Presentation on theme: "Interviewing Techniques for Fraud NSAA IT Conference October 9, 2008 Presenter: Jonathan Trull."— Presentation transcript:
Interviewing Techniques for Fraud NSAA IT Conference October 9, 2008 Presenter: Jonathan Trull
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
State Employee Accused of Stealing $11 million
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.
Auditing Standards Yellow Book FISCAM (Exposure Draft) SAS 99
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)
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)
FISCAM (Exposure Draft) Incorporates Government Auditing Standards relevant to financial and performance audits. Assess risks of fraud significant to audit objectives. References SAS 99.
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.
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.
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…
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.
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
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.
Modes of Communication Five methods/modes of communication: (1) Nonverbal (4) Speaking (2) Reading(5) Listening (3) Writing
Elements of Conversation Expression Persuasion Therapy Ritual Information Exchange Remember – An interview is just a structured conversation.
Facilitators of Communication Fulfilling Expectations Recognition Altruistic Appeals Sympathetic Understanding New Experience Catharsis Need for Meaning Extrinsic Rewards
Inhibitors of Communication Competing Demand Demands for Time Ego Threat Repression Disapproval Loss of Status Etiquette Trauma Forgetting Chronological Confusion Inferential Confusion Unconscious Behavior
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
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.
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
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
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
Nonverbal The Hands –Finger tapping or drumming –Playing with jewelry –Checking watches –Wringing hands The Legs –Crossing/uncrossing legs –Bouncing legs
Nonverbal The Feet –Lightly tapping feet –Stomping feet Posture –Lean body away from interviewer –Lean body toward door or exit
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
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.
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
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.
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.
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.
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.
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.
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.
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.
Key Words / Phrases Adverbs – –I rarely [but not exclusively] speak with him anymore. –I hardly knew him [but I did know him].
Key Words / Phrases Temporal Lacuna – –Later on –After –Later –Next –Afterwards –Eventually
Adjectives Dishonest subjects often omit adjectives altogether or qualify their remarks – I think…
Structure A narrative has a beginning, middle, and an end.
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?
Types of Fraud Interviews SAS 99 / Fraud Discovery Interviews Fraud-Based Interviews Interrogations
SAS 99 / Fraud Discovery Interviews Who do we interview? –Everyone Who performs the interviews? –Financial Auditors –Performance Auditors –IS Auditors
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 …..
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?
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?
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?
Example Questions Is there any other information you wish to provide regarding any possible fraud within this agency?
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
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
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
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
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.
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
Evidence Gathering Order
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.
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
Venue Interviews should be in person Location places subject at ease Ensures privacy Avoids distractions
Introductory Phase Personal Introduction Social Amenities Open Discussion
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
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?
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.
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.
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.
Question Types Open or Indirect Closed or Direct Probing or follow-up
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.
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
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
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?
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.
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?
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.
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
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.)
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
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)
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
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.
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
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.
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.
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
Note Taking Do not document conclusions or interpretations. Report any unusual changes in body language. Turn notes into typewritten report IMMEDIATELY!
Habits of Successful Fraud Interviewers Takes minimal notes Does not interrupt the interviewee Asks open-ended questions Follows a logical – usually chronological – question sequence
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 talking…let subject talk
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 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
References Interviewing and Interrogation, by Don Rabon Beyond the Numbers: Professional Interviewing Techniques, by ACFE Finding the Truth, by Erwin Sulak