1. CHAPTER 8: INVESTIGATING CONCEALMENT David Shen Chen/1209471 1

2. Presentation Outline 2 Introduction of concealment investigation Documentary evidence Apply audit procedure to a case Hard-to-get documentary evidence Document expert Conclusion 3. Concealment Investigation 3 How to get evidence 4. Concealment Investigation 4 5. Documentary Evidence 5 6. Documentary Evidence 6 What do we need to Know about documentary Evidence? 7. Documentary Evidence 7 Marking the Evidence 8. Documentary Evidence 8 Chain of Custody 9. Documentary Evidence 9 Coordination of Evidence - Software: Xanalys Link Explorer, Analyst's Notebook Original Documents VS Photocopies - Always apply original document in priority 10. How to obtain Evidence 10 Data-driven approach (Chapter 6) Audit approach: Tests of mechanical accuracy (recalculations) Analytical procedure (tests of reasonableness) Documentation External Confirmations Observation Inspection Inquiries 11. The Case 11 The Fraud Restaurant (This story is purely fictional. Any resemblance to actual individuals or events are coincidental) 12. The Case 12 13. The Case 13 What will IRD do after receive this fraud report? A: Ignore it B: Call the restaurant owner (Inquiry) C: General Analysis of companys tax report (Analytical tests) D: Call the whistleblower (Inquiry) 14. The Case 14 Analytical Procedure Gross profit margin Similar restaurant 60% The fraud restaurant 40% 15. The Case 15 Direct (Specific Item) Method - Make confirmation of tax report - Understatement of income - Overstatement of expenses - Fraudulent claims for credits or exemptions 16. The Case 16 Inspection Why there are large amount purchase of stock on lobster, but no lobster dish on the menu? 17. The Case 17 Sampling & Observation 18. The Case 18 What is the appropriate sampling method for IRD to estimate one month sales? A: Estimate sales at Friday night, then times 30. B: Estimate sales from Monday to Sunday, then times 4. C: Estimate sales for every single day within one month. 19. The Case 19 Indirect Method - Gather original evidence to support allegation. - Whether the net worth, expenditures, bank deposits and cash are logical based on reported income. 20. The Case 20 Physical examination 21. The Case 21 Do you think the IRD investigator have right to do like this without notice? A: Yes B: No 22. The Case 22 Enquiry 23. The Case 23 Does the restaurant owner have the right to refuse answer these questions? A: Yes B: No 24. How to obtain Evidence 24 Audit approach: Tests of mechanical accuracy (recalculations) Analytical procedure (tests of reasonableness) Documentation External Confirmations Observation Inspection Inquiries 25. Hard-to-Get Documentary Evidence25 Web-based e-mail accounts Private bank record Tax returns Broker age records Subpoena Search Warrant Voluntary Consent 26. Document expert 26 What they do - Test original signature - Test original document 27. Document expert 27 Organizations of document experts - Questioned Document Section under FBI - American Board of Forensic Document Examiners, Inc. (ABFDE) - Independent Forensic Practitioners Institute Inc. (IFPI) 28. Conclusion 28 Get the document evidence Test the document evidence Keep the document