Fraud Examination, 4E

1. Chapter 10: Inquiry Methods and Fraud Reports Fraud Examination, 4E © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Learning Objectives • Understand the interviewing process. • Plan and conduct an interview. • Understand the nature of admission-seeking interviews. • Describe the different deceptions and lies used by perpetrators. • Describe the different types of honesty testing. • Prepare a fraud report. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3. The Interviewing Process • An interview is : • the most common technique used to investigate and resolve fraud • a question-and-answer session designed to elicit information • a structured (not free-form) conversation that has a purpose • the systematic questioning of individuals who have knowledge of events, people, and evidence of a case © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4. The Interviewing Process • Interviews also help obtain: • information that establishes the essential elements of the crime • leads for developing cases and gathering other evidence • the cooperation of victims and witnesses • information on the personal backgrounds and motives of witnesses © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. The Interviewing Process • Three types of interviewees: • Friendly Interviewees • Go beyond normal expectation to help out • Neutral Interviewees • Have nothing to gain or lose from the interview • Have no hidden motives or agendas • Hostile Interviewees • Are often associated in some way with the suspect or the crime • Should be questioned without prior notice © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6. The Interviewing Process • Characteristics of a Good Interview • Sufficient length and depth • Focus on pertinent information • Should end on a positive note • Should be conducted soon after the event • Should be objective • Endeavor to gather information in a fair and impartial manner © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7. The Interviewing Process • Characteristics of a Good Interviewer • Outgoing personalities • Interact well with others • Help others feel at ease • Do not interrupt respondents unnecessarily • Display interest in the subject and in what is being said • Phrase questions in a non-accusatory manner © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

8. The Interviewing Process • Characteristics of a Good Interviewer • Demonstrate a lack of bias • Be on time • Attired professionally • Deal fairly with respondents © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9. Understanding Reaction to Crisis • Sequence of Reaction Stage 1. Denial • Acts as a “shock absorber” • In the denial stage, people… • appear temporarily stunned or dazed • refuse to accept the information given • insist that there is some mistake, or • fail to comprehend what has been said. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10. Understanding Reaction to Crisis • Stage 2. Anger • A dangerous time to resolve frauds • Suspects direct their anger at friends, relatives, coworkers and/or self • Others can insult, harm, slander, or libel suspects and may terminate them without due cause © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11. Understanding Reaction to Crisis • Stage 3. Bargaining & Rationalization • People attempt to justify the dishonest act and/or to minimize the crime • Leads to failure to prosecute, easy penalties, and weak testimonies • Interviews can be detrimental to attempts to uncover the truth © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12. Understanding Reaction to Crisis • Stage 4. Depression • Many withdraw or lose interest • People no longer deny or rationalize the dishonest act • Anger is replaced by a sense of loss and disappointment • People often become withdrawn and uncooperative © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13. Understanding Reaction to Crisis • Stage 5. Acceptance • Acknowledgement of what happened • A desire to resolve the issue and move on • Interviews are most useful and witnesses most cooperative © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14. Understanding Reaction to Crisis • Individuals go through the five stages differently • Individuals can cycle through the emotions of denial, anger, rationalization, and depression a number of times © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15. Planning an Interview • Follow a plan or outline to meet your objectives • Review relevant documents to gather as much information as possible • Conduct interviews at the interviewee’s office (except for hostile interviewees) • Set up an appointment • Plan sufficient (even excess) time for the interview © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16. Conducting an Interview • Interviewer’s Demeanor • Be efficient, courteous, polite, and careful with language used during interviews • Do not talk down to the person • Language of Interviews • Use short questions, confined to one topic, which can be clearly and easily understood. • Maintain full control of the interview © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

17. Conducting an Interview • Question Typology • Interviewers ask five types of questions: • Introductory • Informational • Assessment • Closing • Admission-seeking © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18. Conducting an Interview • Elements of Conversation • Basic Elements of effective conversation: • Expression • Persuasion • Therapy • Ritual • Information Exchange © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19. Conducting an Interview • Inhibitors of Communication • Competing Demands for Time • Threatened Egos • Etiquette • Trauma • Forgetting • Chronological Confusion • Inferential Confusion • Unconscious Behavior © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. Conducting an Interview • Facilitators of Communication • Fulfilling Expectations • Recognition • Altruistic Appeals • Sympathetic Understanding • New Experience • Catharis • Need for Meaning • Extrinsic Rewards © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. Mechanics of the Interview • Methodology • Make Physical Contact • Establish the Purpose of the Interview • Don’t Interview More than One Person at a Time • Conduct the Interview in Private • Ask Nonsensitive Questions • Get a Commitment for Assistance • Establish a Transitional Statement\ • Seek Continuous Agreement • Do Not Invade Body Space © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22. Mechanics of the Interview • Question Sequence • Questioning should proceed from the general to the specific; that is, seek general information before details are sought • Note Taking • Procedure is especially helpful should documents from a particular interview be subpoenaed. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. Mechanics of the Interview • Observing Respondent Reactions • Must be knowledgeable about respondents’ behavior during interviews. • Theme Development • Be sure to formulate your questions in a way that does not elicit strong emotional reactions. • Transition Methodology • Once the introduction has been completed, transition to the body of the interview. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24. Mechanics of the Interview • Volatile Interviews • Typically involve close friends and relatives of suspects, co-conspirators, and similar individuals. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

25. Physiology of Deception • Detecting Deception • There are no quick and easy techniques for detecting deception; instead, careful practice and learning to look for patterns and comparison lead to expertise in this skill. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

26. Physiology of Deception • Verbal and Nonverbal Cues • Extensive academic research suggests that verbal cues are more reliable predictors of deception than nonverbal cues. • Cues to deception suggests that liars’ attempts to appear honest will lead them to exhibit behaviors in five areas: • Increased tension, less positive and pleasant interactions, less forthcoming responses, less compelling tales, and fewer ordinary imperfections © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

27. Honesty Testing • The most common inquiry method is the interview. • Three other methods exist: • Pencil-and-Paper Test • Graphology • Voice stress analysis and polygraphs. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

28. The Fraud Report • Includes: • Findings • Conclusions • Recommendations • Corrective actions taken • Should be: • Objective • Factual • Unbiased • Free from distortion © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.