The Fraud Examiner’s Tool Kit � Neutral Third-Party Witnesses A neutral third-party witness is a person not involved in a specific instance of fraud . For example, if the fraud examination of John Brown progressed past the stage of analysing documents, it would be common for the fraud examiner to interview the personnel officer at Teddy Books Incorporated regarding Brown’ personnel file. The Fraud Examiner’s Tool Kit � Corroborative Witnesses Corroborative witnesses are those who can corroborate facts relating to a specific offence . These witnesses might be cooperative or uncooperative , but they are not directly related to the offence involved. Brown’ s co-workers or subordinates at Teddy Books Inc. could be corroborative witnesses. Interviews with witnesses to corroborate facts should be done after interviewing neutral third-party witnesses .
The Fraud Examiner’s Tool Kit � Co-Conspirators If after examining documents, neutral third-party witnesses, and corroborative witnesses, it still appears that further work is warranted, the fraud examiner typically would interview co-conspirators to the alleged offence . In the case of John Brown, if it were determined that a vendor was paying Brown kickbacks, that vendor typically would be interviewed prior to contacting Brown. People suspected of complicity generally are interviewed in the order of those thought to be least culpable to those thought to be most culpable . � In criminal prosecutions , law enforcement officers and prosecutors can sometimes promise leniency to co-conspirators in return for their cooperation (especially in the Common Law systems). � These individuals are called “inside witnesses” and will be discussed in detail later. � Such promises by private sector fraud examiners are not permitted , and might legally invalidate any admissions that are made. The Fraud Examiner’s Tool Kit Subject In general, the subject (also called the suspect or accused) is interviewed last , after all facts necessary to resolve the allegation are obtained. Even if it is felt that the subject will not offer a confession, an interview is usually scheduled; in many instances it can be used later for impeachment. An interview might also give the examiner a good idea of what defences the subject might raise.
Purpose of the Fraud Examination � The purpose of the fraud examination is to prove or disprove the legal elements of the offence. Each and every element must be proven beyond a reasonable doubt in criminal cases, and by a preponderance of the evidence in civil cases. � To do this, it is necessary to understand certain objectives common to white-collar cases . Because investigations of fraud often involve an extensive array of information, the fraud examiner can lose sight of the objectives. According to Herbert Edelhertz (US Criminology expert): “ One of the characteristics that most distinguishes the investigation of white-collar crime from that of common crimes is the necessity for the investigator to establish the intent and underlying motives of the subject by placing together jigsaw puzzle pieces of apparently legitimate activities to add up to a picture of illegitimacy - rather than by a simple showing of one event which by itself flatly demonstrates wrongful intent .” Purpose of the Fraud Examination � Elements of White-Collar Offences While it is not possible or necessary to list every variation of white-collar crime and fraud, all have common elements , such as: � Intent : knowingly to commit a wrongful act or to achieve a purpose inconsistent with law or public policy; � Disguise of purpose : falsities and misrepresentations employed to accomplish the scheme; � Reliance : by the offender on the ignorance or carelessness of the victim ; � Voluntary victim action : to assist the offender; � Concealment : of the offence.
Purpose of the Fraud Examination � Intent Intent must be shown in fraud matters. Intent rarely is self-evident , but must rather be demonstrated by showing a pattern of activity. Some of the more common ways to show intent include proof that the accused : � Had no legitimate motive for the activities; � Repeatedly engaged in the same or similar activity of an apparent wrongful nature; � Made conflicting statements; � Made admissions; � Acted to impede the investigation of the offence; � Made statements the offender clearly knew to be false. Purpose of the Fraud Examination � Disguise and Misrepresentation Misrepresentation usually is shown by the facts that the representation was made and that it was false , either by omission or commission . � Voluntary Victim Action to Assist the Offender Proof that the victim assisted the offender usually is not difficult to obtain from the victim. It is important for the fraud examiner to ascertain the exact circumstances regarding the fraud from the victim , clearly drawing out what made the fraud possible . In the case of employee thefts, for example, the victim (the company) entrusted the care of assets to the subject. That fiduciary capacity must be established.
Purpose of the Fraud Examination � Concealment Concealment is a cornerstone of fraud . As opposed to traditional crimes, where there is no effort to conceal, fraud perpetrators take steps to keep the victim ignorant. Acts in fraud schemes designed to conceal include committing offences too small to be recognised as fraud by the victim . In embezzlement cases, for example, the amount of money taken at any one time usually is small relative to the total company assets. By demonstrating a continuing pattern of thefts, the concealment aspect can be shown. Purpose of the Fraud Examination To hide their actions, fraud perpetrators often create complex financial trails . The more obscure the act, the greater likelihood that it will not be detected. Some fraud cases involve fraudulent invoices and journal entries. Concealment in these types of cases often can be proven by the fact that the entries made had no purpose other than to conceal.
Proof Stages in Fraud Cases Proof in most complex white-collar cases usually proceeds through three basic stages. � First , the fraud examiner builds the circumstantial case through interviews of cooperative witnesses and review of available documentation. � Then the examiner uses the circumstantial evidence to identify and persuade an inside witness who can provide direct evidence against the defendant. � Finally the case is sealed, defences are identified and rebutted, and intent is proved through examination of the subject . Stage One: Building the Circumstantial Case � As used here, circumstantial evidence means all proof other than direct admission of wrongdoing by the subject or a co-conspirator . – In a fraud case, it is the proof of the defendant’s representations, evidence of their falsity and intent. – In a corruption case, it is evidence of the standard behaviour, the defendant’s breach, and the illegal payments. � The circumstantial case also might include “ similar act evidence ” to show a common scheme or plan, lack of mistake or accident, modus operandi, and most commonly, intent . Circumstantial evidence might be all that is available. It must be: – complete with no gaps , – consistent (tending to prove a single point), and – must exclude all explanations other than guilt . Collecting this type of evidence can be very difficult. Many complex cases lose direction during the circumstantial stage when the examiner becomes overwhelmed by the mass of accumulated detail and documents.
Stage One: Building the Circumstantial Case To avoid getting bogged down, consider the following: � Keep an Eye on the Ball Examiners must remember: � the importance of the fraud theory and � keep in mind exactly what they are attempting to prove at all times . If examiners lose track of the objective, they should: � review and reorganise the evidence, � develop an alternate theory, and � refocus efforts. The examiner always is trying to prove or disprove something - even if merely a hunch - but never merely collecting information . Stage One: Building the Circumstantial Case � Simplify the Case If the case starts to sink under its own weight, the fraud examiner: might look for a less demanding legal theory , • break the case down into smaller components (e.g., prove one set of charges • against one set of defendants before pursuing the other), or look for an informant or inside witness . • The objective in every complex case is to break it down to its essentials and make it as simple and clear as possible.
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