teknik mengungkapkan fraud

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 TEKNIK MENGUNGKAPKAN  TEKNIK MENGUNGKAPKAN FRAUD DALAM MENINGKATKAN FRAUD DALAM MENINGKATKAN EFEKTIFITAS PENGENDALIAN EFEKTIFITAS PENGENDALIAN INTERN PERUSAHAAN INTERN PERUSAHAAN KHAIRIANSYAH SALMAN KHAIRIANSYAH SALMAN

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 TEKNIK MENGUNGKAPKAN TEKNIK MENGUNGKAPKAN

FRAUD DALAM MENINGKATKANFRAUD DALAM MENINGKATKANEFEKTIFITAS PENGENDALIANEFEKTIFITAS PENGENDALIAN

INTERN PERUSAHAANINTERN PERUSAHAAN

KHAIRIANSYAH SALMANKHAIRIANSYAH SALMAN

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 AGENDA PRESENTASI AGENDA PRESENTASI

 Tujuan Presentasi Tujuan Presentasi

Konsep DasarKonsep Dasar

FraudFraud

Internal ControlInternal Control Audit Investigatif  Audit Investigatif 

Strategi Pencegahan dan PengendalianStrategi Pencegahan dan PengendalianFraudFraud

 Teknik Audit Investigatif  Teknik Audit Investigatif 

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F R A U DF R A U DB A S I C C O N C E P T SB A S I C C O N C E P T S

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FRAUD!!! FRAUD!!! 

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FRAUD FAST FACTS FRAUD FAST FACTS 

••  Annual estimated fraud losses: $660 billion Annual estimated fraud losses: $660 billion

•• Most fraudsters are firstMost fraudsters are first--time offenderstime offenders

••  Amount of loss is directly related to Amount of loss is directly related to

fraudster’s position in the organizationfraudster’s position in the organization•• Most frauds are detected by tipsMost frauds are detected by tips

•• Deterrence is key Deterrence is key 

Source:Source: ACFE’s ACFE’s 2004 Report to the Nation on Occupational Fraud and2004 Report to the Nation on Occupational Fraud and Abuse Abuse

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 THE FRAUD TRIANGLE. THE FRAUD TRIANGLE.

    P   e   r   c   e     i    v

   e   d     P

   r   e   s   s   u   r   e   R   

a   t   i    o   

n   a   l    i    z   a   

t   i    o   n   

Perceived Opportunity

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 THE FRAUD TRIANGLE. THE FRAUD TRIANGLE.

Perceived PressurePerceived Pressure Situasi dimana seseorang meyakini bahwa mereka ituSituasi dimana seseorang meyakini bahwa mereka itu

karena kebutuhan merasa perlu untuk melakukankarena kebutuhan merasa perlu untuk melakukanFraudFraud

Perceived Opportunity Perceived Opportunity  Situasi dimana seseorang meyakini bahwa adanyaSituasi dimana seseorang meyakini bahwa adanya

kesempatan atau kondisi yang menjanjikankesempatan atau kondisi yang menjanjikankeuntungan jika melakukan fraud dan tidak terdeteksikeuntungan jika melakukan fraud dan tidak terdeteksi

RationalizationRationalization Suatu bentuk pemikiran yang menjadikan seseorangSuatu bentuk pemikiran yang menjadikan seseorang

yang melakukan fraud merasa bahwa sikap curangyang melakukan fraud merasa bahwa sikap curang

tersebut dapat diterima.tersebut dapat diterima.

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ELEMENTS OF FRAUDELEMENTS OF FRAUD

 TRIANGLE. TRIANGLE.

Elements

Of

Fraud

Conversion

Concealment Theft

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CATEGORIES OF FRAUD:CATEGORIES OF FRAUD:

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RED FLAGS FOR FRAUD RED FLAGS FOR FRAUD 

No vacationNo vacation

 Voluntary overtime Voluntary overtime

Unexplained variancesUnexplained variances

ComplaintsComplaintsNo reconciliationNo reconciliation

One employee “does it all”One employee “does it all”Documentation is not originalDocumentation is not original

“Rush” requests“Rush” requests

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DETECTION OF FRAUD DETECTION OF FRAUD •• 40%40%  Tips Tips

•• 24%24% Internal AuditInternal Audit

•• 21%21% By accidentBy accident

•• 18%18% Internal controlsInternal controls

•• 11%11% External auditExternal audit

•• 1%1% OtherOther

Source:Source: ACFE’s ACFE’s 2004 Report to the Nation on Occupational Fraud and Abuse2004 Report to the Nation on Occupational Fraud and Abuse

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IF YOU SUSPECT FRAUD….IF YOU SUSPECT FRAUD….

Do NotDo Not confront the personconfront the person

Do NotDo Not talk about it with cotalk about it with co-- workers workers

Do NotDo Not try to verify fraud has taken place ortry to verify fraud has taken place or

catch them on your own.catch them on your own.

DODO call Internal Audit,call Internal Audit, ExpertsExperts inin

objective verification of the factsobjective verification of the facts

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INTERNAL CONTROLINTERNAL CONTROL

BASIC CONCEPTSBASIC CONCEPTS

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WHAT IS INTERNAL CONTROL WHAT IS INTERNAL CONTROL ? ? 

Internal control is aInternal control is a processprocess, effected by an entity’s, effected by an entity’s

board of directors (regents), management and otherboard of directors (regents), management and otherpersonnel, designed to providepersonnel, designed to provide reasonablereasonable assuranceassurance

regarding the achievement of the followingregarding the achievement of the following

objectives:objectives: Effectiveness and efficiency of operationsEffectiveness and efficiency of operations

Reliability of financial reporting Reliability of financial reporting 

Compliance with applicable laws and regulationsCompliance with applicable laws and regulations

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INTERNAL CONTROL KEYINTERNAL CONTROL KEY

CONCEPTS CONCEPTS 

Internal control is aInternal control is a “ “  process  process ”.”. It’s a means to an end,It’s a means to an end,not an end in itself.not an end in itself.

Internal control is affected byInternal control is affected by “ “  people  people ”.”. It’s not merelyIt’s not merelypolicy manuals and forms, but people at every level ofpolicy manuals and forms, but people at every level ofthe organization.the organization.

Internal control can be expected to provide onlyInternal control can be expected to provide only“ “ reasonable assurance reasonable assurance ”,”, not absolute assurance, to annot absolute assurance, to an

entity’s management and board.entity’s management and board. Internal control is geared to the achievement of theInternal control is geared to the achievement of the

entity’sentity’s “ “ objectives objectives ” ” ..

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INTERNAL CONTROL KEYINTERNAL CONTROL KEY

CONCEPTS (CONT.)CONCEPTS (CONT.)

Management, not auditors, must establish andManagement, not auditors, must establish and

maintain the entity’s controlsmaintain the entity’s controls

No system can be regarded as completelyNo system can be regarded as completelyeffectiveeffective

Should be applied to both manual andShould be applied to both manual and

computerized systemscomputerized systems

 Are implemented to protect the employee Are implemented to protect the employee

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 TYPES OF INTERNAL TYPES OF INTERNAL

CONTROLSCONTROLS

Directive Controls Directive Controls  –  – encourage goodencourage good

behavior, it’s the right thing to dobehavior, it’s the right thing to do Incentive plansIncentive plans

Recognition awardsRecognition awards

 Training  Training 

Policies and ProceduresPolicies and Procedures

PromotionsPromotions

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 TYPES OF INTERNAL TYPES OF INTERNAL

CONTROLSCONTROLS

Preventative Controls Preventative Controls  –  – prevent undesirableprevent undesirable

events from occurring events from occurring  Knowledge that someone is reviewing your work Knowledge that someone is reviewing your work 

Segregation of dutiesSegregation of duties

Limited accessLimited access

Levels of authorizationLevels of authorization

Security badgesSecurity badges Business rule setBusiness rule set--up in automated systemsup in automated systems

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 TYPES OF INTERNAL TYPES OF INTERNAL

CONTROLSCONTROLS

Detective Controls Detective Controls  –  – detect and correctdetect and correct

undesirable events after they occur.undesirable events after they occur. ReconciliationsReconciliations

 Auditing  Auditing 

ConfirmationsConfirmations

Exception reportsException reports

Reviews done on a regular basisReviews done on a regular basis

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 TYPES OF INTERNAL TYPES OF INTERNAL

CONTROLSCONTROLS

Mitigating Controls Mitigating Controls  –  – Mitigate for theMitigate for the

lack of an expected control.lack of an expected control. CashCash handlinghandling –  – lack of adequate staff forlack of adequate staff for

proper segregation of dutiesproper segregation of duties –  – sharing withsharing with

another areaanother area Software security/accessSoftware security/access –  – regular monitoringregular monitoring

of access for certain employees when softwareof access for certain employees when software

security is not adequate because of functionalsecurity is not adequate because of functionalconstraints.constraints.

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INTERNAL CONTROLS CANINTERNAL CONTROLS CAN

FAIL BECAUSE:FAIL BECAUSE:

Employees can make mistakes or exerciseEmployees can make mistakes or exercisepoor judgmentpoor judgment

 There can be collusion There can be collusion –  –  where two or more where two or more

individuals work together to stealindividuals work together to steal Management may inappropriately overrideManagement may inappropriately override

established policies orestablished policies or procedures.procedures.

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Key Control Activities Key Control Activities 

Control

Environment

Control Over

 Assets & Information

Systems

Monitoring

 Authorization,

 Approvals, Verifications

Segregation

of Duties

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 WHAT ARE RISKS? WHAT ARE RISKS?

 A risk is anything that could jeopardize the A risk is anything that could jeopardize theachievement of your organization’s objective to:achievement of your organization’s objective to:

 Achieve your goals Achieve your goals

Operate effectively and efficiently Operate effectively and efficiently  Protect theProtect the Organization’sOrganization’s assets from lossassets from loss

Provide reliable financial dataProvide reliable financial data

Comply with applicable laws, policies, andComply with applicable laws, policies, and

proceduresprocedures

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IDENTIFYING YOUR RISKSIDENTIFYING YOUR RISKS

Questions to ask yourself:Questions to ask yourself:  What can go wrong? What can go wrong?

How could someone steal from us?How could someone steal from us?

 What laws or regulations would be violated? What laws or regulations would be violated?  What policies most affect us? What policies most affect us?

 What types transactions/activities in our area expose us What types transactions/activities in our area expose us

to the greatest risk?to the greatest risk? How can someone bypass the internal controls?How can someone bypass the internal controls?

 What potential risks could cause adverse publicity? What potential risks could cause adverse publicity?

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FRAUDFRAUD RISK MODELRISK MODEL

Attitude/

rationalization

Opportunity

Incentive/pressure

High Risk

Medium

Risk

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INVESTIGATIVEINVESTIGATIVE AUDIT AUDIT

B A S I C C O N C E P T SB A S I C C O N C E P T S

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PERSPECTIVE OFPERSPECTIVE OF

INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

Financial StatementFinancial StatementAuditAudit

Performance AuditPerformance Audit

Investigative AuditInvestigative Audit

ManagementManagementAssertion on F/SAssertion on F/S

•• EfficiencyEfficiency

•• EffectivenessEffectiveness

•• EconomyEconomy

•• LossesLosses

•• Criminal OffencesCriminal Offences

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 AXIOMS OF AXIOMS OF

INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

AXIOMSAXIOMS

EXISTENCE OF FRAUD EXISTENCE OF FRAUD 

REVERSE PROOF REVERSE PROOF  FRAUD IS HIDDEN FRAUD IS HIDDEN 

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FRAUD IS HIDDEN FRAUD IS HIDDEN  Unlike other offenses, part of the method of fraudUnlike other offenses, part of the method of fraud

is to conceal its existenceis to conceal its existence

NNo opinion should be given to any person thato opinion should be given to any person thatfraud does or does not exist within a specificfraud does or does not exist within a specificenvironment.environment.

 The methods for concealing fraud are so The methods for concealing fraud are sonumerous and sometimes ingenious that almostnumerous and sometimes ingenious that almostanyoneanyone —  — even the examinereven the examiner —  — might be defrauded.might be defrauded.

Offering opinions might leave the examinerOffering opinions might leave the examinerpersonally vulnerable to legal problemspersonally vulnerable to legal problems

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REVERSE PROOF REVERSE PROOF   The examination of fraud matters is approached The examination of fraud matters is approached

from two perspectives. To prove that a fraud hasfrom two perspectives. To prove that a fraud hasoccurred, the proof must include attempts to proveoccurred, the proof must include attempts to proveit has not occurred.it has not occurred.

 The reverse is also true. In attempting to prove fraud The reverse is also true. In attempting to prove fraudhas not occurred, that proof must also attempt tohas not occurred, that proof must also attempt toprove that it has. The reason is that both sides ofprove that it has. The reason is that both sides offraud must be examinedfraud must be examined

Under the law, proof of fraud must preclude anyUnder the law, proof of fraud must preclude anyexplanation other than guilt.explanation other than guilt.

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EXISTENCE OF FRAUD EXISTENCE OF FRAUD   The examiner must not express opinions on The examiner must not express opinions on

the guilt or innocence of any person or party.the guilt or innocence of any person or party. In resolving fraud issues, the examiner mustIn resolving fraud issues, the examiner must

postulate a theorypostulate a theory —  — guilt or innocenceguilt or innocence —  — inin

order to attempt to prove that theory.order to attempt to prove that theory.  Any discussion of guilt or innocence is only a Any discussion of guilt or innocence is only a

part of that theory; the examiner must notpart of that theory; the examiner must not

make statements that could be construed tomake statements that could be construed tobe conclusive in regard to the theory.be conclusive in regard to the theory.

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INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

METHODOLOGY METHODOLOGY  Investigative AuditInvestigative Audit methodology requires thatmethodology requires that

all fraud allegations be handled in a uniform,all fraud allegations be handled in a uniform,legal fashion and be resolved on a timely basislegal fashion and be resolved on a timely basis..

 The The Investigative AuditInvestigative Audit methodology gathersmethodology gathersevidence from the general to the specificevidence from the general to the specific..

 At each step of the At each step of the Investigative AuditInvestigative Audit process, process,the evidence obtained and the fraud theorythe evidence obtained and the fraud theoryapproach continually is assessedapproach continually is assessed

 The investigation of fraud, because it deals with The investigation of fraud, because it deals withthe individual rights of others, must bethe individual rights of others, must beconducted only with adequate cause orconducted only with adequate cause or

PREDICATIONPREDICATION..

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PREDICATIONPREDICATION  T The totality of circumstances that wouldhe totality of circumstances that would

lead a reasonable, professionally trained,lead a reasonable, professionally trained,and prudent individual to believe a fraudand prudent individual to believe a fraud

has occurred, is occurring, and/or willhas occurred, is occurring, and/or will

occuroccur..

Predication is the basis upon which anPredication is the basis upon which an

examination is commenced.examination is commenced. Investigative AuditInvestigative Audit should not beshould not be

conducted without proper predicationconducted without proper predication..

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INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

PROCESSPROCESS  Analyzing Available Analyzing Available

DataData

Creating a HypothesisCreating a Hypothesis  Testing the Hypothesis Testing the Hypothesis

Refining and AmendingRefining and Amending

the Hypothesisthe Hypothesis ObservationObservation

DocumentDocument ExaminationExamination

Interview Interview  Neutral third PartiesNeutral third Parties

Corroborative WitnessesCorroborative Witnesses

Co ConspiratorsCo Conspirators

SubjectSubject

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FRAUD PREVENTIONFRAUD PREVENTION

 AND CONTROL AND CONTROL

STRATEGY STRATEGY 

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COMBATING FRAUDCOMBATING FRAUD

STRATEGY.STRATEGY.

PREVENTIVE DETECTIVE REPRESSIVE

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Revise control weakness

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Step 1:

Create a Baseline:• Assess Existing Antifraud

Programs & Controls

• Develop & Remediate Plan

Step 2:Organize a Fraud and

Reputation-Risk Assessment

Antifraud Program Implementation Plan

Step 2.2:

Determine Units &

Locations to Assess

Step 2.1:

Organize Assessment

by Business Cycle or

Separate Fraud Cycle

Step 2.3:

Identify Potential Fraud

Misconduct Schemes &

Scenarios

Step 2.4:

 Assess Likelihood of Fraud

and Significance of Risk

Step 2.5:

Link Antifraud

Control Activities

Step 3:Evaluate & Test Design &

Operating Effectiveness

Step 4:

 Address Residual Risks

Step 5:

Standardize Process for

Incident Investigation and

Remediation

• Disciplinary & legal action

• Recovery/restoration of losses & other

damages

• Consideration of how and why fraud occurred

• Determination of whether controls were non-existent, circumvented, and/or overridden

• Explanation to senior management and auditcommittee regarding likelihood of recurrence

IA Whitepaper 

 Appendix A

IA Whitepaper 

pp. 30-32

IA Whitepaper 

pp. 29

IA Whitepaper 

pp. 17-25

Key Elements of

 Antifraud Whitepaper 

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INVESTIGATIVEINVESTIGATIVE AUDIT TECHNIQUES AUDIT TECHNIQUES

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INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

 TECHNIQUES TECHNIQUES

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EFFECTIVE INVESTIGATIVE AUDITEFFECTIVE INVESTIGATIVE AUDIT

 WILL IMPROVE CONTROL WILL IMPROVE CONTROL

Organizational

PROCESS

In place

INVESTIGATION

INTELLIGENCE

About Risk 

CHANGE TO PROCESS

& AUDIT PROGRAM

FINDINGS AND

RECOMMENDATIONS

PREDICTIONS

IMPROVEMENT  ALLEGATIONS

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 WHY CORPORATE NEED TO WHY CORPORATE NEED TO

INVESTIGATE FRAUD EFFECTIVELY INVESTIGATE FRAUD EFFECTIVELY 

Enforcing the Law by Catching the FraudsterEnforcing the Law by Catching the Fraudster

Minimising losses by confiscating fraudsterMinimising losses by confiscating fraudsterassetsassets

Lesson Learning to improve internal control.Lesson Learning to improve internal control.

Revise system and proceduresRevise system and procedures

 Analyze Human Resources Management Analyze Human Resources Management

Develop management tone in sense of combatingDevelop management tone in sense of combating

fraud.fraud.

 To deter potential fraudster To deter potential fraudster

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INVESTIGATIVE AUDITINVESTIGATIVE AUDIT

 TECHNIQUES TECHNIQUES Investigation consists of performing theInvestigation consists of performing the

extended procedures necessary to determine theextended procedures necessary to determine theoccurrence of fraud (as suggested by theoccurrence of fraud (as suggested by theindicators).indicators).

Investigation includes gathering sufficientInvestigation includes gathering sufficient

evidence about specific details of a discoveredevidence about specific details of a discoveredfraudfraud..

Basic investigative audit techniques:Basic investigative audit techniques:

Document examination;Document examination; ObservationObservation

Interview Interview 

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DOCUMENTDOCUMENTEXAMINATIONSEXAMINATIONS

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 ANALYZING DOCUMENT ANALYZING DOCUMENT Every Financial Fraud usually deal withEvery Financial Fraud usually deal with

documentary evidence.documentary evidence.

 The goal of document analyzing is to make The goal of document analyzing is to makecertain that all relevant documents are included,certain that all relevant documents are included,and all irrelevant documents eliminated.and all irrelevant documents eliminated.

It is critical to understand the relevance of thisIt is critical to understand the relevance of thisevidence, and how it should be preserved andevidence, and how it should be preserved and presented. presented.

documents can either help or hurt a case,documents can either help or hurt a case,

depending on which ones are presented anddepending on which ones are presented andhow they are presentedhow they are presented

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HOW WE GET EVIDENCES ?HOW WE GET EVIDENCES ?

Evidence comes in 2 forms:

witness and record(document or electronic file):

The statements of witnesses

will have to be corroboratedby records and

Tendering records asevidence will require awitness to authenticate therecord.

RULES ON COLLECTING ANDRULES ON COLLECTING AND

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RULES ON COLLECTING ANDRULES ON COLLECTING AND

HANDLING EVIDENCEHANDLING EVIDENCE Obtain originalObtain original

documents wheredocuments where

feasible. Make workingfeasible. Make workingcopies for review, andcopies for review, andkeep the originalskeep the originalssegregated.segregated.

Do not touch originalsDo not touch originalsany more than necessary;any more than necessary;they might later have tothey might later have toundergo forensicundergo forensic

analysis.analysis. Maintain a good filingMaintain a good filing

system for thesystem for thedocumentsdocuments

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RECORDS:RECORDS:

The primary concern is the potential of

destruction or alteration;

Records in hard copy format (document) are less

at risk to alteration but more difficult to searchon for key information;

Records in electronic format (databases) are

more at risk to alteration/deterioration and

should be backed up. The ability to search on

key terms is enhanced using investigative

software.

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INFORMATIONINFORMATION MANAGEMENTMANAGEMENT

Ensuring valuable evidence islocated and acted upon; and

Ensuring the integrity of the

Forensic Report by sourcing

the conclusions and tables tospecific records.

Managing the vast amounts

of documents and electronic datais essential for 2 reasons:

ELECTRONIC MANAGEMENTELECTRONIC MANAGEMENT

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ELECTRONIC MANAGEMENT:ELECTRONIC MANAGEMENT:

Scanning creates a

picture file;

OCR creates a text file;

Words are arranged into

a comprehensive

database whichfacilitates searching;

Massive volumes of data

can be condensed onto

CD’s; Court presentation is

enhanced.

D m nt in ti ti nDocument investigation:

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Document investigation:Document investigation:

Consider the following:

The “source” of the document (who

created it);

The “context” of the document (what

is the purpose of the document); The “reliability” of the document (can

the information be corroboratedelsewhere).

EXAMINING FRAUDULENTEXAMINING FRAUDULENT

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EXAMINING FRAUDULENTEXAMINING FRAUDULENT

DOCUMENTSDOCUMENTS Detection of forged signaturesDetection of forged signatures

Identification of the writers of signatures.Identification of the writers of signatures.handwriting, and hand printing.handwriting, and hand printing.

Detecting altered documentsDetecting altered documents

Detecting and restoring erasures andDetecting and restoring erasures and

eradications .eradications . Determining when a document was or was notDetermining when a document was or was not

 prepared. prepared.

Detecting counterfeited documents andDetecting counterfeited documents andexamining printed documents.examining printed documents.

Detecting and restoring faint indented writings.Detecting and restoring faint indented writings.

Comparisons of paper and inks.Comparisons of paper and inks.

DETECTION OF FORGEDDETECTION OF FORGED

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DETECTION OF FORGEDDETECTION OF FORGED

SIGNATURESSIGNATURES

ORIGINAL SIGNATURE

TRACED FORGERY

SIMULATED FORGERY

FREEHAND FORGERY

EXAMINING FRAUDULENTEXAMINING FRAUDULENT

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EXAMINING FRAUDULENTEXAMINING FRAUDULENT

DOCUMENTSDOCUMENTS Determining whether two sheets of paper cameDetermining whether two sheets of paper came

from the same tablet or pad of paper.from the same tablet or pad of paper.

Examinations of paper folds and sequence ofExaminations of paper folds and sequence offolds. Comparisons of torn or cut paper edges.folds. Comparisons of torn or cut paper edges.

Restoration of charred and partially burnedRestoration of charred and partially burned

documents.documents. Identifying the machine that made a photocopyIdentifying the machine that made a photocopy

and whether two copies were made on the sameand whether two copies were made on the same

machine.machine. Examinations of facsimile (fax) copies.Examinations of facsimile (fax) copies.

Identifying the source of, or alterations to,Identifying the source of, or alterations to,notary seals, wax seals and cachetsnotary seals, wax seals and cachets

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EXAMINING FRAUDULENTEXAMINING FRAUDULENT

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EXAMINING FRAUDULENTEXAMINING FRAUDULENT

DOCUMENTSDOCUMENTS Detecting the opening and resealing ofDetecting the opening and resealing of

sealed documents and examiningsealed documents and examiningadhesives.adhesives.

Detecting inserted text in typewritten,Detecting inserted text in typewritten,

 printed, or handwritten documents. printed, or handwritten documents. Determining the sequence of handwrittenDetermining the sequence of handwritten

text, signatures, and typewriting.text, signatures, and typewriting.

Identifying rubber stamp impressions.Identifying rubber stamp impressions. Identifying mechanical check Identifying mechanical check -- writer and writer and

numbering device impressionsnumbering device impressions

INVESTIGATIVE CONSIDERATIONSINVESTIGATIVE CONSIDERATIONS

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Evidence is not unidirectional:

you may start the trail at the

end rather than the beginning;

Stay focused on the purpose ofthe investigation-ignore side

trails;

Periodically review the

evidence with others as it may

allow you to see new avenues

(brainstorm!)

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OBSERVATIONOBSERVATION

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DEFINITIONDEFINITION Observation is the use of the senses to assess certainObservation is the use of the senses to assess certain

activities. (Arens Loebecke :activities. (Arens Loebecke :  Auditing, an Integrated Auditing, an Integrated Approach) Approach)

Investigating Fraud use observation in covertInvestigating Fraud use observation in covertexamination whichexamination which designed to obtain evidence bydesigned to obtain evidence by

use of agents whose true role is undisclosed to theuse of agents whose true role is undisclosed to thetarget.target.

Bare in mind, “ FRAUD IS HIDDEN”, DISCLOSEBare in mind, “ FRAUD IS HIDDEN”, DISCLOSE

 ANY TECHNIQUES CAN RUIN THE ANY TECHNIQUES CAN RUIN THEINVESTIGATION…!!!INVESTIGATION…!!!

COVERT OPERATIONCOVERT OPERATION

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COVERT OPERATIONCOVERT OPERATION

Undercover operationsUndercover operations

seek to develop evidenceseek to develop evidence

directly from peopledirectly from people

involved in the offenseinvolved in the offensethrough the use ofthrough the use of

disguise and deceit.disguise and deceit.

Rather than waiting forRather than waiting for

the information to comethe information to comeby other routes, there is aby other routes, there is a

conscious decision toconscious decision to

seek it out.seek it out.

SurveillanceSurveillance

operations use theoperations use the

skills of observationskills of observation

to determine activityto determine activity

of individuals.of individuals.

 The surveillance The surveillance

operation is designedoperation is designed

to gather information.to gather information.

 There are two major forms of covert operations: There are two major forms of covert operations:undercover operations undercover operations andand surveillance operations surveillance operations 

COVERT OPERATIONCOVERT OPERATION

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COVERT OPERATIONCOVERT OPERATION

Used in a timely mannerUsed in a timely manner

 with great care, a covert with great care, a covertoperation can produceoperation can produceresults that cannot beresults that cannot beachieved in any other way.achieved in any other way.

Used incorrectly orUsed incorrectly or

handled badly, coverthandled badly, covertoperations can lead tooperations can lead todeath, injury, seriousdeath, injury, seriousfinancial liability, andfinancial liability, and

embarrassment.embarrassment.

Covert operations require the highest degreeCovert operations require the highest degreeof skill and planning.of skill and planning.

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COVERT OPERATIONCOVERT OPERATIONCovert operationsCovert operations

cannot be conducted ascannot be conducted as“fishing expeditions.”“fishing expeditions.”

 Justification for Justification forconducting theconducting the

operation must beoperation must belegally sound andlegally sound anddefensible and must notdefensible and must not

 violate a person’s violate a person’s

reasonable expectationreasonable expectationof privacy.of privacy.

COVERT OPERATIONCOVERT OPERATION

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OBJECTIVESOBJECTIVES

To obtain evidence of a Past,To obtain evidence of a Past,

Current, Future crime Current, Future crime .. To identify those engaged in possibleTo identify those engaged in possible

illegal activity illegal activity .. To recover illegal gains To recover illegal gains 

To identify co To identify co - - conspirators conspirators  To identify the modus operandi To identify the modus operandi 

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BACK THE OPERATION UP !!!BACK THE OPERATION UP !!! Prior to an undercoverPrior to an undercover

operation, itoperation, it isis essentialessential

that the basis for thethat the basis for theoperation be committedoperation be committedto writing, in memo formto writing, in memo form which should clearly which should clearlystate :state :  The information upon The information upon

 which the covert operation which the covert operation will be based. will be based.

 The information that is The information that isexpected to be gainedexpected to be gained

from the operation.from the operation.  The identities of suspects, The identities of suspects,

if any.if any.

Operatives under yourOperatives under yourcare, custody, or controlcare, custody, or control

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COVERT OPERATIONCOVERT OPERATION There are two major forms of covert operations: There are two major forms of covert operations:

undercover operations undercover operations  surveillance operations surveillance operations 

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UNDERCOVER OPERATIONUNDERCOVER OPERATION Undercover operations seek to develop evidence directlyUndercover operations seek to develop evidence directly

from people involved in the offense through the use offrom people involved in the offense through the use of

disguise and deceit.disguise and deceit.

Rather than waiting for the information to come by otherRather than waiting for the information to come by other

routes, there is a conscious decision to seek it out.routes, there is a conscious decision to seek it out.

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SURVEILLANCESURVEILLANCESurveillanceSurveillance isis the planned observation of people,the planned observation of people,

places, or objects. Itplaces, or objects. It isis normally concerned with people.normally concerned with people.

Places and objects observed usually are incidental toPlaces and objects observed usually are incidental tothe primary interest of gathering information aboutthe primary interest of gathering information about

certain people.certain people.

 There are two general types of surveillance:

mobile and fixed.

MOBILE AND FIXED

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SURVEILLANCE Mobile surveillance can beMobile surveillance can be

done on foot or by vehicledone on foot or by vehicle

and is carried out whenand is carried out whenpeople being observedpeople being observed

move from location tomove from location to

location.location.

 A fixed surveillance is used A fixed surveillance is used

 when a person or activity when a person or activity

remains in place, althoughremains in place, althoughthe observers might movethe observers might move

from one vantage point tofrom one vantage point to

another in the immediateanother in the immediate

area.area.

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ENTRAPMENTENTRAPMENTEntrapment poses the biggest legal problem in covertEntrapment poses the biggest legal problem in covertoperations, particularly in undercover operations. It isoperations, particularly in undercover operations. It is

imperative that the operation be properly predicated.imperative that the operation be properly predicated.

 Again, covert operations Again, covert operations

must not be used for “fishing expeditions”must not be used for “fishing expeditions”

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I N T E R V I E WI N T E R V I E W

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 WHAT IS INTERVIEW WHAT IS INTERVIEW  An An interview is ainterview is a questionquestion--andand--answeranswer sessionsession

designed to elicit information.designed to elicit information. It differs from an ordinary conversationIt differs from an ordinary conversation

(Inquiry), in that the interview(Inquiry), in that the interview isis structured,structured,

not freenot free--form, andform, and isis designed for a purpose.designed for a purpose.

 An interview might consist of only one An interview might consist of only one

question orquestion or aa series of questions.series of questions.

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MASTERING INTERVIEWMASTERING INTERVIEWBe prepare before embarking the interview.Be prepare before embarking the interview.

review the case file learn what informationis known to the witness

hypothesis should be reviewed

to make sure it reflects

the obtained evidences

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MASTERING INTERVIEWMASTERING INTERVIEW Never interview someone without sufficientNever interview someone without sufficient

information and relevance evidences.information and relevance evidences.  The most vulnerable witness should be

interviewed after the more reluctant witnesses

CHARACTERISTICS OF ACHARACTERISTICS OF A

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GOOD INTERVIEWGOOD INTERVIEW sufficient length andsufficient length and

depth to uncoverdepth to uncover

relevant facts.relevant facts. includes all pertinentincludes all pertinent

information andinformation andexcludes irrelevantexcludes irrelevant

information.information. conducted as closelyconducted as closely

as possible to theas possible to the

event in question.event in question.

objectiveobjective in scope,in scope,gathering informationgathering informationin a fair and impartialin a fair and impartial

mannermanner

CHARACTERISTICS OF ACHARACTERISTICS OF A

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GOOD INTERVIEWERGOOD INTERVIEWER ““ people persons,” and are people persons,” and are

talented at humantalented at humaninteraction.interaction.

does not interrupt thedoes not interrupt therespondent withrespondent withunnecessary questionsunnecessary questions

 phrasing questions in a phrasing questions in a

nonaccusatory manner.nonaccusatory manner. approaching the interviewapproaching the interview

in an informal and low in an informal and low --keykeyfashionfashion..

involves a state of mind andinvolves a state of mind and

a commitment toa commitment toexcellenceexcellence ..

be on time, bebe on time, be professionally attired, and professionally attired, andbe fair in all dealingsbe fair in all dealings

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TERIMA KASIHTERIMA KASIH

FINANCIAL AUDITOR LOOK ATFINANCIAL AUDITOR LOOK AT

 THE FIGURES THE FIGURES

INVESTIGATIVE AUDITOR LOOKINVESTIGATIVE AUDITOR LOOK

BEHIND THE FIGURESBEHIND THE FIGURES