To Catch a Thief

Ask the right questions to uncover fraud. Each incident of employee fraud results in a median loss of $116,000. --A 1998 KPMG survey. Employee fraud is big business--and getting bigger. As corporate automation grows, fraud opportunities rise apace while the detection and prevention of fraud become more problematic. As a result, businesses must pay more attention to white-collar crime, and many are tapping the unique financial skills of the accounting profession to battle it. But CPAs are discovering that their facility with finances is not enough. They also need to sharpen their sleuthing skills--namely, interrogation-to get beyond the numbers. Because it's not a subject typically taught in either Accounting 101 or graduate school, CPAs need to know the interrogation basics for an engagement designed to uncover fraud. Understanding the psychology of the thief is the key to effective interrogation. Except for the handful that get caught in a web of greed and clearly are nervous about being exposed, most thieves actually seem to believe they won't get caught. As a result, as long as an interrogator exhibits a reasonably friendly front, suspects tend to cooperate. It is through that initial cooperation that a good interrogator can slowly peel back a suspect's layers of lies and obfuscation or make a reluctant tipster comfortable with revealing information. Equally critical are the interrogator's listening skills. Good interrogators take notice of more than the interviewees' verbal responses: They track body language, noting such clues as eye contact, posture and movement of the head, hands and feet. Those clues often reveal more than the words themselves--especially when there are discrepancies between verbal and nonverbal messages. Fine, you may be thinking: How does an accountant develop the skills of the successful interrogator? FERRETING OUT FRAUD Clearly, interrogation skills are not acquired quickly or easily. A good way to start, though, is to learn a technique called fraud assessment questioning (FAQ) --an interview method designed to elicit information about potential fraud. It's based on the notion that telling lies is unnatural to most people. As a result, a good interviewer can structure questions so the suspect isn't fully aware of the potentially incriminating information being volunteered. To be sure, some people are such practiced liars that even a skillful interrogator will not unsettle them and blow their cover, but they're clearly in the minority. Hard as it is to believe, one of the best ways to detect fraud and to identify internal control problems is simply to ask about it. Fraud surveys have shown that the most common way frauds are discovered is through tips or complaints received from those either inside or outside a company. FAQ will solicit responses from interviewees about how someone can steal from the organization and not get caught; those responses can be used to identify internal control deficiencies, which then should be investigated to determine whether someone has already exploited them. Also, responses to FAQ can help identity high-fraud-risk employees; investigators can review the areas over which such employees have significant responsibility and opportunity to commit fraud. Fraud experts believe that one of the strongest deterrents to fraud is the perception that effective detection controls are in place. Obviously, people who think they'll get caught rarely commit fraud. Accordingly, organizations serious about fraud prevention need to convince employees that those committing fraud not only will get caught but also will be prosecuted. Asking all employees about fraud increases the perception of detection and thus is an effective fraud prevention device. In conducting a fraud assessment interview, the accountant should try to meet with each staff person individually. The interviewer should begin by establishing a rapport with the employee--for example, asking about job titles, areas of responsibility, specific duties and length of employment. …

Field of study: Business