Investigative Techniques

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In this chapter:

  • Corporate Background Checks
  • Individual Background Checks
  • Searching for Friends, Family, and Associates
  • Surveillance
  • Digital Data Analysis
  • Computer Forensics
  • Interviewing Witnesses and Suspects
  • Confirmation with Customers and Vendors
  • Creativity and the Fraud Investigator

Software to help find red flags of financial fraud is getting better each day. From the book:

While the average consumer may think that the Information Age and the existence of the Internet have made getting away with fraud easier, that may not necessarily be the case. In some ways, it may be easier to initiate a fraud. For example, it previously required someone’s signature on a check to get money out of a bank account. Now, the proliferation of electronic transfers may make it easier to get money out of the bank account, especially if there is a lack of internal controls in a company.

Technology has changed the way fraud is committed, but it has also created paper trails that often make it easier to detect and investigate a fraud. Every digital transaction leaves behind a trail of digital evidence, which a fraudster may not necessarily be able to dissociate herself or himself from. Commercially available software has made it possible for companies to analyze a huge amount of data in a very short period of time, increasing the chances that unusual activity will be detected quickly.

Software can offer companies two key advantages in monitoring their systems and detecting fraud. One option is performing tests at various intervals on data sets from the company’s accounting system to detect anomalies or indicators of fraud. The software is designed to detect some of the most common signs of errors and irregularities, and companies can use the software on some or all of their transactions on a planned or surprise basis. The second option is to use software to continuously monitor a company’s accounting systems. The software can help management detect control problems as they are occurring, and also help potential frauds to be identified almost in real time.

Some of the things that software might identify as problems include:

  • Unusually high number of transactions just below a certain level of authority for a supervisor
  • High number of manual disbursements
  • Frequently occurring transactions in large, round-dollar amounts
  • Unusual patterns for write-offs or adjustments
  • Evidence of payment of duplicate invoices
  • Recurring instances of partial payments by customers
  • Identification of suspicious addresses when comparing data on employees, customers, and vendors
  • Vendor billings in excess of budgeted amounts due to improper coding of payments
  • Vendor price increases at a rate exceeding the rates of similar vendors
  • Changing purchasing patterns that suggest favoring a particular vendor, which may not be in line with management’s approved purchasing plan

The real advantage to data analysis with computer software is the ability to examine large data sets in a short period of time. Depending on the software used, there will be limitations, so analyzing the data digitally will not be foolproof. There can be cases in which a fraudulent payment to a vendor does not have any red flags that cause the software to identify it as irregular. There can also be problems with flagged items, in which tens of thousands of records are identified as irregular based on the software’s criteria, and someone has to manually examine each one.

It should also be clear that analysis of data using commercial software is not the only piece of a fraud investigation. Once the software identifies potential problems, the fraud investigator must fully investigate each issue to determine whether there is evidence of fraud, or whether the items identified are explained and supported by legitimate documentation. Digital data analysis is a tool used to enhance fraud investigations, but not a substitute for good investigative work.