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Interviewing Techniquesfor Fraud
NSAA IT ConferenceOctober 9, 2008
Presenter: Jonathan Trull
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Learning Objectives
Why interview for fraud?
CommunicationHow 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 ofStealing $11 million
http://www.denverpost.com/portlet/article/html/imageDisplay.jsp?contentItemRelationshipId=1811833 -
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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 forthwith 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 assuranceabout whether the financial statements are
free of material misstatements, whethercaused 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 issignificant within the context of the audit
objectives. Audit team members shoulddiscuss among the team fraudrisks.Auditors should gather and assess
information to identify risks of fraud(7.30)
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FISCAM (Exposure Draft)
Incorporates Government AuditingStandards relevant to financial andperformance audits.
Assess risks of fraud significant to auditobjectives.
References SAS 99.
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FISCAM (Exposure Draft)
If work is performed as part of broader financialor performance audit, the auditor shouldcoordinate with other audit teams.
Communicate fraud risks associated with IT tooverall fraud team.
Hold brainstorming session.
Design procedures to provide reasonableassurance of detecting fraud, if risks aresignificant.
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FISCAM (Exposure Draft)
Specifically highlights ERP systems andthe need to design procedures to identifysystem-based overrides.
Overall, auditor is responsible for beingaware of vulnerabilities to fraud associatedwith 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 ofmanagement PLUS a bunch of additional
questions of others (governance committee,internal audit, and other staff)
Sometimes people with knowledge of actual orpotential fraud are just waiting to be asked
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SAS 99
The auditor's inquiries of management andothers within the entity are importantbecause fraud often is uncovered through
information received in response toinquiries. One reason for this is that suchinquiries may provide individuals with an
opportunity to convey information to theauditor that otherwise might not becommunicated.
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SAS 99
Making inquiries of others within the entity, inaddition to management, may be useful inproviding the auditor with a perspective that is
different from that of individuals involved in thefinancial reporting process. The responses tothese other inquiries might serve to corroborateresponses received from management, or
alternatively, might provide informationregarding the possibility of managementoverride of controls
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What is Communication?
The process of effectively sending andreceiving information, thought, or feeling.
Whether verbal or nonverbalcommunication, it is essential that weanalyze 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
RememberAn interview is just astructured conversation.
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Facilitators of Communication
Fulfilling Expectations
Recognition
Altruistic Appeals
SympatheticUnderstanding
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
ChronologicalConfusion
Inferential Confusion
UnconsciousBehavior
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Nonverbal Communication
Over half of our communication is madeup of nonverbal communication or bodylanguage, that tone makes up about one-
third of our communication, and that lessthan twenty percent of communication ismade 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 tableand leans toward the door, quivering chin andcrossed arms with clenched fists, deep sigh
and slumping shoulders, crossing handbehind 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 ourworks to express a mood or emotion.
How are you? Fine.
Fine can convey a wide range ofmeanings, including sarcasm, gratitude, orirritation.
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Communication Analysis
What did the subject say?
What did the subject NOTsay?
Vocabulary, parts of speech, syntax, and
structure form the basis for analyzingcommunication.
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Vocabulary
Each word the subject uses has a differentmeaning.
A person maintains consistency in hislanguage to express the same thought.
Change of language reflects a change inthe 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. Hegenerally keeps the drawer locked. Mr.
Smith said I could use his desk to do mywork while he was gone. The drawer wasopen when I sat at the desk on Tuesday
and the checks were taken. I called Johnat home and he told me not to worry aboutit.
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Parts of Speech
Nounsname or identify persons, places,or things.
Verbsdescribe an action, occurrence, orstate of being.
Adverbsqualifiers that modify otherwords.
Adjectiveswords that describe nouns.
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Syntax
The manner or order in which a personchooses to arrange his words in asentence. Complete sentences consist of
a subject, verb, and modifying words thatadd 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 secondsignature.
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Key Words / Phrases
Temporal Lacuna
Later on
After
Later
Next
Afterwards
Eventually
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Structure
A narrative has a beginning, middle, and anend.
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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 orphrases?
Why is certain information presented first asopposed 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
SAS 99 / F d Di
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SAS 99 / Fraud DiscoveryInterviews
Who do we interview?
Everyone
Who performs the interviews?
Financial Auditors
Performance Auditors
IS Auditors
SAS 99 / F d Di
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SAS 99 / Fraud DiscoveryInterviews
What questions do we ask?
Direct & specific
Are you aware of anyone within theorganization who has taken computerresources 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 unfairadvantage. Do you think fraud is aproblem for government in general?
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Example Questions
Do you think this state agency has a problemwith 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 anotheremployee was stealing, what would you do?
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Example Questions
Do you know of anyone who might bestealing or taking advantage of the state?
Suppose someone who worked for theagency 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 thisagency?
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Example Questions
Is there any other information you wish toprovide regarding any possible fraudwithin this agency?
M ki ti i i i b t
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Making routine inquiries about
fraud
Inquire of managementabout: 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 mighthave 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
M ki ti i i i b t
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Making routine inquiries about
fraud
Inquire directly to the audit committeeabout:
The committees views on fraud risk
Any knowledge of fraud or suspected fraud
Mitigating controls
How the committee exercises oversight in this
area
Making ro tine inq iries abo t
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Making routine inquiries about
fraud
Inquire of internal audit personnelabout:
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
Making routine inquiries about
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Making routine inquiries about
fraud
Inquire of other personnel about the existence offraud or suspicion about fraud: To learn more about or corroborate what others have
said about fraud risk
To allow individuals an opportunity to conveyinformation that might not otherwise becommunicated
To obtain perspectives that are different from that ofindividuals involved in financial reporting
To learn more about managements ability to overridecontrols To determine how effectively management has
communicated standards of ethical behavior
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Fraud-Based Interviews
The auditor has already identified problemsand is seeking to clarify their cause andquantify their impact. These interviews
presuppose that the subject has importantinformation and may be misleading thequestioner 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 andcannot rule out wrongdoing as a cause.
Wants to follow up a routine discussion ofprocedures 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 andPurpose 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 purposeof the interview.
Example: I am responsible for gathering
information regarding the agencyscontract with ABC, Inc. I learned you wereon the RFP Selection Committee. Can
you help me by answering a fewquestions?
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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 toanswer the questions completely and fully
without interruption.
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Questioning the Subject
The interviewer should allow a fewmoments of silence each time the subjectappears to have stopped talking.
The interviewer should confirm with thesubject at the end of the interview theinformation the subject provided.
Encourage the subject to speak.
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Questioning the Subject
Use a line of questioning moving from theleast sensitive topics to the most sensitive.
Follow-up on answers by using thesubjects own words.
Focus on establishing who, what, when,where, and why.
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FraudQuestion Typology
Introductory
Informational
Closing
Assessment
Admission-Seeking
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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 requiresmore note taking, more difficult to control,
and interviewee may not be sure of whatyou 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 iteasy to tabulate results.
Cons: Limits information that can be
obtained
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Probing/follow-up Questions
Asking another question to clarify or obtainfurther information about a intervieweesresponse.
Pros: Useful when the intervieweeprovides inadequate answers, stimulatesdiscussion, and can be used to resolveinconsistencies.
Cons: Can make interviewee becomedefensive
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Questioning the Subject
Confronting the SubjectAvoid 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 toABC, Inc. and mailed it. Am I missingsomething?
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Questioning the Subject
Go from broad to the specific.
Move from the indirect to the direct to elicitinformation.
Allow the subject to speak. The role of theinterviewer is to observe, to guide, tosteer, to collect, and most importantly, to
listen.
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Review of Interview Material
Confirm with subject that the informationprovided 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?
Closing and Relationship
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Closing and RelationshipBuilding
Thank subject for time.
If applicable, thank subject forcooperation.
May be good to repeat question about anyfurther information not covered.
C d ti th I t i
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Conducting the Interview
If something is notclear, keep asking
Use follow-up
questions as neededto clarify issues
Drill-down on an issue
Dont let your
question gounanswered
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A ti Li t i
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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
I t i D t
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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)
B ildi R l ti hi
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Building Relationship
To establish a balanced relationshipbetween the interviewee and yourself
Your voice should be calm
Show interest in what the person is saying
Dont indict the person during the interview
B ildi R l ti hi
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Building Relationship
If the subject perceives you as aprofessional and someone that is honest,they are more likely to be helpful during
the interview.
B ildi R l ti hi
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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
N t T ki
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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.
N t T ki
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Note Taking
Identify the date, time, and place of theinterview and all individuals present duringthe interview.
Obtain biographical data for the subject,including telephone numbers, position,title, etc.
Initial and date the notes.
N t T ki
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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
N t T ki
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Note Taking
Do not document conclusions orinterpretations.
Report any unusual changes in body
language. Turn notes into typewritten report
IMMEDIATELY!
Habits of Successful Fraud
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Interviewers
Takes minimal notes
Does not interrupt the interviewee
Asks open-ended questions
Follows a logicalusually chronologicalquestion sequence
Advanced Interviewing Skills
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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
Interview versus Interrogation
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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 afterconfession)
No time limit
References
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References
Interviewing and Interrogation, by DonRabon
Beyond the Numbers: Professional
Interviewing Techniques, by ACFE
Finding the Truth, by Erwin Sulak
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Thats All Folks!