account

Assuming your investigation used surveillance and/or covert investigation techniques, what
types of surveillance and/or covert operations would you use? How would technology play a
role in this part of the investigation?

I will use electronic surveillance for investigating Cummings. I will go into the Cummings
computer network and try to tap in the phone network of Cummings. Therefore, I could
detect any suspicious activity that have done by Cummings any suspicious conversations.
Electronic surveillance may have limited value in the investigation of employee frauds and
many other white-collar crimes because of concerns regarding employees’ privacy in the
workplace.

Finally, how would analysis of physical evidence help in this investigation? What types of
physical evidence would be especially helpful?

Physical evidence is really helpful in determining who is the fraudster in certain cases. In this
case, since the fraud conducted electronically, we have to use electronic evidence. The
gathering of electronic evidence is usually termed computer forensics. The evidences that
should be collected in this case are the history of access request, e-mail, and the database of
customer record in Cumming’s computer.

Chapter 8

7. Why is it important to obtain documentary evidence?

Documents or electronic records are the backbone of concealment investigation because most
concealment methods involve altering or manipulating physical documents or computer
records. Most fraud experts prefer physical evidence to other types of evidence, such as
eyewitnesses, because documents are reliable and consistent.

8. How can discovery sampling help in obtaining documentary evidence?

Using discovery (statistical) sampling allows an auditor to generalize and make inferences
from the sample to the population. Discovery sampling deals with the probability of
discovering at least one error in a given sample size if the population error rate is a certain
percentage. Discovery sampling allows the auditor to quantify risk. For instance, if the
auditor samples 300 checks and finds none made out to fictitious doctors, they would be 95
percent confident that the true population fraud rate did not exceed 1 percent, 78 percent
confident that no more than 0.5 percent of the checks were fraudulent, and so forth.
Therefore, auditors don’t need to examine all documents ( population), because it is costly
and time consuming. By using discovery sampling, auditors just pick some documents to be
considered as samples.

9. What are different ways in which investigators can obtain hard-to-get documentary
evidence?

There are three ways to obtain hard-to-get documentary evidence: (1) by subpoena, (2) by
search warrant, or (3) by voluntary consent. Subpoenas (subpoena duces tecum) are orders
issued by a court or a grand jury to producedocuments. While, A judge issues a search
warrant when there is probable cause to believe that documents have been used in committing
a crime. Search warrants are executed only by law enforcement officials and are generally
used only in criminal cases. Voluntary consent can be either oral or written. Often, an initial
interview with a fraud suspect is for the purpose of obtaining permission to access bank or
brokerage records, rather than to obtain a confession.

Case 3

Based on your understanding of a fraud examiner’s responsibilities regarding documents,

what should the audit firm personnel have done with their documents if they had suspected
that fraud had occurred?

Firsly, audit firm personnel must ask the employee for keeping the documents, therefore
destroying the documents is highly forbidden. Then, the auditor should use discovery
sampling. By using discovery (statistical) sampling, it allows an auditor to generalize and
make inferences from the sample to the population. Then, the auditor would use a random
number generator or a random number table to select the checks to be examined. In using a
random number table to select the checks to examine, an auditor must make the following
four decisions:
1. Where to start in the table when selecting check
numbers
2. The direction in which to move through the table
3. What to do with numbers that are outside the range,
in this case, that do not fall between 2000 and 8000
4. Which four of the five digits to use, since the
checks are all four-digit numbers
Once the checks have been selected, the next step is to use a discovery sampling table, to
draw conclusions about the checks. So, the audior could measure how much risk that they are
willing to take and how big is the sample size. Furthermore, auditors can find any
possibilities of fraud in document check.

Case 4

What is wrong with this picture?

First, the financial condition of Marlin Company looks inappropriate. The growth of revenue
usually followed by the growth, but the opposite was happened. Then, the behaviour of three
purchasing agents seems to be odd, since they were blaming each other. moreover, CFO of
Marlin Company, Rutin Tutin, didn’t really concern about the lost of original invoices,
instead he just gave the copy invoices to the fraud expert. Intentionally destroying the
original invoices seems to be uncommon activities in the usual business, and even the CFO
didn’t aware about that.

Are you suspicious that fraud is present?

I’m really suspicious that there are fraud occurred in this case. There are some redflag which
can be found in this case. first, profits have been slowly decreasing, while revenues have been
increasing. This phenomena could indicated that there is unusual growing in expenses.
Moreover, three purchasing agents seems to hide something by appearing defensive, blaming
and even harass each other. It even worsened by the fact that the orginal invoices were
already destroyed. By looking at those facts, of course there is something wrong within this
situation.

What is a possible first step in verifying the invoices?

Inspect and confirm that the quantity and quality of invoiced goods were delivered as
claimed; contact the contractor’s suppliers to confirm this if necessary. Then, inspect and test
works and materials to confirm that they met the specifications as invoiced

Case Study 1

Explain why John and most other fraud examiners prefer documents over witnesses; then
describe elements of good document care.

Most fraud experts prefer physical evidence to other types of evidence, such as eyewitnesses,
because documents are reliable and consistent. Unlike witnesses, documents do not forget,
they cannot be cross-examined or confused by attorneys, they cannot commit perjury, and
they never tell inconsistent stories on two different occasions. Documents contain extremely
valuable information for conducting fraud examinations. For example, in addition to possible
fingerprints, the information on the front and back of a cancelled check

Elements of good document care consist of:

• Dates of documents
• Sources of documents
• The dates on which documents were obtained
• Brief descriptions of document contents
• Subjects of documents
• Identifying or Bates number