TUTORIAL THE FRAUD INVESTIGATION & ENGAGEMENT PROCESS

1. What are the major steps in a fraud investigation?

The engangement process
The evidence collection process
The reporting process
The loss recovery process

2. Describe the steps in the evidence collection process as based on the fraud theory approach.
The evidence collection process consists of the four steps in which evidence in support of the
objectives and scope of the investigation is collected.

Create hypotheses How hypotheses

regarding a relate to who, what,
Analyse data
why, when, where,
possible fraud
and how

Tests do not Tests support

support the Test the hypotheses
hypotheses hypotheses

Fraud theory is
Refine and amend
supported by the
the hypotheses
evidence

3. Describe the order in which evidence is collected during an investigation.

Physical evidence - Reviewing the physical and document evidence provides a basis for
know what to observe, and what questions to ask in interviews.
Document evidence
Observation evidence - Observing can catch a fraudster in the act, which can result in
substantially lower investigation costs
Interview evidence - Interviewing should lead to a confession, if possible.
The investigator should begin interviewing those furthest from the prime suspect and then
work toward the suspect. If there is more than one suspect, the prime suspect should be
saved for last.

4. Briefly explain the nature of the following processes: the reporting process and the loss
recovery process.
The reporting process - involves documenting and summarizing the results of the fraud
investigation.
The Loss Recovery Process - the objective of this process is the recovery of losses through
civil and criminal litigation, expert testimony, and collection of insurance.
5. List the steps in the fraud engagement process.
Incident report
Make notifications and evaluation
Consider legal issues
Consider loss mitigation and recovery
Define scope, objectives and cost of investigation
Engagement letter of memorandum

6. What is an incident report?

A form that is filled out in order to record details of an unusual event that occurs at the facility.
All suspicions of fraud, including those not investigated, to serve as a record of the
organizations response efforts. Once a suspicion of fraud arises, the issue should be recorded
and detailed in the log, and as the issue progresses, the log should be modified.

7. List examples of events that might trigger someone in the organization to prepare a fraud
incident report.
The incident report contains the initial information used to justify the investigation:
The initial information should be included in a unified case file (which is a file that
documents all activities related to the investigation)
Given the sensitivity of the case file, access should only be given on a need-to-know basis.
Unwarranted disclosure of information in the case file can lead to the entity being sued
for defamation and can compromise an entire investigation by tipping off suspects.
It should be assumed that every investigation will end up in court. The incident report therefore
has important legal significance because the entire investigation rests on it.

8. Assume that the purchasing manager is suspected of committing a fraud against the company.
Using fictitious data or information that you have made up, draft an incident report.

9. Explain why, ideally, it is best that the person initially receiving an incident report not collect
evidence before deciding whether an investigation is warranted.
10. Briefly discuss some of the legal issues to be considered befor launching a fraud investigation.
11. Differentiate between loss mitigation and loss recovery.
12. List the various loss mitigation steps that might be taken by a victim organization.
13. What matters should you consider when recovering loss through insurance?
14. What matters should you consider when recovering loss through litigation?
15. When might it be beneficial to permit a fraud scheme to continue without any immediate
intervention to stop it?
16. Why might recovering loss through insurance be preferable to conducting an investigation?
17. List the possible objectives of a fraud investigation.
18. Describe the typical headings that should be included in a fraud investigation engagement
letter.
19. Why should a fraud investigation engagement letter describe services not to be performed as
part of the fraud investigation? Give some examples of such services.
20. Assume that the fraud investigator has absolute documentary proof that an employee
committed a fraud. Why should the investigator refrain from indicating the employees guilt
in the investigation report?
21. List the various responsibilities of the fraud investigator and the client company that should be
clearly stated in the fraud investigation engagement letter.
22. What kinds of risks are investigators and their clients exposed to when conducting a fraud
investigation.
23. Describe some examples of the mistakes made by inexperienced investigators that could
increase their exposure to legal liability?