Investigation Procedures
When conducting fraud examinations, fraud examiners should adhere to the fraud theory approach.
The fraud theory approach is an investigative tool designed to help fraud examiners organize and direct examinations, based on the information available at the time.
According to the fraud theory approach, when conducting investigations into allegations or signs of fraud, the fraud examiner should:
- Analyze the available data.
- Create a hypothesis.
- Test the hypothesis.
- Refine and amend the hypothesis.
Act on Predication
Fraud examinations must adhere to the law; therefore, fraud examiners should not conduct or continue fraud examinations without proper predication. Predication is the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, or will occur. In other words, predication is the basis upon which a fraud examination, and each step taken during the examination, is commenced.
Fraud examinations must adhere to the law; therefore, fraud examiners should not conduct or continue fraud examinations without proper predication. Predication is the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, or will occur. In other words, predication is the basis upon which a fraud examination, and each step taken during the examination, is commenced.
A fraud examiner acts on predication when he has a sufficient basis and legitimate reason to take each step in an examination. Accordingly, Fraud examiners should begin fraud examination only when there are circumstances that suggest fraud has occurred, is occurring, or will occur, and they should not investigate beyond the available predication. If a fraud examiner cannot articulate a factual basis or good reason for an investigative step, he should not do it.
Therefore, a fraud examiner should reevaluate the predication as the fraud examination proceeds. That is, as a fraud examination progresses and new information emerges, the fraud examiner should continually reevaluate whether there is adequate predication to take each additional step in the examination. If a fraud examiner acts without predication, he might expose himself, and his client or employer, to liability.
Move from the General to the Specific
Fraud examinations should begin with general information that is known, starting at the periphery, and then move to the more specific. In most examinations, fraud examiners should start interviewing at the periphery of all possible interview candidates and move towards the witnesses appearing more involved in the matters that are the subject of the examination. Thus, neutral third-party witnesses should generally be interviewed first, followed by corroborative witnesses, and then co-conspirators. The subject should be interviewed last.
Therefore, a fraud examiner should reevaluate the predication as the fraud examination proceeds. That is, as a fraud examination progresses and new information emerges, the fraud examiner should continually reevaluate whether there is adequate predication to take each additional step in the examination. If a fraud examiner acts without predication, he might expose himself, and his client or employer, to liability.
Move from the General to the Specific
Fraud examinations should begin with general information that is known, starting at the periphery, and then move to the more specific. In most examinations, fraud examiners should start interviewing at the periphery of all possible interview candidates and move towards the witnesses appearing more involved in the matters that are the subject of the examination. Thus, neutral third-party witnesses should generally be interviewed first, followed by corroborative witnesses, and then co-conspirators. The subject should be interviewed last.
Source: CFE Modules: Investigation
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