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Interviewing Techniques for Fraud

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Title: Interviewing Techniques for Fraud


1
Interviewing Techniquesfor Fraud
  • NSAA IT Conference
  • October 9, 2008
  • Presenter Jonathan Trull

2
Learning Objectives
  • Why interview for fraud?
  • Communication How does it work?
  • Understand 3 types of fraud interviews
  • Mechanics of fraud-based interviews
  • Detecting deception, half truths, omissions, and
    inconsistencies

3
State Employee Accused of Stealing 11 million
4
Why Interview for Fraud?
  • People actually admit theyve committed fraud,
    abuse, or other illegal acts when confronted.
  • People who have knowledge of wrongdoing but
    arent involved in fraud often wont come forth
    with information unless asked.
  • Quickly identifies control weaknesses.
  • Standards.

5
Auditing Standards
  • Yellow Book
  • FISCAM (Exposure Draft)
  • SAS 99

6
Government Auditing Standards
  • auditors should plan and perform the audit to
    obtain reasonable assurance about whether the
    financial statements are free of material
    misstatements, whether caused by errors or
    fraud. (4.27)

7
Government Auditing Standards
  • In planning the audit, auditors should assess
    risks of fraud occurring that is significant
    within the context of the audit objectives.
    Audit team members should discuss among the team
    fraud risks.Auditors should gather and assess
    information to identify risks of fraud (7.30)

8
FISCAM (Exposure Draft)
  • Incorporates Government Auditing Standards
    relevant to financial and performance audits.
  • Assess risks of fraud significant to audit
    objectives.
  • References SAS 99.

9
FISCAM (Exposure Draft)
  • If work is performed as part of broader financial
    or performance audit, the auditor should
    coordinate with other audit teams.
  • Communicate fraud risks associated with IT to
    overall fraud team.
  • Hold brainstorming session.
  • Design procedures to provide reasonable assurance
    of detecting fraud, if risks are significant.

10
FISCAM (Exposure Draft)
  • Specifically highlights ERP systems and the need
    to design procedures to identify system-based
    overrides.
  • Overall, auditor is responsible for being aware
    of vulnerabilities to fraud associated with the
    area being audited to identify indications that
    fraud may have occurred.

11
SAS 99
  • SAS 99 wants us to ask MORE questions of
    management PLUS a bunch of additional questions
    of others (governance committee, internal audit,
    and other staff)
  • Sometimes people with knowledge of actual or
    potential fraud are just waiting to be asked

12
SAS 99
  • The auditor's inquiries of management and others
    within the entity are important because fraud
    often is uncovered through information received
    in response to inquiries. One reason for this is
    that such inquiries may provide individuals with
    an opportunity to convey information to the
    auditor that otherwise might not be communicated.

13
SAS 99
  • Making inquiries of others within the entity, in
    addition to management, may be useful in
    providing the auditor with a perspective that is
    different from that of individuals involved in
    the financial reporting process. The responses to
    these other inquiries might serve to corroborate
    responses received from management, or
    alternatively, might provide information
    regarding the possibility of management override
    of controls

14
What is Communication?
  • The process of effectively sending and receiving
    information, thought, or feeling.
  • Whether verbal or nonverbal communication, it is
    essential that we analyze communication (1)
    within context, and (2) as a pattern.

15
Modes of Communication
  • Five methods/modes of communication
  • (1) Nonverbal (4) Speaking
  • (2) Reading (5) Listening
  • (3) Writing

16
Elements of Conversation
  • Expression
  • Persuasion
  • Therapy
  • Ritual
  • Information Exchange
  • Remember An interview is just a structured
    conversation.

17
Facilitators of Communication
  • Fulfilling Expectations
  • Recognition
  • Altruistic Appeals
  • Sympathetic Understanding
  • New Experience
  • Catharsis
  • Need for Meaning
  • Extrinsic Rewards

18
Inhibitors of Communication
  • Competing Demand
  • Demands for Time
  • Ego Threat
  • Repression
  • Disapproval
  • Loss of Status
  • Etiquette
  • Trauma
  • Forgetting
  • Chronological Confusion
  • Inferential Confusion
  • Unconscious Behavior

19
Establish Baseline
  • It is critical that we establish a baseline or
    calibrate the subject of the interview.
  • How do we calibrate a subject?
  • Attempt to relax the subject
  • Establish rapport early

20
Nonverbal Communication
  • Over half of our communication is made up of
    nonverbal communication or body language, that
    tone makes up about one-third of our
    communication, and that less than twenty percent
    of communication is made up of the words we use.

21
Nonverbal
  • The Head
  • Tilted to one side indicates listening
  • Chin dropped to chest indicates acceptance of
    guilt or depression
  • The Face
  • Turns pale
  • Becomes flushed, red, or splochy
  • Onset of tics

22
Nonverbal
  • The Nose
  • Touching nose indicates stress
  • The Mouth
  • Yawning continuously
  • Yawning to stall or fake boredom
  • Placing pens and other objects in mouth
  • The Eyes
  • Shifting eye behavior

23
Nonverbal
  • The Eyes
  • Blink rapidly
  • Look away during certain responses
  • Stare intently during certain responses
  • The Arms and Shoulders
  • Arms crossed and hands clenched
  • Shrugging shoulders to questions

24
Nonverbal
  • The Hands
  • Finger tapping or drumming
  • Playing with jewelry
  • Checking watches
  • Wringing hands
  • The Legs
  • Crossing/uncrossing legs
  • Bouncing legs

25
Nonverbal
  • The Feet
  • Lightly tapping feet
  • Stomping feet
  • Posture
  • Lean body away from interviewer
  • Lean body toward door or exit

26
Nonverbal Clusters
  • Nonverbal signals come in clusters.
  • No signal by itself tells you anything.
  • Consider all signals as part of a pattern.
  • Examples Subject sits behind a desk or table and
    leans toward the door, quivering chin and crossed
    arms with clenched fists, deep sigh and slumping
    shoulders, crossing hand behind head and yawning

27
Observing Interview Reactions
  • Proxemics
  • Chronemics
  • Kinetics
  • Paralinguistics

28
Tone
  • Tone is the inflection or sound we give our works
    to express a mood or emotion.
  • How are you? Fine.
  • Fine can convey a wide range of meanings,
    including sarcasm, gratitude, or irritation.

29
Words
  • The words people use and the order in which the
    words are used is important.
  • We tend to communicate through one of three
    senses Sight, Sound, or Touch

30
Communication Analysis
  • What did the subject say?
  • What did the subject NOT say?
  • Vocabulary, parts of speech, syntax, and
    structure form the basis for analyzing
    communication.

31
Vocabulary
  • Each word the subject uses has a different
    meaning.
  • A person maintains consistency in his language to
    express the same thought.
  • Change of language reflects a change in the
    subjects perception of the account.

32
Vocabulary Example
  • Mr. Smith keeps the blank checks and his
    signature stamp in his desk drawer. He generally
    keeps the drawer locked. Mr. Smith said I could
    use his desk to do my work while he was gone.
    The drawer was open when I sat at the desk on
    Tuesday and the checks were taken. I called John
    at home and he told me not to worry about it.

33
Parts of Speech
  • Nouns name or identify persons, places, or
    things.
  • Verbs describe an action, occurrence, or state
    of being.
  • Adverbs qualifiers that modify other words.
  • Adjectives words that describe nouns.

34
Syntax
  • The manner or order in which a person chooses to
    arrange his words in a sentence. Complete
    sentences consist of a subject, verb, and
    modifying words that add detail to the events.

35
Syntax Example
  • Jane and I signed the check.
  • My boss Jane and I signed the check.
  • I signed the check and then Jane did.
  • The check was signed by Jane, I think, and by
    me.

36
Key Words / Phrases
  • Adverbs
  • I usually but not always unlock the safe.
  • I normally but not always reconcile the
    accounts.
  • Basically but not completely, thats what
    happened.
  • Mostly but not always, I get a second
    signature.

37
Key Words / Phrases
  • Adverbs
  • I rarely but not exclusively speak with him
    anymore.
  • I hardly knew him but I did know him.

38
Key Words / Phrases
  • Temporal Lacuna
  • Later on
  • After
  • Later
  • Next
  • Afterwards
  • Eventually

39
Adjectives
  • Dishonest subjects often omit adjectives
    altogether or qualify their remarks I think

40
Structure
  • A narrative has a beginning, middle, and an end.

41
Main Points
  • What is the general importance of the subjects
    statements?
  • Are the references and word choices consistent?
  • Why did the subject choose certain words or
    phrases?
  • Why is certain information presented first as
    opposed to last or in the middle of the story?

42
Types of Fraud Interviews
  • SAS 99 / Fraud Discovery Interviews
  • Fraud-Based Interviews
  • Interrogations

43
SAS 99 / Fraud Discovery Interviews
  • Who do we interview?
  • Everyone
  • Who performs the interviews?
  • Financial Auditors
  • Performance Auditors
  • IS Auditors

44
SAS 99 / Fraud Discovery Interviews
  • What questions do we ask?
  • Direct specific
  • Are you aware of anyone within the organization
    who has taken computer resources without
    authorization?
  • Have you ever changed source code without
    authorization?
  • Hypothetical
  • If someone was going to ..

45
Example Questions
  • When were talking about fraud in government,
    were talking about a big area. Were not
    talking about taking a pen or making a few
    photocopies. Rather, were talking about a whole
    range of activities where employees steal from
    the state, lie to management, or taken unfair
    advantage. Do you think fraud is a problem for
    government in general?

46
Example Questions
  • Do you think this state agency has a problem with
    fraud?
  • If employees or managers are stealing from this
    agency, why do you think they do it?
  • Frequently, small thefts by employees can add up
    to a lot of money. If you knew another employee
    was stealing, what would you do?

47
Example Questions
  • Do you know of anyone who might be stealing or
    taking advantage of the state?
  • Suppose someone who worked for the agency decided
    to steal or commit fraud. How could they do it
    and get away with it?
  • In your opinion, who is beyond suspicion when it
    comes to committing fraud at this agency?

48
Example Questions
  • Is there any other information you wish to
    provide regarding any possible fraud within this
    agency?

49
Making routine inquiries about fraud
  • Inquire of management about
  • Knowledge of any fraud or suspected fraud
  • Any allegations about fraud
  • Risks of fraud in the entity
  • Programs and controls that mitigate these risks
  • Monitoring of operating locations and business
    segments and any locations or segments that
    might have higher fraud risk
  • If (and how) management communicates its view on
    business practices and ethics
  • Any fraud-related reports it has made to the
    audit committee

50
Making routine inquiries about fraud
  • Inquire directly to the audit committee about
  • The committees views on fraud risk
  • Any knowledge of fraud or suspected fraud
  • Mitigating controls
  • How the committee exercises oversight in this area

51
Making routine inquiries about fraud
  • Inquire of internal audit personnel about
  • Their views about fraud risks
  • Any knowledge of fraud or suspected fraud
  • Any fraud-related work they have done
  • The adequacy of managements responses to any
    fraud-related findings

52
Making routine inquiries about fraud
  • Inquire of other personnel about the existence of
    fraud or suspicion about fraud
  • To learn more about or corroborate what others
    have said about fraud risk
  • To allow individuals an opportunity to convey
    information that might not otherwise be
    communicated
  • To obtain perspectives that are different from
    that of individuals involved in financial
    reporting
  • To learn more about managements ability to
    override controls
  • To determine how effectively management has
    communicated standards of ethical behavior

53
Fraud-Based Interviews
  • The auditor has already identified problems and
    is seeking to clarify their cause and quantify
    their impact. These interviews presuppose that
    the subject has important information and may be
    misleading the questioner or lying.

54
Fraud Examination Process
  • Sources of Information (tips/complaints,
    anomalies, SAS 99 interviews)
  • Predication?
  • Develop fraud theory
  • Theory validated? Or Other theories confirmed?
  • Obtain documentary evidence
  • Interview
  • Prepare report

55
Evidence Gathering Order
56
Fraud-Based Interviews
  • When should these interviews be used
  • Auditor notes an important exception and cannot
    rule out wrongdoing as a cause.
  • Wants to follow up a routine discussion of
    procedures and controls.
  • Gets a tip that possible wrongdoing has occurred.

57
Mechanics of the Interview
  • Venue
  • Introductory Phase
  • Introduction of Subject Matter and Purpose of
    Interview
  • Questioning the subject
  • Review of material with subject
  • Closing and relationship building

58
Venue
  • Interviews should be in person
  • Location places subject at ease
  • Ensures privacy
  • Avoids distractions

59
Introductory Phase
  • Personal Introduction
  • Social Amenities
  • Open Discussion

60
Introductory Phase
  • Take Charge / Provide the Introduction
  • Establish Rapport
  • Establish the Interview Theme
  • Observe Reactions
  • Theme Development
  • Methodology
  • Physical Contact (handshake)
  • Establish Purpose of Interview

61
Subject Matter / Purpose
  • Be cautious when introducing the purpose of the
    interview.
  • Example I am responsible for gathering
    information regarding the agencys contract with
    ABC, Inc. I learned you were on the RFP
    Selection Committee. Can you help me by
    answering a few questions?

62
Questioning the Subject
  • The interviewers role is not to answer questions
    or provide information.
  • The interviewer should spend a minimal amount of
    time talking, no more than 15.
  • Allow the subject the opportunity to answer the
    questions completely and fully without
    interruption.

63
Questioning the Subject
  • The interviewer should allow a few moments of
    silence each time the subject appears to have
    stopped talking.
  • The interviewer should confirm with the subject
    at the end of the interview the information the
    subject provided.
  • Encourage the subject to speak.

64
Questioning the Subject
  • Use a line of questioning moving from the least
    sensitive topics to the most sensitive.
  • Follow-up on answers by using the subjects own
    words.
  • Focus on establishing who, what, when, where, and
    why.

65
Fraud Question Typology
  • Introductory
  • Informational
  • Closing
  • Assessment
  • Admission-Seeking

66
Question Types
  • Open or Indirect
  • Closed or Direct
  • Probing or follow-up

67
Open Questions
  • Cant be answered with yes/no response.
  • Pros Useful when youre not sure of what
    information you need or if you want to know how
    someone feels about an issue.
  • Cons Can take a lot of time and requires more
    note taking, more difficult to control, and
    interviewee may not be sure of what you want.

68
Closed Questions
  • Answered restricted to a few choices (yes/no)
  • Pros Useful when answers require little or no
    explanation, saves time, and makes it easy to
    tabulate results.
  • Cons Limits information that can be obtained

69
Probing/follow-up Questions
  • Asking another question to clarify or obtain
    further information about a interviewees
    response.
  • Pros Useful when the interviewee provides
    inadequate answers, stimulates discussion, and
    can be used to resolve inconsistencies.
  • Cons Can make interviewee become defensive

70
Questioning the Subject
  • Confronting the Subject
  • Avoid confrontation until later in the interview
  • Handle and manage confrontation to your advantage
    - better to focus on clarification
  • Im confused. You told me that you always got a
    second signature on checks over 500. However,
    you told me you signed the check to ABC, Inc. and
    mailed it. Am I missing something?

71
Questioning the Subject
  • Go from broad to the specific.
  • Move from the indirect to the direct to elicit
    information.
  • Allow the subject to speak. The role of the
    interviewer is to observe, to guide, to steer, to
    collect, and most importantly, to listen.

72
Review of Interview Material
  • Confirm with subject that the information
    provided is accurate.
  • Go critical point by point and get affirmative
    verbal responses from subject. Make corrections
    where necessary.
  • Is there any other information relevant to our
    discussion that we havent covered?

73
Closing and Relationship Building
  • Thank subject for time.
  • If applicable, thank subject for cooperation.
  • May be good to repeat question about any further
    information not covered.

74
Conducting the Interview
  • If something is not clear, keep asking
  • Use follow-up questions as needed to clarify
    issues
  • Drill-down on an issue
  • Dont let your question go unanswered

75
Active Listening
  • When the listener provides feedback (verbal
    and/or non-verbal) to the speaker on the extent
    to which the speakers message has been
    understood and will be retained.
  • Restating in your own words what the person said.
  • Repeating exactly what the person said
  • Reflecting to show you understand how they feel
    (You were pretty upset by this)
  • Summarizing (These seem to be the main ideas you
    stated.)

76
Active Listening
  • Non-verbal techniques
  • Maintain appropriate eye contact
  • Occasionally nod and display understanding and
    interest
  • Pause occasionally to let interviewee know to
    continue
  • Voice inflections
  • Body Language

77
Interview Donts
  • Dont ask more than one question at a time.
  • Dont jump to conclusions
  • Dont assume you know the response
  • Dont interrupt or debate with the interviewee
  • Dont monopolize the conversation (70/30 rule)
  • Dont think about the next question
  • Dont read documents
  • Dont be annoying (finger tapping, clock
    watching)

78
Building Relationship
  • To establish a balanced relationship between the
    interviewee and yourself
  • Your voice should be calm
  • Show interest in what the person is saying
  • Dont indict the person during the interview

79
Building Relationship
  • If the subject perceives you as a professional
    and someone that is honest, they are more likely
    to be helpful during the interview.

80
Building Relationship
  • If individual is reluctant
  • Keep calm, dont become frustrated
  • Use positive language
  • Use gentle persistence in asking questions
  • If need to, reschedule the interview

81
Note Taking
  • Note taking tips
  • Dont tape record the interviews
  • Take accurate and complete notes, but dont
    distract the interviewee
  • Try to avoid taking notes when the interviewee is
    talking about a sensitive subject
  • Begin each interview on a clean page.

82
Note Taking
  • Identify the date, time, and place of the
    interview and all individuals present during the
    interview.
  • Obtain biographical data for the subject,
    including telephone numbers, position, title,
    etc.
  • Initial and date the notes.

83
Note Taking
  • Document the interviewers questions.
  • Take verbatim notes if possible, Concentrate on
    subjects responses to
  • Nouns
  • Pronouns
  • Verb Tense
  • Qualifiers
  • Indicators of responsibility, innocence, or guilt

84
Note Taking
  • Do not document conclusions or interpretations.
  • Report any unusual changes in body language.
  • Turn notes into typewritten report IMMEDIATELY!

85
Habits of Successful Fraud Interviewers
  • Takes minimal notes
  • Does not interrupt the interviewee
  • Asks open-ended questions
  • Follows a logical usually chronological
    question sequence

86
Advanced Interviewing Skills
  • More experienced auditors, not new staff, should
    do these interviews
  • Be prepared, but dont follow a checklist
  • Put the subject at ease
  • Be conversational
  • Make good eye contact
  • Get the subject talkinglet subject talk

87
Interview versus Interrogation
  • Interview
  • Purpose gather info.
  • Nonaccusatory
  • Free-flowing
  • Interviewer speaks 5
  • Stay within social zone
  • Note taking O.K.
  • No Miranda warning required
  • 30-60 minutes
  • Interrogation
  • Purpose get a confession
  • Accusatory
  • Structured
  • Interrogator speaks 95
  • Start at personal zone, move to intimate zone
  • No notes (until after confession)
  • No time limit

88
References
  • Interviewing and Interrogation, by Don Rabon
  • Beyond the Numbers Professional Interviewing
    Techniques, by ACFE
  • Finding the Truth, by Erwin Sulak

89
Thats All Folks!
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