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Forensic Accounting and Fraud Examination
I. Zubairu (PhD)
(BAT 303)
Lecture 8
The Evidence Collection Process in Forensic Accounting
IBRAHIM ZUBAIRU
(PhD, MBA, FAIA, CA-GH, FFA)
DEPARTMENT OF ACCOUNTING & FINANCE
ACCRA TECHNICAL UNIVERSITY
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Introduction
The fraud investigation process typically involves
several key components, such as:
1) Engaging both internal and external parties with
appropriate expertise.
2) Gathering intelligence. Conducting transaction
analysis
I. Zubairu (PhD)
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Introduction (Cont.)
Now, we delve deeper into the heart of forensic accounting,
where the skilful art of evidence collection takes centre stage.
By the end of this lecture, we should be able to unveil the secrets
behind piecing together the puzzle, exploring the techniques,
strategies, and challenges faced by forensic accountants in their
quest for compelling evidence.
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The Power of Evidence
In cases involving financial fraud or irregularities, evidence plays an inevitable role
in proving the occurrence of the fraud, identifying the individuals involved, and
establishing the motive and intent behind the fraudulent activities.
Forensic accountants and Fraud Examiners rely heavily on evidence to analyse
financial transactions, trace illicit funds, and present a strong case in court. It
serves as proof or substantiation of the facts and is crucial in establishing the truth
behind financial deception.
A robust and well-presented evidence trail not only strengthens the case but also
increases the chances of successful outcomes in legal proceedings.
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The Power of Evidence (Cont.)
Consequently, the admissibility of evidence in legal proceedings is governed by the law of
evidence, which varies across jurisdictions and legal systems. Indian law recognises the
importance of evidence in establishing guilt or innocence and ensuring fair and just legal
proceedings through the Indian Evidence Act 1872, which lays down the rules regarding the
admissibility, relevancy, and weight of evidence in court.
According to the Association of Certified Fraud Examiners (ACFE), evidence encompasses
tangible elements that can be perceived by the five senses and are utilised in the process of
presenting arguments in a case. It includes a wide range of items such as:
documents,
oral testimonies,
different types of data, and
I. Zubairu
physical
(PhD) objects.
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The Power of Evidence (Cont.)
As a forensic accountant or Fraud Examiner, one must undergo training
to effectively collect, analyse, and interpret financial evidence in
accordance with legal standards and procedures.
The slides that follows explore the basics of evidence collection in this
lecture.
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Piecing Together the Puzzle
Ever wondered, what kind of evidence is gathered in forensic accounting or financial fraud
investigations to uncover financial deception?
Let's take a moment to test our knowledge and see if we can guess the different types of
evidence commonly collected in a simple case below.
Company X, a prominent manufacturing firm, experienced a sudden decline in profits
despite a growing market. Suspicion arose among the company's stakeholders, leading
to an investigation. As a forensic accountant/fraud examiner assigned to this case, what
types of evidence would you anticipate collecting to uncover any financial deception at
Company X?
I. Zubairu (PhD)
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Piecing Together the Puzzle (Cont.)
The goal is to gather evidence that will help discover the underlying causes of the
declining profits and any potential financial fraud that may be occurring.
To gather information about the Company X, a forensic accountant/fraud examiner would
want to get the following:
1. Insights into the company's financial performance and identify any irregularities or
inconsistencies.
2. Information about any unusual or suspicious authorisations.
3. Knowledge about any fictitious entities involved.
4. Information about any insider knowledge of fraudulent activities, etc.
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Piecing Together the Puzzle (Cont.)
In order to review the above-mentioned points in slide 8, the forensic accountant may collect the following
evidence, such as:
Financial statements
Bank records and financial transaction reports
Employee testimonies
Electronic communications (emails, chat logs, etc.)
Surveillance footage
Internal control documentation
Auditing findings and reports
Authorisations
System logs
Vendor and customer contracts
Categorising the above, let us explore the five fundamental types of evidence commonly encountered in forensic
accounting investigations and financial fraud cases in slide 10.
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The 5 Fundamental Types of Evidence
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Financial Records and Documents
Financial records and documents forms the foundation of investigations. These include:
1) bank statements,
2) invoices,
3) receipts,
4) ledgers,
5) tax returns,
6) financial statements, and
7) contracts.
These records provide a detailed trail of financial transactions, allowing professionals to analyse
the flow of funds, identify discrepancies, and uncover potential fraud indicators.
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Electronic Data and Digital Evidence
Electronic data plays a crucial role in forensic accounting/ Fraud investigations. With
more and more activities getting digitised, digital evidence has a separate domain
called digital forensics, which few forensic professionals specialise in.
This form of evidence typically includes emails, chat logs, electronic documents,
spreadsheets, and databases.
Digital forensic techniques are employed to recover deleted or hidden data, trace
communication patterns, and identify any digital footprints left behind by fraudsters.
Analysing electronic data can reveal critical insights into the intent, coordination, and
execution of financial fraud.
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Witness Statements and Testimonies
Witness statements and testimonies provide valuable first-hand accounts of
individuals involved in or knowledgeable about fraudulent activities.
This includes employees, clients, whistle-blowers, and experts.
Witness statements can corroborate or challenge other evidence, shed light
on the motives and intentions of the individuals involved, and provide
additional context to the financial transactions under investigation.
This evidence is collected through the process of interviewing, which we will
cover in the upcoming lectures.
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Expert Analysis and Opinions
In complex fraud cases, expert analysis and opinions are often sought to provide
specialised insights.
These experts may include:
1) valuation specialists,
2) legal professionals,
3) computer forensic analysts, or even
4) medical professionals for certain cases.
Their expertise helps interpret financial data, identify irregularities or red flags, analyse
complex transactions, and provide professional opinions regarding the nature and impact of
fraudulent activities.
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Physical and Tangible Evidence
While digital data and financial records dominate fraud investigations, physical and tangible
evidence always plays a important role.
This includes:
1) physical documents,
2) counterfeit currency,
3) forged signatures,
4) altered checks, or
5) any other physical evidence that directly relates to the financial fraud under
investigation.
Physical evidence, when properly preserved and analysed, can provide compelling proof of
fraudulent activities.
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Forensic Evidence and Fraud Schemes
Forensic accounting assignments are unique, demanding a tailored approach to evidence collection.
The types of evidence required can vary significantly depending on the specific fraud scheme and
circumstances at hand
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Outsmarting the Obstacles
Picture a scenario where evidence doesn't come easily or is deliberately
concealed.
Some investigations may encounter non-cooperation from the alleged
company or fraudster, making the task of gathering evidence even more
complex.
In such instances, forensic professionals or fraud examiners must summon
their expertise, resourcefulness, and alternative strategies to overcome
these hurdles.
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Strategies to get evidence in challenging cases
1. Forensic Data Recovery: Forensic accountants/ fraud examiners may utilise advanced data
recovery techniques to extract hidden or deleted data from digital devices. This can provide
valuable insights and potentially uncover critical evidence that was previously concealed.
2. External Data Sources: When direct access to the company's internal records is limited, forensic
accountants/ fraud examiners can explore external data sources. This may involve obtaining data
from third parties, such as banks, financial institutions, or regulatory bodies. These external
sources can provide supplementary information and corroborate findings. Forensic accountants/
fraud examiners may collaborate with other experts, such as digital forensics specialists, industry
professionals, or legal experts, to gain additional insights and expert opinions. These
collaborations can help bridge gaps in evidence and provide a comprehensive understanding of the
case.
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Strategies to get evidence in challenging cases (Cont.)
1) 3. Financial Modelling and Reconstruction: In situations where complete financial
records are unavailable, forensic accountants/ fraud examiners can employ financial
modelling techniques to reconstruct transactions and financial statements. By analysing
available data and applying financial expertise, they can estimate missing information
and identify inconsistencies or patterns that may indicate fraudulent activities.
2) 4.Whistle-blower and Informant Support: In cases of non-cooperation, forensic
accountants/ fraud examiners may encourage and protect whistle-blowers or informants
who have inside knowledge of the fraudulent activities. Whistle-blowers can provide
valuable information and help fill gaps in evidence by offering insider perspectives and
corroborating existing findings.
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From Collection to the Courtroom
In addition to the strategies mentioned above, in slides 18 & 19, it is crucial for forensic
accountants/ fraud examiners to consider the admissibility of evidence in legal proceedings.
While gathering additional evidence and exploring alternative methods, forensic accountants
must ensure that the evidence collected meets the legal standards of admissibility.
This involves:
adhering to proper documentation,
maintaining a clear chain of custody, and
following established protocols.
The aspect of documentation and adherence to legal standards are essential for the evidentiary
value of their findings during trials or other legal proceedings.
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Conclusion
As we conclude our exploration of evidence collection in forensic
accounting, it becomes clear that this field requires a unique blend of
financial expertise, investigative skills, and legal knowledge.
The power of evidence cannot be understated, as it serves as the backbone
of fraud detection and prosecution.
In the next lecture, we shall continue to dive into the intriguing world of
forensic accounting, exploring various aspects of financial fraud
investigations and further unravelling the complexities of this fascinating
discipline.
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THE END
THANK YOU
I. Zubairu (PhD)
