Introduction to Fraud Examination

Discount Plus Company has been concerned for sometime about its cash flows. Since the company beganfive years ago, Discount’s business has increasedsteadily, yet cash flows have remained virtually thesame every year. You have been hired by DiscountPlus to detect possible fraud within the company.Discount’s management is almost certain that one ofits accountants is embezzling cash and has informedyou that it has already begun installing surveillancecameras in possible “problem areas.” In addition,management is considering some form of covertoperation to detect the fraud.

a. What problems or dilemmas is Discount’s management facingby installing cameras and implementing acovert (undercover) operation?b. What privacy issues are there to consider?

Form of Electronic Surveillance; Are normally legal as long as they do not

invade a person’s reasonable expectation of privacy under the Fourth Amendment to the Constitution, which protects the right of a person against unreasonable searches;

Must be carefully regulated with strict protocol in place for their use;

Cannot be used for fishing expeditions

When large scale fraud is suspected; When other forms of fraud investigation

have failed; A need for close monitoring of activity; Fraud has continued for a lengthy period of

time; Laws and ethics are strictly adhered to; Law enforcement is notified if fraud is

detected

Where do the cameras go? Are all the cameras real or can we install

mock cameras? Are cameras visible to the accounting

department workers? Are the recordings preserved? Do you have a control area? Does camera have an audio feature?

Protects individual from illegal search and seizure;

Applies to governmental agencies against an individual;How does this fit in when we tackle the issue of private industry;Do workers have rights? Let’s explore

1. We have a desire to control personal information about ourselves and limit it’s access to others.

2. Whatever it is we want to keep private, we want to further protect it from judgment of others, monitoring or scrutiny of others.

3. We want to decide for ourselves what we keep private and free of influence.

Back at Discount Plus Company (only 5 years old) we have a lead suspect in the accounting department. Our accountant suspected of embezzling is still working unbeknownst of the ongoing investigation.

Does he have a right to privacy? Yes and No. Discussion

General rule: Employers and companies have a right to protect their business interests and the company against fraudulent and illegal activity.

Who owns the accounting records? Discuss Does the company have a right to disseminate

their own records if it incriminates the employee?

Your suspect, through your investigation with camera work, employee interviews, internal audits, internal review of records, you have confirmed fraud and embezzlement.

Your next step:◦ Report to your supervisor◦ Request Interview◦ Suggest polygraph…..

General Rule – Employer cannot force employee to take polygraph;

Informed Consent allows an employee to know what they are submitting to an voluntarily agree to such testing.

Many employees see these as a violation of privacy rights?

Undercover security Record detection Computer investigation (is this computer

hacking?) Use of co-workers to detect fraud

Do you think that if the investigation has some potential illegal aspects, and/or breaches an employee’s right to privacy, it is justified in detecting fraud?