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Creating a climate of trust

Effective interviewing during audits can lead to tips



In 2014, the Geneva, Switzerland, court of auditors (an independent, autonomous entity with three elected officials called magistrates that form the court and employ a staff of auditors) conducted 45 interviews during a complex audit of a large, autonomous, publicly owned company. The board of directors, top and middle management, and employees were among those interviewed. The court also reviewed more than 1,000 documents. The court discovered that in 2010, a former high level executive of the company — who had participated actively in various contract negotiations — had, according to several witnesses, asked for a "commission" during the negotiations of a particular business project. At the end of that year, at least two high-level executives of the company were informed by a whistleblower of this potential request. Although a written legal opinion by an external expert recommended they press criminal charges, these executives didn't take any action against the employee who continued to actively participate in other business negotiations for the organization. (See Rapport d'audit relatif à la gouvernance du processus d'investissement des SIG, by the Geneva Court of Accounts, June 19, 2014.)

According to the ACFE's 2014 Report to the Nations on Occupational Fraud and Abuse, organizations detected more than 40 percent of all fraud cases via tips, which is more than twice the rate of any other detection method. Furthermore, employees accounted for nearly half of all tips that led to the discovery of fraud. (See ACFE.com/RTTN.) The report stresses that organizations with hotlines are much more likely to catch fraud by a tip, which is the most effective way to detect fraud. The ACFE's statistics show that organizations using a hotline also suffered frauds that were 41 percent less costly and detected frauds 50 percent faster.

However, all organizations aren't able to install adequate hotlines; often, for example, because they can't afford them (especially if they're nonprofits) or their country's legislation might not adequately protect whistleblowers. But organizations won't properly detect and deter fraud without hotlines.

Plan an adequate interviewing strategy

Integrating the ACFE's statistical findings into an auditing strategy can help auditors better detect fraud. The objective is to try to actively create a climate that encourages individuals to give tips during an ongoing audit.

However, employees could be concerned that management might launch an internal witch hunt to try to identify the tip-giver and take coercive action. Therefore, when you're following up on a tip it's important to interview a sufficiently large panel of individuals within the organization. Ideally, this panel should include employees at different levels of the hierarchy (top management to lower-level employees). This helps increase the chance that the auditor will receive meaningful information because employees might feel that interviewing such a vast array of individuals makes it difficult to directly identify the tip-giver.

Also, in my experience, it's easier for the auditor to conduct the interview if a second person can take the minutes. The interview will flow more easily and the auditors will more thoroughly comprehend the topics. It's preferable that one of the interviewers is a senior auditor with good people skills because he or she is more likely to use a proper approach. Create a climate of trust so the interviewee feels more comfortable sharing sensitive information. The content, form and timing of the questions also are essential in ensuring the success of the interviews. I find that the best way to do this is to start with broader questions about the employee's professional path and his opinion on the strength and weaknesses of the company before going into more specific audit questions.

It's also sometimes necessary to modify the initial outline during the interview itself. The interviewee's frame of mind might be different to what was initially expected. This could be due to discussions with fellow colleagues about the audit prior to the interview, for example.

Make sure the time between scheduling the interview and the actual interview is short so that you'll minimize the risk that the interviewees will have arranged the facts or their stories.

Don't underestimate the importance of the interviewing process within regular audits because it can be a strategic element in the fight against fraud.

The Geneva court has used planned interview strategies to successfully identify improper conduct and several alleged fraudulent activities in different types of government organizations.

Creating a climate of trust

The purpose of the interview isn't to ask endless questions — avoid using a "checklist approach." The idea is to guide the interviewee in a more open-ended interview, which will create opportunities for tips to emerge more organically. In my experience, it's useful to show the interviewee that the interview will remain confidential and that there's no need to fear retaliation. You can do this by being transparent about the nature of the audit.

In several regular audits in which I've participated, combining an adequate interviewing strategy with a climate of trust has led to useful tips. In a recent example, the Geneva court audited the human resources management of a large city of the State of Geneva that employs approximately 274 employees. The court reviewed internal documentation, performed detailed tests conducted a satisfaction survey of the employees and interviewed more than 25 of them. The court received useful information about potential wrongdoings not directly linked to the scope of the audit. The court also learned that several managers in one of the city's (smallest government divisions in Switzerland) departments allegedly were using the city's resources for private purposes. This alleged unethical work culture included employees performing work under managers' direct instructions for private purposes during work hours. (See Ville de Carouge, rapport d'audit relatif à légalité et de gestion relatif à la gestion des ressources humaines, by the Geneva Court of Accounts, Aug. 27, 2013. This case is still under prosecution.)

In two other examples, the Geneva court audited the information systems department of the State of Geneva. For each audit, the court reviewed internal documentation, performed detailed tests and conducted detailed interviews that lead to two confidential internal disciplinary investigations by the state authorities regarding several contracts with external service providers. (See "Audit de gestion, relatif à la gestion du Centre des technologies de l'information," June 30, 2009, and "Audit de légalité et de gestion relatif au programme d'administration en ligne," May 3, 2011, by the Geneva Court of Accounts.)

You heard it through the grapevine...

Planning well and creating a comfortable climate for the interviewees could be the key to receiving a tip and successfully finding the perpetrator of fraud during an audit.

Nikola Blagojevic, Msc, CFE, CISA, is an audit director at the Cour des Comptes in Geneva, Switzerland. His email address is: nikola.blagojevic@cdc.ge.ch.





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