Learning the art of fraud examination

CFEs love fraud examinations that move in a linear fashion — from the general to the specific, gradually focusing on the perpetrator through evidence analysis. But life, of course, seldom moves in a straight line.

Consider a case worked by Robert Hogan, CFE, who owns a fraud examination and forensic accounting practice, Hogan Consulting Group.

“Because my clients typically do not have formal fraud response policies and procedures in place, I often run into situations where the initial response to suspicions or allegations of fraud may be mishandled,” Hogan says.

“For instance, a branch of a large company received an anonymous report that an accountant in the branch was overcharging clients and then diverting those overages to a personal account when clients made their payments,” he says. “Upon receiving the tip, the branch manager confronted the accountant, which lead to an argument in front of staff. The branch manager disengaged and contacted corporate HR, which gave the accountant time to return to his office and destroy accounting records that included evidence of the fraudulent activity.

“The accountant then quit before HR and legal were able to intervene, and in doing so removed a company-issued laptop and other records,” Hogan says. “My immediate task when retained by the company was to attempt to recreate the missing and destroyed records to preserve what evidence may have been included within.”

Flexibility and adaptation

Few fraud examinations follow desired patterns. But that’s okay. Trained fraud examiners can deftly adapt principles around messy situations to develop investigations that can lead to satisfactory conclusions.

Fraud Magazine recently interviewed some experienced CFEs to get their thoughts on fraud-theory approaches, their anti-fraud radar, evidence gathering, learning from mistakes and lessons they can give to the rest of us.