Frequently Asked Questions!
How is fraud categorized?
According to a survey conducted by the Association of Certified Fraud Examiners, the three categories of fraud are: Misappropriation of Assets, Bribery and Corruption and Financial Statement Fraud.
What is Benford's Law?
Benford's Law is a statistical computation that indicates high probability of exception may have occurred within a specific pattern or that fraud may exist.
What is Predication?
Predication is reasonable evidence that a fraud may have occurred.
What type of evidence is more commonly used to support a fraud case, direct or circumstantial?
Circumstantial evidence is most commonly used to support an allegation of fraud.
What relationship does Daubert have with an expert witness?
Daubert v. United States sets the standards and rules for qualification of an expert witness.
What are the three "I"s of Investigation?
The three I's of investigation are: Information gathering, Interviewing, and Interrogation.
What common mistakes do many corporations make when investigating potentially criminal acts or shareholder issues?
The first common mistake that many corporations make when investigating a potential criminal act or shareholder issue is that the legal department is often unaware of the on-going security investigation. The second common mistake is that the information gathered is not properly protected.
What are the consequences of using an inexperienced or untrained person to conduct corporate investigations?
The issues of potential parallel litigation and possible criminal action against the corporation are often unknown to inexperienced investigators. Investigators who are not familiar with legal statutes can cause greater financial damage than the original exposure that existed prior to their investigation.
What is a Chinese Wall?
Experienced attorneys often hire professional forensic examiners to conduct preliminary investigation work that is protected under the "work product doctrine" and then have experts develop case testimony independent of the work product. A Chinese Wall, like the Great Wall of China, is thereby created so that the expert does not use the actual investigative work and the attorney work product is protected.
Why aren't criminal records or past criminal history used more often in Court?
There are time limitations within the laws of the United States that proscribe the use of criminal records or past criminal history that has occurred in the too distant past.
Why don't C.P.A.s catch fraud?
Oftentimes, CPAs do identify and report fraud related activities. The C.P.A. has many professional responsibilities under the AICPA guidelines, including SAS 82; however, special training and ability is required to become experienced at identification and apprehension of fraudsters. The C.P.A. is frequently maligned because the public does not understand the rules and dynamics of public accounting.
What is sampling?
Sampling is a statistical term defined as "using a small part of the total number of documents to make reasonable/accurate assessments relative to entire body of documents being examined".
What is the net worth method of investigation?
The net worth method of investigation is an investigative tool that uses several different techniques to distinguish any unknown sources of funds from known legitimate sources of funds.
What is a ghost employee?
A ghost employee is involved in a fraud scheme that circumvents the system and allows someone to be paid for services not rendered.
What is an exception report?
An exception report indicates irregular or improper facts or issues within a particular category being examined.
Why are split invoices more suspicious than normal invoices?
Split invoices often allow greater payments to be made within the authority of a certain individual that has caps or monitors in place above a certain dollar amount.
How much fraud takes place in our country?
The question of how much fraud takes place in our country is a good question. Fraud has reached epidemic proportions across our economy. The Association of Certified Fraud Examiners conducted the most comprehensive survey ever on the issue of fraud related activities and the results estimate that over four hundred billion dollars is lost to fraud each year. Unless a more aggressive approach is taken to combat fraud, this figure will continue to rise.
What is a bust-out scheme?
A bust-out scheme typically involves a dummy corporation that is set up and large quantities of goods that are ordered and received on credit. The fraudsters transfer the legitimate goods into other firms for cash and then fold the dummy corporation. This is usually the crime of an organized group rather than one individual.
Why are passwords frequently defeated on computer systems?
Information stored on computers needs to be protected against unauthorized access. Far to often generic passwords are used or passwords that personally relate to an individual are used. Passwords are usually found in the work area, taped to monitors, or hidden under keyboards or desk blotters. In order to protect electronic data, passwords need to be kept secure and changed frequently.
What is an example of window dressing?
An example of window dressing is when a company knowingly overstates revenue or understates liabilities and later adjusts these figures in another quarter.
What is a Court appointed monitor?
Under the Federal sentencing guidelines, corporations found guilty of violations may require supervision that the probation department does not have the personnel or required expertise to effectively monitor. In this situation, the Court can appoint a special monitor to ensure that the corporation follows all of the conditions of the probation imposed upon it, and commits no further violations of law.
What are the Federal Sentencing Guidelines?
The organizational guidelines were mandated by the Federal Sentencing Commission in 1991 to more effectively sentence and manage companies found guilty of Federal crimes. Furthermore, the structure of the Guidelines was intended to eliminate personal bias or prejudice in findings of the Courts around the country for a more equitable distribution of sentencing for the same offense.
Can my accountant practice law?
No, your accountant cannot practice law. Accounting firms have, in more recent times, hired attorneys primarily for tax work to support the accounting function, but these attorneys cannot practice law in competition with lawyers working in law firms. This issue continues to be contentious and will be watched in the coming years.
What does the term "materiality" mean?
The definition of "materiality" depends upon the context in which the word is used. For example, in accounting, materiality is defined as having or potentially having a significant effect on the financial statements. In the legal arena, materiality is defined as evidence that is strong or self evident.
What are the procedures in a fraud examination?
Each situation is unique and requires its own set of criteria; however, generally there are four accepted procedures: Document examination, Analysis of movement and activities, Information gathering, and Interviewing. There are some writers who suggest different methods, but few argue with the above merits.
What is divorce fraud?
Divorce fraud appears to be the greatest sport in America. Perjury is common, and prosecution remote, but the financial consequences are devastating to many women.
What is meant by auditor independence?
Arthur Levitt, retired Chairman of the Securities and Exchange Commission, has stated that a major reason that fraud occurs is the lack of independence by the auditors. The auditors perform the financial audit while simultaneously consulting with the company on matters that influence the outcome of the audit. This was part of the inspiration for the Sarbanes-Oxley Act of 2002.
Why doesn't the audit committee identify more fraud or improper conduct?
Audit committees have been under attack, but recent changes in the rules, particularly in relation to public companies, have enhanced the role of members of the audit team. Audit committees, that can withstand the pressure of greater profits at any price, can enhance the integrity of the financial statements when performing their fiduciary role.
What should you do if the government informs your corporation that there is a grand jury investigation being conducted and subpoenas for documents are issued?
The recommendation whenever either an individual or a corporation is called before a grand jury is to contact an attorney experienced in these matters. Proceeding alone, or with inexperienced counsel, is similar to walking blindfolded through a minefield hoping that you are lucky.
Do employees have rights in corporate investigations?
Employees have rights in a corporate investigation. These rights may appear to be in conflict to their duties as faithful employees. Experienced counsel can better advise the parties as to their rights. The Fifth Amendment is sacred under our system, but counsel should advise when to invoke or waive this privilege.
What is a joint defense?
A joint defense occurs when several attorneys representing different parties, usually with a common interest, form a defense agreement where information can be shared but remains protected. These agreements are complex and have negatives and benefits. Your counsel can explain the details of these agreements. We always recommend experienced counsel be retained.
I hired investigators and my new attorney informed me that we should not have made a written report. Why?
We suspect that your attorney fears being forced to turn the report over to the opposing party. Proper care and handling of reports can often avoid this pitfall.
Why did my accountant refuse to be my expert, he did most of my accounting work?
We don't have sufficient facts to unequivocally make a statement, but possibly, the accountant feels that his work product could cause more damage. Each case is different and the accountant is often maligned without justification.
How can I find hidden assets?
Generally, when you start down the road searching for hidden assets, we recommend hiring an expert, because there are many variables and experience is critical. However, if you have little money for this expense, there is a vast amount of information available in the public sector that is free or very inexpensive.
My accountant informed me that we may have an off book scheme. What is that?
Most bribery and kickback crimes are off book schemes. Your accountant cannot confirm via normal methods that a crime has occurred, but has information that your purchasing agent is involved. Experienced forensic examiners can assist your accountant in supporting his suspicions.
What is a Corporate Compliance Program?
The Federal Sentencing Guidelines strongly recommend that every corporation with more than fifty employees have a Corporate Compliance Program that identifies fraud and protects employees. There are a series of seven steps that are minimal to meet the requirements of the Act.
Computer crimes are increasing. How does our corporation defend itself?
Operational control systems and specialized software programs can be acquired to protect the assets of your corporation. Contact an experienced specialist.
What is the "Fraud Triangle"?
The Fraud Triangle is made up of: Opportunity, Motive, and Rationalization.
Why would a law firm hire The Whall Group firm?
The Whall Group has the knowledge, depth and experience that any law firm could take advantage of to support their litigation interest. We have Attorneys, Certified Public Accountants, Certified Fraud Examiners, retired Law Enforcement Personnel, Computer Specialists, Bank Examiners, Risk Management and Document Specialists, that can support your needs. We are experienced and comfortable in Court or working completely behind the scenes.
Why would a corporation hire The Whall Group?
Corporations often conduct internal investigations that become complex and use personnel that do not understand the potential harm their efforts could bring the corporation. Tort actions, because of inexperienced investigators, are costly to corporations. Often the original complaint becomes complex because of parallel action either civilly or criminally. Work products need proper protection and the corporation needs experienced professionals steeped in knowledge of complex litigation perils.
How does the corporation protect itself from the Internet?
We believe that you mean being scammed on the Internet. The Internet is evolving daily, hourly, and each minute with lightening speed. It has become a great source of data and a potential source of damage to the corporation when safeguards are not maintained. We strongly recommend an Internet Specialist be retained for maximum protection.
What is a security vulnerability assessment?
A security vulnerability assessment involves answering the question: If a certain event takes place against the corporation, what potential damage or vulnerability would be the result? There is a series of matching items to compare for risk assessment.
Is a Certified Fraud Examiner or Certified Public Accountant required to issue Miranda warnings to suspects under suspicion or being interviewed?
If you are talking about the Miranda Warning, the answer is no. Only police officers are required to advise suspects of their rights. However, fraud examiners and accountants should not misrepresent their professional integrity in pursuit of justice.
My partner wants to protect our intellectual property. What do you suggest?
To safeguard intellectual property, The Whall Group recommends immediately itemizing and classifying all intangible and tangible items that are within the intellectual property category. We also recommend that you meet with your auditor and attorneys. They have different perspectives, but compelling interests.
What is the Law of the First Digit?
Benford's Law is often characterized as the Law of the First Digit.
What professional associations do you recommend looking to for answers to questions on fraud?
There are many associations who can provide information relative to fraud. The following are a few examples: The American Bar Association, Association of Certified Fraud Examiners, American Society of Industrial Security, and the Institute of Internal Auditors. Law enforcement has excellent associations also.
What is a Ponzi Scheme?
A Ponzi Scheme is named after famed Ponzi criminal Charles Ponzi who provided his immortal fifty cents on the dollar, while banks could barely pay five cents on the dollar. He depended on gullibility and greed to expand his criminal enterprises. Like most things that are too good to believe, the Ponzi Scheme ended in financial disaster for all associated.
Who monitors ERISA violations?
The Department of Labor enforces ERISA violations under Section 502 of the ERISA Code.
What is A.C.L.?
A.C.L. is a computer software program designed for spreadsheets to analyze data and identify anomalies and patterns.
