Presentation on theme: "Interviewing Techniques for Fraud"— Presentation transcript:
1Interviewing Techniques for Fraud NSAA IT ConferenceOctober 9, 2008Presenter: Jonathan Trull
2Learning Objectives Why interview for fraud? Communication – How does it work?Understand 3 types of fraud interviewsMechanics of fraud-based interviewsDetecting deception, half truths, omissions, and inconsistencies
4Why Interview for Fraud? People actually admit they’ve committed fraud, abuse, or other illegal acts when confronted.People who have knowledge of wrongdoing but aren’t involved in fraud often won’t come forth with information unless asked.Quickly identifies control weaknesses.Standards.
6Government 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)
7Government 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)
8FISCAM (Exposure Draft) Incorporates Government Auditing Standards relevant to financial and performance audits.Assess risks of fraud significant to audit objectives.References SAS 99.
9FISCAM (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.
10FISCAM (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.
11SAS 99SAS 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…
12SAS 99The 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.
13SAS 99Making 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—
14What 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.
15Modes of Communication Five methods/modes of communication:(1) Nonverbal (4) Speaking(2) Reading (5) Listening(3) Writing
16Elements of Conversation ExpressionPersuasionTherapyRitualInformation ExchangeRemember – An interview is just a structured conversation.
17Facilitators of Communication Fulfilling ExpectationsRecognitionAltruistic AppealsSympathetic UnderstandingNew ExperienceCatharsisNeed for MeaningExtrinsic Rewards
18Inhibitors of Communication Competing DemandDemands for TimeEgo ThreatRepressionDisapprovalLoss of StatusEtiquetteTraumaForgettingChronological ConfusionInferential ConfusionUnconscious Behavior
19Establish BaselineIt is critical that we establish a baseline or calibrate the subject of the interview.How do we calibrate a subject?Attempt to relax the subjectEstablish rapport early
20Nonverbal 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.
21Nonverbal The Head The Face Tilted to one side indicates listening Chin dropped to chest indicates acceptance of guilt or depressionThe FaceTurns paleBecomes flushed, red, or splochyOnset of tics
22Nonverbal The Nose The Mouth The Eyes Touching nose indicates stress Yawning continuouslyYawning to stall or fake boredomPlacing pens and other objects in mouthThe EyesShifting eye behavior
23Nonverbal The Eyes The Arms and Shoulders Blink rapidly Look away during certain responsesStare intently during certain responsesThe Arms and ShouldersArms crossed and hands clenchedShrugging shoulders to questions
24Nonverbal The Hands The Legs Finger tapping or drumming Playing with jewelryChecking watchesWringing handsThe LegsCrossing/uncrossing legsBouncing legs
25Nonverbal The Feet Posture Lightly tapping feet Stomping feet Lean body away from interviewerLean body toward door or exit
26Nonverbal 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
28ToneTone 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.
29WordsThe 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
30Communication 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.
31Vocabulary 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 subject’s perception of the account.
32Vocabulary 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.”
33Parts 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.
34SyntaxThe 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.
35Syntax 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.”
36Key Words / Phrases Adverbs – “I usually [but not always] unlock the safe.”“I normally [but not always] reconcile the accounts.”“Basically [but not completely], that’s what happened.”“Mostly [but not always], I get a second signature.”
37Key Words / Phrases Adverbs – “I rarely [but not exclusively] speak with him anymore.”“I hardly knew him [but I did know him].”
38Key Words / Phrases Temporal Lacuna – Later on After Later Next AfterwardsEventually
39AdjectivesDishonest subjects often omit adjectives altogether or qualify their remarks – “I think…”
40StructureA narrative has a beginning, middle, and an end.
41Main PointsWhat is the general importance of the subject’s 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?
42Types of Fraud Interviews SAS 99 / Fraud Discovery InterviewsFraud-Based InterviewsInterrogations
43SAS 99 / Fraud Discovery Interviews Who do we interview?EveryoneWho performs the interviews?Financial AuditorsPerformance AuditorsIS Auditors
44SAS 99 / Fraud Discovery Interviews What questions do we ask?Direct & specificAre you aware of anyone within the organization who has taken computer resources without authorization?Have you ever changed source code without authorization?HypotheticalIf someone was going to …..
45Example QuestionsWhen we’re talking about fraud in government, we’re talking about a big area. We’re not talking about taking a pen or making a few photocopies. Rather, we’re 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?
46Example QuestionsDo 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?
47Example QuestionsDo 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?
48Example QuestionsIs there any other information you wish to provide regarding any possible fraud within this agency?
49Making “routine” inquiries about fraud… Inquire of management about:Knowledge of any fraud or suspected fraudAny allegations about fraudRisks of fraud in the entityPrograms and controls that mitigate these risksMonitoring of operating locations and business segments; and any locations or segments that might have higher fraud riskIf (and how) management communicates its view on business practices and ethicsAny fraud-related reports it has made to the audit committee
50Making “routine” inquiries about fraud… Inquire directly to the audit committee about:The committee’s views on fraud riskAny knowledge of fraud or suspected fraudMitigating controlsHow the committee exercises oversight in this area
51Making “routine” inquiries about fraud… Inquire of internal audit personnel about:Their views about fraud risksAny knowledge of fraud or suspected fraudAny fraud-related work they have doneThe adequacy of management’s responses to any fraud-related findings
52Making “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 riskTo allow individuals an opportunity to convey information that might not otherwise be communicatedTo obtain perspectives that are different from that of individuals involved in financial reportingTo learn more about management’s ability to override controlsTo determine how effectively management has communicated standards of ethical behavior
53Fraud-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.
54Fraud Examination Process Sources of Information (tips/complaints, anomalies, SAS 99 interviews)Predication?Develop fraud theoryTheory validated? Or Other theories confirmed?Obtain documentary evidenceInterviewPrepare report
56Fraud-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.
57Mechanics of the Interview VenueIntroductory PhaseIntroduction of Subject Matter and Purpose of InterviewQuestioning the subjectReview of material with subjectClosing and relationship building
58Venue Interviews should be in person Location places subject at ease Ensures privacyAvoids distractions
59Introductory Phase Personal Introduction Social Amenities Open Discussion
60Introductory Phase Take Charge / Provide the Introduction Establish RapportEstablish the Interview ThemeObserve ReactionsTheme DevelopmentMethodologyPhysical Contact (handshake)Establish Purpose of Interview
61Subject Matter / Purpose Be cautious when introducing the purpose of the interview.Example: “I am responsible for gathering information regarding the agency’s contract with ABC, Inc. I learned you were on the RFP Selection Committee. Can you help me by answering a few questions?”
62Questioning the Subject The interviewer’s 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.
63Questioning 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.
64Questioning the Subject Use a line of questioning moving from the least sensitive topics to the most sensitive.Follow-up on answers by using the subject’s own words.Focus on establishing who, what, when, where, and why.
66Question TypesOpen or IndirectClosed or DirectProbing or follow-up
67Open Questions Can’t be answered with yes/no response. Pros: Useful when you’re 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.
68Closed 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
69Probing/follow-up Questions Asking another question to clarify or obtain further information about a interviewee’s response.Pros: Useful when the interviewee provides inadequate answers, stimulates discussion, and can be used to resolve inconsistencies.Cons: Can make interviewee become defensive
70Questioning the Subject Confronting the SubjectAvoid confrontation until later in the interviewHandle and manage confrontation to your advantage - better to focus on clarificationI’m 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?
71Questioning 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.
72Review 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 haven’t covered?
73Closing 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.
74Conducting the Interview If something is not clear, keep askingUse follow-up questions as needed to clarify issuesDrill-down on an issueDon’t let your question go unanswered
75Active ListeningWhen the listener provides feedback (verbal and/or non-verbal) to the speaker on the extent to which the speaker’s message has been understood and will be retained.Restating in your own words what the person said.Repeating exactly what the person saidReflecting to show you understand how they feel (“You were pretty upset by this…”)Summarizing (“These seem to be the main ideas you stated.”)
76Active Listening Non-verbal techniques Maintain appropriate eye contactOccasionally nod and display understanding and interestPause occasionally to let interviewee know to continueVoice inflectionsBody Language
77Interview Don’ts Don’t ask more than one question at a time. Don’t jump to conclusionsDon’t assume you know the responseDon’t interrupt or debate with the intervieweeDon’t monopolize the conversation (70/30 rule)Don’t think about the next questionDon’t read documentsDon’t be annoying (finger tapping, clock watching)
78Building Relationship To establish a balanced relationship between the interviewee and yourselfYour voice should be calmShow interest in what the person is sayingDon’t indict the person during the interview
79Building Relationship If the subject perceives you as a professional and someone that is honest, they are more likely to be helpful during the interview.
80Building Relationship If individual is reluctant:Keep calm, don’t become frustratedUse positive languageUse gentle persistence in asking questionsIf need to, reschedule the interview
81Note Taking Note taking tips: Don’t tape record the interviews Take accurate and complete notes, but don’t distract the intervieweeTry to avoid taking notes when the interviewee is talking about a sensitive subjectBegin each interview on a clean page.
82Note TakingIdentify 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.
83Note Taking Document the interviewer’s questions. Take verbatim notes if possible, Concentrate on subject’s responses to:NounsPronounsVerb TenseQualifiersIndicators of responsibility, innocence, or guilt
84Note Taking Do not document conclusions or interpretations. Report any unusual changes in body language.Turn notes into typewritten report IMMEDIATELY!
85Habits of Successful Fraud Interviewers Takes minimal notesDoes not interrupt the intervieweeAsks open-ended questionsFollows a logical – usually chronological – question sequence
86Advanced Interviewing Skills More experienced auditors, not new staff, should do these interviewsBe prepared, but don’t follow a checklistPut the subject at easeBe conversationalMake good eye contactGet the subject talking…let subject talk
87Interview versus Interrogation Purpose: gather info.NonaccusatoryFree-flowingInterviewer speaks 5%Stay within social zoneNote taking O.K.No Miranda warning required30-60 minutesInterrogationPurpose: get a confessionAccusatoryStructuredInterrogator speaks 95%Start at personal zone, move to intimate zoneNo notes (until after confession)No time limit
88References Interviewing and Interrogation, by Don Rabon Beyond the Numbers: Professional Interviewing Techniques, by ACFEFinding the Truth, by Erwin Sulak