Interviewing techniques for forensic accountants

When our company suspects that fraud has occurred, a forensic accountant will interview potential suspects and witnesses as part of their investigation. They should not conduct the interview without sufficient preparation and making a plan (American Institute of CPAs 2013, 16), and must not argue with the interviewee, make threats or promises, become judgemental, or lose objectivity (AICPA 2013, 16).

Most importantly, forensic accountants must not obtain confessions as the result of ‘duress, intimidation, persistent importunity, or sustained or undue insistence or pressure’, as they must be made voluntarily to be admissible (McDermott v R (1948) 76 CLR 501 at 511). This includes oppressive conditions such as depriving a suspect of food or sleep (Garrett 2010, 1095).

(Cain 2015)

I have no personal experience with investigative interviews, but I recommend that forensic accountants use motivational interviewing. It is a ‘directive, client-centred style for eliciting behaviour change by helping clients to explore and resolve ambivalence’ (Rollnick and Miller 1995, 326). In contrast, the Reid Technique is a more aggressive approach. It begins with a behavioural analysis interview, followed by an interrogation to persuade the suspect to admit their guilt (Cutler 2008). If I was being interviewed, I would feel more intimidated by this technique, and the accusatory tone may lead to a false confession to end the interview quickly.

(Mead Johnson Nutrition 2016)

An alternative approach that I recommend is the PEACE Technique, which is also non-accusatory and less aggressive than the Reid Technique. It focuses on building a rapport to engage the interviewee and determine the facts, rather than merely obtaining a confession (Gudjonsson and Pearse 2011, 34), and would make me feel more comfortable when responding to the interviewer’s questions.

Relevant Links
You can read more about how to conduct an effective interview here: http://www.aicpa.org/interestareas/forensicandvaluation/resources/practaidsguidance/downloadabledocuments/10834-378_interview%20whiite%20paper-final-v1.pdf

References
American Institute of CPAs. 2013. Conducting Effective Interviews. Accessed May 12, 2016. http://www.aicpa.org/interestareas/forensicandvaluation/resources/practaidsguidance/downloadabledocuments/10834-378_interview%20whiite%20paper-final-v1.pdf.

Cain, Nicole. 2015. “The Use of Deception During Police Interrogations.” Image. Accessed May 22, 2016. http://inpublicsafety.com/2015/12/the-use-of-deception-during-police-interrogations-2/.

Cutler, Brian. 2008. “Reid Technique for Interrogations.” In Encyclopedia of Psychology and Law. Accessed May 12, 2016. http://dx.doi.org.ezp01.library.qut.edu.au/10.4135/9781412959537.n262.

Garrett, Brandon L. 2010. “The Substance of False Confessions.” Stanford Law Review 62(4): 1051-1119. Accessed May 12, 2016. http://search.proquest.com.ezp01.library.qut.edu.au/docview/224077578/fulltext/9DB57546A2BA48F4PQ/1?accountid=13380.

Gudjonsson, Gisli and John Pearse. 2011. “Suspect Interviews and False Confessions.” Current Directions in Psychological Science 20(1): 33-37. Accessed May 12, 2016. doi: 10.1177/0963721410396824.

McDermott v R (1948) 76 CLR 501.

Mead Johnson Nutrition. “The Motivational Interviewing Toolkit for the Metabolic Clinician.” Image. Accessed May 22, 2016. https://www.meadjohnson.com/pediatrics/us-en/clinical-support/metabolic-toolkit.

Rollnick, Stephen and William Miller. 1995. “What is Motivational Interviewing?” Behavioural and Cognitive Psychotherapy 23(4): 325-334. Accessed May 12, 2016. http://dx.doi.org.ezp01.library.qut.edu.au/10.1017/S135246580001643X.

Understanding and explaining fraud, bribery and corruption

When fraud is committed by employees in our company, theories and models can help us understand why it occurred. Differential Association theory claims that social behaviour is found in ‘learned attitudes, beliefs or values’ (Donegan and Ganon 2008, 6), explaining that criminal behaviour is learned by others who are engaged in criminal conduct (Salinger 2013). Although I’m not a criminal, I know from experience that it’s human nature to learn behaviour from your peers. In comparison, Strain Theory claims that social problems, including crime, ‘result from the failure of institutions, families and other structures to provide for the functional and affective needs of individuals’, leading to a sense of anomie (Donegan and Ganon 2008, 4). 

Differential Association theory explains why fraud occurs by groups within an organisation, whereas Strain Theory explains why individuals turn to fraud, bribery and corruption. Cressey’s Fraud Triangle is a model that addresses the effect on an individual. It explains that they feel pressure to commit fraud, which is their personal motive, there is an opportunity to commit fraud in the organisation, and the individual rationalises their behaviour (Mackevicius and Giriunas 2013).

(Brumell Group 2015)

I first heard about the Fraud Triangle during my university studies in a subject called Audit and Assurance, where it helped me understand why fraudulent financial reporting and asset misappropriation were committed by employees and management. It can also be used to explain an increase in this behaviour here at the bank of Australia. We can try and reduce this my recognising employee’s pressures such as financial distress, limiting opportunities to commit fraud (Coenen 2016), and building an ethical culture where fraud is less likely to be rationalised.

(Procurement Academy 2014)

References
Brumell Group. 2015. “The Fraud Triangle Theory.” Image. Accessed May 22, 2016. http://brumellgroup.com/news/the-fraud-triangle-theory/.

Coenen, Tracy. “The Fraud Triangle and What You Can Do About It.” Accessed May 12, 2016. https://www.allbusiness.com/the-fraud-triangle-and-what-you-can-do-about-it-4968017-1.html.

Donegan, James and Michele Ganon. 2008. “Strain, Differential Association and Coercion: Insights from the Criminology Literature on Causes of Accountant’s Misconduct.” Accounting and the Public Interest 8: 1-20. Accessed May 9, 2016. http://search.proquest.com.ezp01.library.qut.edu.au/docview/235004989?pq-origsite=summon.

Mackevicius, Jonas and Lukas Giriunas. 2013. “Transformational Research of the Fraud Triangle.” Ekonomika 92(4): 150-163. Accessed May 9, 2016. http://search.proquest.com.ezp01.library.qut.edu.au/docview/1492268000?pq-origsite=summon.

Procurement Academy. 2014. “Fraud Prevention – Cressey’s Triangle.” YouTube video, posted November 24. Accessed May 22, 2016. https://www.youtube.com/watch?v=IK_2oMODNXk.

Salinger, Lawrence. 2013. “Differential Association Theory.” In Encyclopedia of White-Collar and Corporate Crime. Accessed May 9, 2016. http://dx.doi.org.ezp01.library.qut.edu.au/10.4135/9781452276175.n135.

Remaining impartial as a forensic accounting expert witness

Our company is extremely susceptible to fraud, and it is highly likely that we will need to engage a forensic accountant as an expert witness. We must understand that their paramount duty is to the court, and this may conflict with our expectations as their client (Accounting Professional & Ethical Standards Board 2013, 8). When preparing a report, expert witnesses must form an opinion based entirely on specialised knowledge (Hoffman et al. 2013, 46). They are required to act independently and without bias, and a statement that verifies this should be included in the report (Beran 2009, 135).

(Aviation Safety Institute 2016)

All facts and assumptions that were relied on must also be explained in the report, and the opinion should be justified in terms that can be understood by a layperson (Hoffman et al. 2013). It is essential that the expert understands they are not obliged to endorse the client’s position, even if instructed by the lawyer.

I have no personal experience in this area, but if I was an expert witness, I would also be bound by these requirements to avoid prejudice. I think these duties are quite onerous and may be difficult to comply with, particularly because they are being paid by only one party to the proceeding. Despite this, expert witnesses must remain impartial throughout all dealings with their client.

Relevant Links
If you would like to read more about the forensic accountant and their expert report, you can do so here:
http://www.mwforensic.com.au/news/MWCommDispute_Ed3.pdf

References
Accounting Professional & Ethical Standards Board. 2013. Forensic Accounting Services. APES 215. Accessed April 16, 2016. http://www.apesb.org.au/uploads/standards/apesb_standards/13092014103232p1.pdf.

Aviation Safety Institute. “Expert Opinion for Legal Matters.” Image. Accessed April 20, 2016.
http://aviationsafetyinstitute.aero/consulting/expert-opinion-for-legal-matters/.

Beran, Roy G. 2009. “The role of the expert witness in the adversarial legal system.” Journal of Law and Medicine 27 (1): 133-137. Accessed April 16, 2016. http://www.westlaw.com.au.ezp01.library.qut.edu.au/.

Hoffan, Ronnie, Warwick Finney, Phillip Cox, and Kathie Cooper. 2013. The Accountant as an Expert Witness: A basic guide to forensic accounting. CCH Australia.

Munday Wilkinson. 2011. Forensic Accounting for Commercial Disputes. Accessed April 20, 2016.
http://www.mwforensic.com.au/news/MWCommDispute_Ed3.pdf.

Directors' strict liability to address fraud, bribery and corruption

Last year, the Commonwealth Bank notified me that there were several fraudulent transactions on my debit card at a church in the United States. I was the victim of cybercrime, and this happened despite the steps I take to protect my details, highlighting just how easy it is for perpetrators. Our company is increasingly vulnerable as potential victims of white-collar crime and cybercrime, and you should understand what these mean. White-collar crimes are non-violent crimes committed in the course of a person’s work or profession, such as fraud (Polk 1999, 5). Cybercrime is a broad term that encompasses crimes involving computers and other information communications technologies, such as hacking or identity theft (Attorney-General’s Department 2013, 4).

(Swayne 2013) 

The legislature has attempted to minimise these incidences of fraud, bribery and corruption by introducing strict liability to hold directors liable when they are not at fault. Strict liability applies to offences where the prosecution is not required to prove mens rea (Australian Law Reform Commission 2016, 287). As a result, it is essential that directors in our company exercise care and diligence to put adequate controls in place and protect against these offences. This is a mechanism to address the continuing problem in the corporate world, and if directors take all reasonable steps, they are less likely to be held personally liable.

(Clifford Chance 2015)

Relevant Links
To learn more about white-collar crime and why adequate controls are important, you can read about the high-profile case of Joel Morehu-Barlow here:
http://www.theaustralian.com.au/news/nation/fake-prince-joel-morehu-barlow-admits-theft-of-16m-from-queensland-health/story-e6frg6nf-1226600526411

To find out how to protect your credit card, you can read tips from the Commonwealth Bank here:
https://www.commbank.com.au/personal/can/credit-cards/tips-for-credit-card-security.html

References
Attorney-General’s Department. 2013. National Plan to Combat Cybercrime. Accessed April 11, 2016.
https://www.ag.gov.au/CrimeAndCorruption/Cybercrime/Documents/national-plan-to-combat-cybercrime.pdf.

Australian Law Reform Commission. 2016. Traditional Rights and Freedoms Encroachments by Commonwealth Laws. Accessed April 11, 2016. https://www.alrc.gov.au/publications/freedoms-alrc129.

Clifford Chance. 2015. “Directors' duties under Australian law.” YouTube video, posted January 22. Accessed April 19, 2016. https://www.youtube.com/watch?v=e97IiYN2wl0.

Commonwealth Bank of Australia. “Tips for credit card security.” Accessed April 19, 2016.
https://www.commbank.com.au/personal/can/credit-cards/tips-for-credit-card-security.html.

Elks, Sarah. 2013. “Fake prince Joel Morehu-Barlow sentenced to 14 years for theft of $16m from Queensland Health.” The Australian, March 19. Accessed April 19, 2016.
http://www.theaustralian.com.au/news/nation/fake-prince-joel-morehu-barlow-admits-theft-of-16m-from-queensland-health/story-e6frg6nf-1226600526411.

Polk, Ken. 1999. “White collar crime.” Legaldate 11 (2): 5-7. Accessed April 11, 2016.
http://search.informit.com.au.ezp01.library.qut.edu.au/fullText;dn=19994333;res=AGISPT.

Swayne, Matthew. 2013. “White Collar Crime's Glass Ceiling: It's Still a Man's World.” Image. Accessed April 19, 2016.
http://vitaminw.co/business/white-collar-crime-still-boys%E2%80%99-club.

New regulatory environment for forensic accountants

The role of forensic accountants has evolved in recent decades as today’s digitised world makes it easier for perpetrators to commit fraud (Kirby 2011, 1). The regulatory environment must keep up with this and the increased demand for forensic accountants (Kirby 2011, 5). APES 215 Forensic Accounting Services replaced two standards dating back to 2002, and was issued in 2008 and revised in 2013. It outlines the mandatory quality and ethical standards that forensic accountants must follow (Accounting Professional & Ethical Standards Board 2013, 2).

Forensic accountants are frequently engaged to act as expert witnesses in court, both in the civil and criminal jurisdiction. Their role involves investigating and analysing information to present their findings and opinion in a report across a wide variety of cases (Warshavsky 2013, 9). This could be relevant in our company if we are ever the victims of white-collar crime.

(Raffa PC 2013)

I recently read a case where the forensic accountant clearly didn’t understand his role, and his report was rendered inadmissible. In ASIC v Rich (2005) 53 ACSR 110, the expert failed to disclose his previous involvement in assisting ASIC, which questioned his independence. To avoid this happening, all forensic accountants must understand and keep up with the development of this new regulatory environment, particularly given their crucial role in providing an expert opinion.

Relevant Links
If you would like to read a copy of APES 215, you can do so here:
http://www.apesb.org.au/uploads/standards/apesb_standards/13092014103232p1.pdf

If you would like to read the Supreme Court of New South Wales' judgment in ASIC v Rich (2005) 53 ACSR 110 or download a copy, you can do so here: https://www.caselaw.nsw.gov.au/decision/549fbce03004262463ba18a6

References
Accounting Professional & Ethical Standards Board. 2013. Forensic Accounting Services. APES 215. Accessed March 26, 2016. http://www.apesb.org.au/uploads/standards/apesb_standards/13092014103232p1.pdf.

Kirby, Michael. 2011. “Forensic Accounting – New Rules and Opportunities.” Paper presented at the Business Valuation and Forensic Accounting Special Interests Groups Conference, Sydney, March 11.
http://www.michaelkirby.com.au/images/stories/speeches/2000s/2011/2525-FORENSIC-ACCOUNTING-CONF-MARCH-2011.pdf.

New South Wales Supreme Court. 2005. “ASIC v Rich.” Accessed April 19, 2016.
https://www.caselaw.nsw.gov.au/decision/549fbce03004262463ba18a6.

Raffa PC. 2013. “What is Forensic Accounting?” YouTube video, posted October 30. Accessed April 18, 2016.
https://www.youtube.com/watch?v=_DLg_3rXkHM.

Warshavsky, Mark S. 2013. “The Role of Forensic Accountants in Litigation Cases.” The CPA Journal 83 (6): 58-61. Accessed March 26, 2016.
http://search.proquest.com.ezp01.library.qut.edu.au/docview/1417579770/abstract/E8E153DFC2D6481DPQ/1?accountid=13380.

Need for information security to minimise fraud, bribery and corruption

The number of incidents involving fraud, bribery and corruption are rising every year, emphasising the need for addressing security in our company. According to a survey conducted by KPMG (2013), there has been an 82% increase in individual cases of fraud exceeding $1 million, with 68% of cases from 1997 to 2012 occurring in the financial services industry.

Total fraud by industry: 15 year average
(KPMG 2013)

Here at the Bank of Australia, we are vulnerable and risk management should be our top priority. In today’s global marketplace, there are always new opportunities for fraudulent activity due to the obsolescence and developments of IT infrastructure (Singh 2007, 32).

To protect myself at home, I ensure that my laptop and mobile phone always have up-to-date virus protection software, and passwords that are changed frequently. Our organisation has similar controls in place, but this only protects against some electronic instances of fraud. The threats that organisations face are on a much larger scale, and further protection is necessary. COBIT 5 for Risk is one of the available products that builds on the COBIT 5 framework to establish the risk governance and management functions in an organisation. Our company could implement this to optimise risk and ‘identify, analyse, respond to and report on risk on a daily basis’ (ISACA 2013, 9), thereby minimising fraud, bribery and corruption.

COBIT 5 Product Family
(ISACA 2013)

Relevant Links
You can read a copy of KPMG's survey of fraud, bribery and corruption here:
https://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf

If you would like to read more about COBIT 5 for Risk or purchase a copy of the guide, you can do so here:
http://www.isaca.org/COBIT/Pages/Risk-product-page.aspx

References
ISACA. 2013. “COBIT 5 for Risk Preview.” Accessed March 24, 2016. http://www.isaca.org/COBIT/Documents/COBIT-5-for-Risk-Preview_res_eng_0913.pdf.

ISACA. “COBIT 5 for Risk.” Accessed April 18, 2016. http://www.isaca.org/COBIT/Pages/Risk-product-page.aspx.

KPMG. 2013. A survey of fraud, bribery and corruption in Australia and New Zealand 2012. Accessed March 24, 2016.
https://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf.

Singh, Subash. 2007. “Fraud Risk Management Protecting Your Corporate Reputation and Value.” Accountancy SA 32-33. Accessed March 24, 2016. http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/215224668?accountid=13380.

Separating management from governance policy-making

Here at the Bank of Australia, we realise the importance of separating management from governance policy-making, and I want to ensure that you understand why. You may have heard of the collapse of Enron in 2001 where the board of directors, including the CEO, allowed the CFO to use off-balance sheet transactions and manipulate the accounts (Stewart 2006, 118). This enabled senior level management to commit fraud and cause one of the world’s worst corporate accounting scandals. The same threats occur in financial institutions, and we need to prevent this from happening in our organisation. I haven’t experienced this firsthand, but Enron was mentioned repeatedly by academics when I attended university, highlighting its significance.

(BBC News 2016)

COBIT 5 is a framework that recognises the distinction between governance and management. A key responsibility of governance is to evaluate, direct and monitor. Management then plans, builds, runs and monitors activities to support the governance objectives (Escoute Consulting 2014).

(Fox IT 2016)

Without this separation, our company would be susceptible to fraud, bribery and corruption, which can have devastating consequences. From April to September 2015, out of 91 fraud cases with a value of just over $128 million, 34% were committed by management (KPMG 2015). Our industry experiences the greatest number of fraud incidents (Grant Thornton 2015), and that is why we must reduce this risk.

Relevant Links

For more information on the collapse of Enron, you can view a timeline here:

http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm

If you would like to read more about COBIT 5 or request a copy of the framework, you can do so here:

http://www.isaca.org/COBIT/pages/default.aspx

References

BBC News. “ENRON: Timeline.” Accessed April 17, 2016.

http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm.

Escoute Consulting. 2014. “The difference between governance and management.” Accessed March 20, 2016. http://www.escoute.com/2014/03/14/the-difference-between-governance-and-management/.

Fox IT. “COBIT 5 Training Courses.” Image. Accessed April 17, 2016.

http://www.foxit.com/it-training/cobit-5-training-courses/.

Grant Thornton. 2015. “Fraud in focus: Fraud and corruption in Banking and Financial Services.” Accessed March 20, 2016. http://www.grantthornton.com.au/client-alerts/2015/fraud-and-corruption-in-banking-financial-services/.

ISACA. “COBIT 5: A Business Framework for the Governance and Management of Enterprise IT.” Accessed April 17, 2016. http://www.isaca.org/COBIT/pages/default.aspx.

KPMG. 2015. “Fraud Barometer: The fact of Australian fraud in 2015.” Accessed 20 March, 2016. https://home.kpmg.com/au/en/home/insights/2015/12/fraud-barometer-december-2015.html.

Stewart, Bennett. 2006. “The Real Reasons Enron Failed.” Journal of Applied Corporate Finance 18 (2): 116-119. Accessed March 17, 2016. doi:10.1111/j.1745-6622.2006.00092.x.