What's Your Fraud IQ? This Month: Investigation Basics

Most CPAs will never be formally asked to lead a fraud investigation. However, because of the nature of our work as CPAs, many of us will encounter potential fraud during our careers. Consequently, we need to know how to work with the people who are charged with investigating these situations. How familiar are you with fraud investigation basics? Can you talk the talk when a fraud investigator comes knocking? Are you prepared to support your clients or company during a fraud investigation? Take this quiz and find out. 1. Which of the following best describes the primary objective of a fraud investigation? a. To determine the guilt or innocence of the suspected individual(s). b. To express an opinion on the likelihood that fraud could occur within a given environment. c. To gather evidence about whether fraud has occurred. d. To assess the effectiveness of the organizations anti-fraud controls. 2. Management at Blue Co. has hired Carlos, a CPA, to conduct a fraud investigation based on allegations that Mary-Ellen, a clerk in the accounting department, is stealing from the company. The evidence Carlos has collected so far indicates that Mary-Ellen obtained the login information used by her supervisor, Katrina, to make electronic funds transfers. Mary-Ellen has been waiting until Katrina leaves in the evenings, and then logging in to the company's banking system and transferring money to her husband's business account. The only other person with the login information to the system is the company's CFO, Henry, but there is no evidence he is aware of the situation. However, there is also some evidence that Mary-Ellen paid off her co-worker, James, to keep him from turning her in after he discovered her scheme. Based on the evidence collected, in what order should Carlos interview these parties? a. (1) Mary-Ellen, (2) Henry, (3) Katrina, (4) James. b. (1) Henry, (2) Katrina, (3) James, (4) Mary-Ellen. c. (1) Katrina, (2) James, (3) Mary-Ellen, (4) Henry. d. (1) James, (2) Mary-Ellen, (3) Henry, (4) Katrina. 3. Management of XYZ Co. received a tip that an employee has been stealing and has asked Michael, the company's general counsel, to begin looking into the allegations. Before beginning a formal fraud investigation, Michael must: a. Create a list of all potential suspects. b. Contact local law enforcement for assistance. c. Obtain the primary suspect's computer. d. Ensure there is sufficient cause for an investigation. 4. Management at Oak Inc. suspects a company employee of embezzling funds by submitting invoices from a shell company for payment. The company is forming a team to investigate the matter. Which of the following individuals should be primarily responsible for directing the investigation? a. The organization's attorney. b. The director of human resources. c. The director of internal audit. d. The suspected perpetrator's direct supervisor. 5. Which of the following is NOT true regarding how fraud investigations should be conducted? a. The fraud investigator should collect evidence in a linear order, from the general to the specific. b. The fraud investigator should begin the investigation with the assumption that the suspect is innocent. c. The fraud investigator should begin the investigation with the assumption that the case will end in litigation. d. All of the above. ANSWERS 1. (c) Fraud investigations are fact-finding missions. Hie objective of a fraud investigation engagement is to gather evidence about whether fraud has occurred and, if so, who may be responsible. Consequently, the fraud investigator must remain objective and neutral throughout the engagement, focusing solely on collecting evidence related to the allegations at hand. Even once all the evidence has been collected, the final determination of whether the suspected individual is guilty or innocent is a legal determination that can only be made by a judge or jury. …