Interviewing Techniques for Fraud

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Interviewing Techniquesfor Fraud

• NSAA IT Conference
• October 9, 2008
• Presenter Jonathan Trull

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Learning Objectives

• Why interview for fraud?
• Communication How does it work?
• Understand 3 types of fraud interviews
• Mechanics of fraud-based interviews
• Detecting deception, half truths, omissions, and
  inconsistencies

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State Employee Accused of Stealing 11 million
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Why Interview for Fraud?

• People actually admit theyve committed fraud,
  abuse, or other illegal acts when confronted.
• People who have knowledge of wrongdoing but
  arent involved in fraud often wont come forth
  with information unless asked.
• Quickly identifies control weaknesses.
• Standards.

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Auditing Standards

• Yellow Book
• FISCAM (Exposure Draft)
• SAS 99

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Government Auditing Standards

• auditors should plan and perform the audit to
  obtain reasonable assurance about whether the
  financial statements are free of material
  misstatements, whether caused by errors or
  fraud. (4.27)

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Government Auditing Standards

• In planning the audit, auditors should assess
  risks of fraud occurring that is significant
  within the context of the audit objectives.
  Audit team members should discuss among the team
  fraud risks.Auditors should gather and assess
  information to identify risks of fraud (7.30)

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FISCAM (Exposure Draft)

• Incorporates Government Auditing Standards
  relevant to financial and performance audits.
• Assess risks of fraud significant to audit
  objectives.
• References SAS 99.

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FISCAM (Exposure Draft)

• If work is performed as part of broader financial
  or performance audit, the auditor should
  coordinate with other audit teams.
• Communicate fraud risks associated with IT to
  overall fraud team.
• Hold brainstorming session.
• Design procedures to provide reasonable assurance
  of detecting fraud, if risks are significant.

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FISCAM (Exposure Draft)

• Specifically highlights ERP systems and the need
  to design procedures to identify system-based
  overrides.
• Overall, auditor is responsible for being aware
  of vulnerabilities to fraud associated with the
  area being audited to identify indications that
  fraud may have occurred.

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SAS 99

• SAS 99 wants us to ask MORE questions of
  management PLUS a bunch of additional questions
  of others (governance committee, internal audit,
  and other staff)
• Sometimes people with knowledge of actual or
  potential fraud are just waiting to be asked

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SAS 99

• The auditor's inquiries of management and others
  within the entity are important because fraud
  often is uncovered through information received
  in response to inquiries. One reason for this is
  that such inquiries may provide individuals with
  an opportunity to convey information to the
  auditor that otherwise might not be communicated.

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SAS 99

• Making inquiries of others within the entity, in
  addition to management, may be useful in
  providing the auditor with a perspective that is
  different from that of individuals involved in
  the financial reporting process. The responses to
  these other inquiries might serve to corroborate
  responses received from management, or
  alternatively, might provide information
  regarding the possibility of management override
  of controls

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What is Communication?

• The process of effectively sending and receiving
  information, thought, or feeling.
• Whether verbal or nonverbal communication, it is
  essential that we analyze communication (1)
  within context, and (2) as a pattern.

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Modes of Communication

• Five methods/modes of communication
• (1) Nonverbal (4) Speaking
• (2) Reading (5) Listening
• (3) Writing

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Elements of Conversation

• Expression
• Persuasion
• Therapy
• Ritual
• Information Exchange
• Remember An interview is just a structured
  conversation.

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Facilitators of Communication

• Fulfilling Expectations
• Recognition
• Altruistic Appeals
• Sympathetic Understanding

• New Experience
• Catharsis
• Need for Meaning
• Extrinsic Rewards

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Inhibitors of Communication

• Competing Demand
• Demands for Time
• Ego Threat
• Repression
• Disapproval
• Loss of Status
• Etiquette
• Trauma
• Forgetting

• Chronological Confusion
• Inferential Confusion
• Unconscious Behavior

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Establish Baseline

• It is critical that we establish a baseline or
  calibrate the subject of the interview.
• How do we calibrate a subject?
• Attempt to relax the subject
• Establish rapport early

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Nonverbal Communication

• Over half of our communication is made up of
  nonverbal communication or body language, that
  tone makes up about one-third of our
  communication, and that less than twenty percent
  of communication is made up of the words we use.

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Nonverbal

• The Head
• Tilted to one side indicates listening
• Chin dropped to chest indicates acceptance of
  guilt or depression
• The Face
• Turns pale
• Becomes flushed, red, or splochy
• Onset of tics

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Nonverbal

• The Nose
• Touching nose indicates stress
• The Mouth
• Yawning continuously
• Yawning to stall or fake boredom
• Placing pens and other objects in mouth
• The Eyes
• Shifting eye behavior

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Nonverbal

• The Eyes
• Blink rapidly
• Look away during certain responses
• Stare intently during certain responses
• The Arms and Shoulders
• Arms crossed and hands clenched
• Shrugging shoulders to questions

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Nonverbal

• The Hands
• Finger tapping or drumming
• Playing with jewelry
• Checking watches
• Wringing hands
• The Legs
• Crossing/uncrossing legs
• Bouncing legs

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Nonverbal

• The Feet
• Lightly tapping feet
• Stomping feet
• Posture
• Lean body away from interviewer
• Lean body toward door or exit

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Nonverbal Clusters

• Nonverbal signals come in clusters.
• No signal by itself tells you anything.
• Consider all signals as part of a pattern.
• Examples Subject sits behind a desk or table and
  leans toward the door, quivering chin and crossed
  arms with clenched fists, deep sigh and slumping
  shoulders, crossing hand behind head and yawning

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Observing Interview Reactions

• Proxemics
• Chronemics
• Kinetics
• Paralinguistics

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Tone

• Tone is the inflection or sound we give our works
  to express a mood or emotion.
• How are you? Fine.
• Fine can convey a wide range of meanings,
  including sarcasm, gratitude, or irritation.

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Words

• The words people use and the order in which the
  words are used is important.
• We tend to communicate through one of three
  senses Sight, Sound, or Touch

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Communication Analysis

• What did the subject say?
• What did the subject NOT say?
• Vocabulary, parts of speech, syntax, and
  structure form the basis for analyzing
  communication.

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Vocabulary

• Each word the subject uses has a different
  meaning.
• A person maintains consistency in his language to
  express the same thought.
• Change of language reflects a change in the
  subjects perception of the account.

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Vocabulary Example

• Mr. Smith keeps the blank checks and his
  signature stamp in his desk drawer. He generally
  keeps the drawer locked. Mr. Smith said I could
  use his desk to do my work while he was gone.
  The drawer was open when I sat at the desk on
  Tuesday and the checks were taken. I called John
  at home and he told me not to worry about it.
  

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Parts of Speech

• Nouns name or identify persons, places, or
  things.
• Verbs describe an action, occurrence, or state
  of being.
• Adverbs qualifiers that modify other words.
• Adjectives words that describe nouns.

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Syntax

• The manner or order in which a person chooses to
  arrange his words in a sentence. Complete
  sentences consist of a subject, verb, and
  modifying words that add detail to the events.

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Syntax Example

• Jane and I signed the check.
• My boss Jane and I signed the check.
• I signed the check and then Jane did.
• The check was signed by Jane, I think, and by
  me.

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Key Words / Phrases

• Adverbs
• I usually but not always unlock the safe.
• I normally but not always reconcile the
  accounts.
• Basically but not completely, thats what
  happened.
• Mostly but not always, I get a second
  signature.

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Key Words / Phrases

• Adverbs
• I rarely but not exclusively speak with him
  anymore.
• I hardly knew him but I did know him.

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Key Words / Phrases

• Temporal Lacuna
• Later on
• After
• Later
• Next
• Afterwards
• Eventually

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Adjectives

• Dishonest subjects often omit adjectives
  altogether or qualify their remarks I think

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Structure

• A narrative has a beginning, middle, and an end.

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Main Points

• What is the general importance of the subjects
  statements?
• Are the references and word choices consistent?
• Why did the subject choose certain words or
  phrases?
• Why is certain information presented first as
  opposed to last or in the middle of the story?

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Types of Fraud Interviews

• SAS 99 / Fraud Discovery Interviews
• Fraud-Based Interviews
• Interrogations

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SAS 99 / Fraud Discovery Interviews

• Who do we interview?
• Everyone
• Who performs the interviews?
• Financial Auditors
• Performance Auditors
• IS Auditors

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SAS 99 / Fraud Discovery Interviews

• What questions do we ask?
• Direct specific
• Are you aware of anyone within the organization
  who has taken computer resources without
  authorization?
• Have you ever changed source code without
  authorization?
• Hypothetical
• If someone was going to ..

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Example Questions

• When were talking about fraud in government,
  were talking about a big area. Were not
  talking about taking a pen or making a few
  photocopies. Rather, were talking about a whole
  range of activities where employees steal from
  the state, lie to management, or taken unfair
  advantage. Do you think fraud is a problem for
  government in general?

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Example Questions

• Do you think this state agency has a problem with
  fraud?
• If employees or managers are stealing from this
  agency, why do you think they do it?
• Frequently, small thefts by employees can add up
  to a lot of money. If you knew another employee
  was stealing, what would you do?

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Example Questions

• Do you know of anyone who might be stealing or
  taking advantage of the state?
• Suppose someone who worked for the agency decided
  to steal or commit fraud. How could they do it
  and get away with it?
• In your opinion, who is beyond suspicion when it
  comes to committing fraud at this agency?

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Example Questions

• Is there any other information you wish to
  provide regarding any possible fraud within this
  agency?

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Making routine inquiries about fraud

• Inquire of management about
• Knowledge of any fraud or suspected fraud
• Any allegations about fraud
• Risks of fraud in the entity
• Programs and controls that mitigate these risks
• Monitoring of operating locations and business
  segments and any locations or segments that
  might have higher fraud risk
• If (and how) management communicates its view on
  business practices and ethics
• Any fraud-related reports it has made to the
  audit committee

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Making routine inquiries about fraud

• Inquire directly to the audit committee about
• The committees views on fraud risk
• Any knowledge of fraud or suspected fraud
• Mitigating controls
• How the committee exercises oversight in this area

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Making routine inquiries about fraud

• Inquire of internal audit personnel about
• Their views about fraud risks
• Any knowledge of fraud or suspected fraud
• Any fraud-related work they have done
• The adequacy of managements responses to any
  fraud-related findings

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Making routine inquiries about fraud

• Inquire of other personnel about the existence of
  fraud or suspicion about fraud
• To learn more about or corroborate what others
  have said about fraud risk
• To allow individuals an opportunity to convey
  information that might not otherwise be
  communicated
• To obtain perspectives that are different from
  that of individuals involved in financial
  reporting
• To learn more about managements ability to
  override controls
• To determine how effectively management has
  communicated standards of ethical behavior

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Fraud-Based Interviews

• The auditor has already identified problems and
  is seeking to clarify their cause and quantify
  their impact. These interviews presuppose that
  the subject has important information and may be
  misleading the questioner or lying.

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Fraud Examination Process

• Sources of Information (tips/complaints,
  anomalies, SAS 99 interviews)
• Predication?
• Develop fraud theory
• Theory validated? Or Other theories confirmed?
• Obtain documentary evidence
• Interview
• Prepare report

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Evidence Gathering Order
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Fraud-Based Interviews

• When should these interviews be used
• Auditor notes an important exception and cannot
  rule out wrongdoing as a cause.
• Wants to follow up a routine discussion of
  procedures and controls.
• Gets a tip that possible wrongdoing has occurred.

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Mechanics of the Interview

• Venue
• Introductory Phase
• Introduction of Subject Matter and Purpose of
  Interview
• Questioning the subject
• Review of material with subject
• Closing and relationship building

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Venue

• Interviews should be in person
• Location places subject at ease
• Ensures privacy
• Avoids distractions

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Introductory Phase

• Personal Introduction
• Social Amenities
• Open Discussion

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Introductory Phase

• Take Charge / Provide the Introduction
• Establish Rapport
• Establish the Interview Theme
• Observe Reactions
• Theme Development
• Methodology
• Physical Contact (handshake)
• Establish Purpose of Interview

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Subject Matter / Purpose

• Be cautious when introducing the purpose of the
  interview.
• Example I am responsible for gathering
  information regarding the agencys contract with
  ABC, Inc. I learned you were on the RFP
  Selection Committee. Can you help me by
  answering a few questions?

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Questioning the Subject

• The interviewers role is not to answer questions
  or provide information.
• The interviewer should spend a minimal amount of
  time talking, no more than 15.
• Allow the subject the opportunity to answer the
  questions completely and fully without
  interruption.

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Questioning the Subject

• The interviewer should allow a few moments of
  silence each time the subject appears to have
  stopped talking.
• The interviewer should confirm with the subject
  at the end of the interview the information the
  subject provided.
• Encourage the subject to speak.

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Questioning the Subject

• Use a line of questioning moving from the least
  sensitive topics to the most sensitive.
• Follow-up on answers by using the subjects own
  words.
• Focus on establishing who, what, when, where, and
  why.

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Fraud Question Typology

• Introductory
• Informational
• Closing
• Assessment
• Admission-Seeking

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Question Types

• Open or Indirect
• Closed or Direct
• Probing or follow-up

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Open Questions

• Cant be answered with yes/no response.
• Pros Useful when youre not sure of what
  information you need or if you want to know how
  someone feels about an issue.
• Cons Can take a lot of time and requires more
  note taking, more difficult to control, and
  interviewee may not be sure of what you want.

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Closed Questions

• Answered restricted to a few choices (yes/no)
• Pros Useful when answers require little or no
  explanation, saves time, and makes it easy to
  tabulate results.
• Cons Limits information that can be obtained

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Probing/follow-up Questions

• Asking another question to clarify or obtain
  further information about a interviewees
  response.
• Pros Useful when the interviewee provides
  inadequate answers, stimulates discussion, and
  can be used to resolve inconsistencies.
• Cons Can make interviewee become defensive

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Questioning the Subject

• Confronting the Subject
• Avoid confrontation until later in the interview
• Handle and manage confrontation to your advantage
  - better to focus on clarification
• Im confused. You told me that you always got a
  second signature on checks over 500. However,
  you told me you signed the check to ABC, Inc. and
  mailed it. Am I missing something?

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Questioning the Subject

• Go from broad to the specific.
• Move from the indirect to the direct to elicit
  information.
• Allow the subject to speak. The role of the
  interviewer is to observe, to guide, to steer, to
  collect, and most importantly, to listen.

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Review of Interview Material

• Confirm with subject that the information
  provided is accurate.
• Go critical point by point and get affirmative
  verbal responses from subject. Make corrections
  where necessary.
• Is there any other information relevant to our
  discussion that we havent covered?

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Closing and Relationship Building

• Thank subject for time.
• If applicable, thank subject for cooperation.
• May be good to repeat question about any further
  information not covered.

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Conducting the Interview

• If something is not clear, keep asking
• Use follow-up questions as needed to clarify
  issues
• Drill-down on an issue
• Dont let your question go unanswered

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Active Listening

• When the listener provides feedback (verbal
  and/or non-verbal) to the speaker on the extent
  to which the speakers message has been
  understood and will be retained.
• Restating in your own words what the person said.
• Repeating exactly what the person said
• Reflecting to show you understand how they feel
  (You were pretty upset by this)
• Summarizing (These seem to be the main ideas you
  stated.)

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Active Listening

• Non-verbal techniques
• Maintain appropriate eye contact
• Occasionally nod and display understanding and
  interest
• Pause occasionally to let interviewee know to
  continue
• Voice inflections
• Body Language

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Interview Donts

• Dont ask more than one question at a time.
• Dont jump to conclusions
• Dont assume you know the response
• Dont interrupt or debate with the interviewee
• Dont monopolize the conversation (70/30 rule)
• Dont think about the next question
• Dont read documents
• Dont be annoying (finger tapping, clock
  watching)

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Building Relationship

• To establish a balanced relationship between the
  interviewee and yourself
• Your voice should be calm
• Show interest in what the person is saying
• Dont indict the person during the interview

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Building Relationship

• If the subject perceives you as a professional
  and someone that is honest, they are more likely
  to be helpful during the interview.

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Building Relationship

• If individual is reluctant
• Keep calm, dont become frustrated
• Use positive language
• Use gentle persistence in asking questions
• If need to, reschedule the interview

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Note Taking

• Note taking tips
• Dont tape record the interviews
• Take accurate and complete notes, but dont
  distract the interviewee
• Try to avoid taking notes when the interviewee is
  talking about a sensitive subject
• Begin each interview on a clean page.

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Note Taking

• Identify the date, time, and place of the
  interview and all individuals present during the
  interview.
• Obtain biographical data for the subject,
  including telephone numbers, position, title,
  etc.
• Initial and date the notes.

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Note Taking

• Document the interviewers questions.
• Take verbatim notes if possible, Concentrate on
  subjects responses to
• Nouns
• Pronouns
• Verb Tense
• Qualifiers
• Indicators of responsibility, innocence, or guilt

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Note Taking

• Do not document conclusions or interpretations.
• Report any unusual changes in body language.
• Turn notes into typewritten report IMMEDIATELY!

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Habits of Successful Fraud Interviewers

• Takes minimal notes
• Does not interrupt the interviewee
• Asks open-ended questions
• Follows a logical usually chronological
  question sequence

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Advanced Interviewing Skills

• More experienced auditors, not new staff, should
  do these interviews
• Be prepared, but dont follow a checklist
• Put the subject at ease
• Be conversational
• Make good eye contact
• Get the subject talkinglet subject talk

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Interview versus Interrogation

• Interview
• Purpose gather info.
• Nonaccusatory
• Free-flowing
• Interviewer speaks 5
• Stay within social zone
• Note taking O.K.
• No Miranda warning required
• 30-60 minutes

• Interrogation
• Purpose get a confession
• Accusatory
• Structured
• Interrogator speaks 95
• Start at personal zone, move to intimate zone
• No notes (until after confession)
• No time limit

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References

• Interviewing and Interrogation, by Don Rabon
• Beyond the Numbers Professional Interviewing
  Techniques, by ACFE
• Finding the Truth, by Erwin Sulak

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Thats All Folks!