Getting Started with a Fraud Investigation February 27, 2013

1. Getting Started with a Fraud InvestigationFebruary 27, 2013 Allen Brown, CPA, CFE abrown@lla.la.gov

2. ISLAND SCAM • A joint venture (“JV”) on a beautiful island far away. • Total employees 145. • Inconsistencies in financial information being provided by Finance Manager of the JV, “Big Spender”. • Tab for losses = over $500,000. *

3. Profile: Mr. Big Spender • Hired as Senior Accountant and quickly promoted to Finance Manager. • Authorized signatory on bank accounts and company VISA credit card • Credit Card Scam – Personal purchases • Duties included accounts payable, bank and payroll preparation and reconciliation • Payroll Scam – Salary increases, TDI, 401K • Payables Scam – Checks to self, family members, and as payment for personal expenses • Luxury Car Scam: $386,000 • He was the company Ethics Officer

4. Four Things Needed to be Successful at Fraud Work • Authority • Support • Skill • Courage

5. Understandable Need Illness Family issues Loss of second income Greed Life style Homes, Boats, Cars, Vacations Self-aggrandizement Why do people commit fraud?

6. Why do people commit fraud? • Personal issues • Addiction problems • Out of control debt • Revenge • Challenge • Compensation Incentives

7. Reasons People Do Not Commit Fraud • Personal values • Fear of getting caught • Internal Controls (perception of detection) • Fear of punishment • Public embarrassment

8. Getting Started With the Investigation • Source of the allegation or initiating information • Audit information • Analytical procedures • Tip • Other sources?

9. Talking with the Tipster • What is their motive? • Anonymous VS. Known • Detail • Decision making information

10. Hot Lines • The good • Mechanism for reporting • Allows anonymous reporting • The bad • If you don’t respond, you must be part of the problem • Prioritizing the information – project selection

11. Hot Lines • Handling • Establish a consistent method of project selection • Document this process • FOLLOW YOUR PROCESS CONSISTENTLY!!!

12. Going In The Door • Knowing as much as possible before you enter • From the tipster • Other outside sources

13. Going In The Door • Based on your information and assessment of the type of scheme(s) • Who • Who is “involved”? • Who will I need to talk with – Protocol? • Who has the records? • Who may I need to contact? • Prosecutor, Law enforcement, Regulatory Agencies • Grantor

14. Going In The Door • What • Based on your information what documents and other evidence will you need? • Who has custody of the documents? • Invoices, PO’s, Requisitions, Bid doc’s, Bank Records • Receiving reports, shipping information, payroll data • Inventory records, aged payables

15. Going in the Door • What (cont.) • What approvals are required to obtain certain documents? • HR records - Proprietary information • Will I need to take the records?

16. Going In The Door • Where • Location(s) of what you need • Do you need to take control of several locations at once? • Volume of the records that may be needed • The location and volume of the records will impact the resources needed to start the investigation

17. Order of Attack • Your attack strategies • Documents • Interviews • Outside experts

18. Order of Attack • Interviews • Neutral witnesses • Corroborating witnesses • Co-Conspirators • Special person

19. To seize or not to seize You must protect the documents May they be left in place Hard copy Electronic records Obtaining the Documents

20. Obtaining the Documents • Chain of custody • Who • What • Where • When • How • Description

21. The Special Person • Are they still there? • Do you want them there? • Other issues

22. The Door

24. Questions & Answers