ACC425_Project Two_Parnham

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Apr 3, 2024

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ACC 425 Project Two Template Phases 1. Apply each of the phases of interview planning to a fraud case. A. Phase One: 50 The information about the alleged fraud offers a primary overview but lacks specific details and concrete evidence of fraud. The lack of specifics, such as dates, amounts, or instances, makes assessing the claim's validity challenging. The absence of documentation for donations, merchandise on the store floor, sales, and a notable decrease in bank deposits raises suspicion but requires further investigation. The involvement of the four-floor employees and three sorting room employees suggests multiple perspectives on the organization's operations. B. Phase Two: 1. The actionable information in this fraud case includes the allegation that the director purchases items from the organization’s store at a significantly reduced rate and then resells them privately. We know there is a lack of documentation of merchandise movements, donations, and employee procedures. We know multiple employees are on the floor and in the sorting room. 2. Several gaps and uncertainties surround the alleged fraud. We do not know the nature and extent of the director's involvement in purchasing items at a discounted rate and reselling them. We do not know the frequency of transactions, the monetary value of the sales, or the identities of the purchases, either for fraud or legitimate business. We do not know the specific reason for the $100,000 decrease in bank deposits. A primary factor is that we do not know if donations have even been stolen from the organization.

3. We do not know that we do not any potential motivations behind the alleged fraud, if there are co-conspirators, or whether there is a history of fraud at the organization. We do not know that we do not know if there is a more significant issue, another type of fraud causing the bank deposits to fall short. We do not know that we do not know if there are any internal controls or organization structures outside of employee designation. 4. If the director purchases items from the organization at a significantly reduced rate and then resells them privately, then the store items would be decreasing faster than previously. Therefore, have you noticed that the rate of items leaving the store is faster than the number of customers shopping? If the director purchases items from the organization at a significantly reduced rate and resells them privately, then the director would have shown signs of a lifestyle change. Therefore, have you been aware of any significant changes in the director's life recently? If the director purchases items from the organization at a significantly reduced rate and resells them privately, then there has to be an individual to sell to. Therefore , have any individuals been coming by after hours to see the director? If the director purchases items from the organization at a significantly reduced rate and then resells them privately, then there would be missing inventory from the stocking room. Therefore, were you aware of any inventory that has gone missing or been put to the side by the director? If there is a lack of documentation of merchandise movements, donations, and employee procedures, then there would be no price or amount sold restrictions. Therefore, are you aware of instances where an employee did not charge for items or did not charge the total ticket amount?

If there is a lack of documentation of merchandise movements, donations, and employee procedures, then there would be no records of the types of merchandise or the value of the merchandise on the store floor. Therefore, how do you keep records of what was sold? Furthermore, how is the price of merchandise determined? If there is a lack of documentation of merchandise movements, donations, and employee procedures, then there would be no knowledge of consumer theft or false donations. Therefore, how does the company account for inventory in its financial documents? How does the organization confirm donations? C. Phase Three: If the director purchases items from the organization at a significantly reduced rate and then resells them privately. Then , the director had to take the items from the organization. Therefore, who saw the direct take items from the organization? To whom did the director sell the items? Who transported the items from the organization to the buyers? Where did the director take the items after removing them from the organization? Where did the sales happen? Where did the director put items in the store to be taken out of the store later? What made it easy for the director to take items from the organization? What was stopping the director from taking the items from the organization? When did the director take the items from the organization? When did the director buy the items initially? When did the director sell those items at a higher price? If there is a lack of documentation of merchandise movements, donations, and employee procedures.

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Then, the director would have open access to take items from the organization. Therefore, who controlled the inventory from the storage room to the store floor? Who had access to the items while in the store? Who stopped customers from stealing while in the store? Who watched the employees as they sorted or worked on the floor? Where did the daily sales reports go at the end of the day? Where were the employees allowed access to the items? Where did deliveries or purchases come into the store? What stopped the employees from taking items from the organization? What processes did the employees follow when starting and ending their shifts? What kept the merchandise inside the store and not outside the store? What was the difference between sorting room merchandise and store floor merchandise? When did the employees have time to move merchandise around the store? When were there reasons for merchandise to be held in the sorting room? When did the employees have to stock the store floor? D. Phase Four: Start by interviewing the most peripheral members, moving into the most possible candidates for fraud. Third-party witnesses should be interviewed first, moving to the more knowledgeable members. It would be wise to begin with the customers and donors of the store, move to the higher management of the organization and the board members. The store employees on both the floor and sorting room, and finally interview the director. To initiate the interview, it is prudent to begin with an introductory question that sets a positive tone and facilitates the establishment of rapport. It would be essential to ask about the interviewee’s role within the organization and their key responsibilities (Wells, 2003). This allows the interviewee to provide a comfortable and familiar introduction but also provides

valuable insights into their perception of their role and responsibilities. It serves as an opportunity to observe non-verbal cues, such as body language and tone, which can provide early indicators of the interviewee’s comfort level and potential emotional state (Wells, 2003). This initial rapport-building question helps create a collaborative atmosphere, laying the foundation for a more open and productive discussion as the interview progresses (Wells, 2003). As the interview progresses, transitioning into informal questions is a strategic approach to encourage the interviewee to share relevant facts and information more freely (Well, 2003). Utilizing a mix of open, closed, and leading questions can yield a comprehensive understanding of the situation. Open questions, like “Can you describe the typical process for handling donations within the organization?’ invite the interviewee to provide detailed and unprompted information (Well, 2003). Closed questions, like “Did you personally handle any of the transactions in question?” can elicit specific, focused responses (Wells, 2003). Introducing carefully framed leading questions, such as “Were there any instances where you felt pressure to engage in these activities?” can gently guide the interviewee toward disclosing motivations or external influences (Well, 2003). The blend of questioning allows for more conversational and informative exchange and provides opportunities to validate information through different responses, contributing to a thorough exploration of the alleged fraud. This also allows you to decide if the interviewee is a suspect in the fraud (Wells, 2003). When the interviewee is considered a suspect in a fraud case, it becomes essential to transition the interview into assessment questions designed to gauge their attitude towards honesty and truthfulness (Wells, 2003). Employing a subtle approach, pose innocuous-sounding questions that indirectly assess the interviewee’s credibility. For instance, questions like “Can you share an instance where honestly played on maintaining a positive work environment?” or “How do you

perceive the impact of integrity on maintaining a positive work environment?” serve as a means to evaluate the interviewee’s stance on ethical behavior without directly accusing them (Wells, 2003). This approach allows an initial assessment of the interviewee’s honesty and reliability in the context of the alleged fraud (Well, 2003). If, during the interview, the interviewee does not appear to be a suspect or does not exhibit signs of deception, the interview can smoothly transition to concluding questions (Wells, 2003). These questions focus on summarizing the key points discussed, expressing gratitude for the interviewee’s cooperation, and providing an opportunity for additional comments or clarification (Wells, 2003). Concluding on a positive note reinforces the collaborative nature of the conversation. On the contrary, if the interview exhibits signs of deception or raises suspicions, the interview takes a different trajectory toward admission-seeking questions (Wells, 2003). These questions are carefully crafted to encourage the interviewee to admit involvement or provide additional details about the alleged fraud (Wells, 2003). This gradual shift necessitates a nuanced approach to maintain the interview's integrity and obtain accurate information (Wells, 2003). The decision to move from concluding to admission-seeking questions is contingent upon observing potential deception cues during the interview. E. Phase Five: Provide at least one possible remediation during each of the five stages for possible unexpected circumstances. i. Stage One: While the provided information outlines the basics of the fraud cause, the lack of specific details and concrete evidence could pose a significant hurdle during the interview. To mitigate this, additional research and preliminary fact-checking could have been conducted to ensure a more comprehensive understanding of the allegations (ACFE, 2022). A thorough review of

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organizational documents, such as financial records and internal communications, may be beneficial in identifying any patterns or anomalies (ACFE, 2022). ii. Stage Two: When processing actionable information, a potential challenge lies in the known information gaps and the ambiguity surrounding the alleged fraud case. The absence of specific details, such as dates, amounts, and instances, could hinder the formulation of precise and targeted interview questions (King, 2021). To address this, conducting preliminary data analysis and seeking additional information from diverse sources may have been beneficial (Wells, 2003). Collaborating with forensic accountants and financial experts could help fill the void regarding financial irregularities and discrepancies in bank deposits (King, 2021). Moreover, leveraging advanced data analytics tools could enhance identifying patterns or trends that may remain obscured (Wells, 2003). iii. Stage Three: Magnifying “if-then-therefore” conditional statements within the interview planning, potential pitfalls and assumptions become evident. If the conditional statements guiding the interview are too rigid or based on incomplete information, the effectiveness of the question strategy may be compromised (Wells, 2003). To mitigate this, carefully examining the validity and reliability of each “if-then-therefore” statement is crucial (King, 2021). There is an essential need for flexibility in investigative thinking and adapting the approach based on emerging information (King, 2021). Scrutinizing the assumptions underlying each conditional state and considering alternative scenarios is crucial to the interview process (Wells, 2003). iv. Stage Four:

Evaluation of structuring the conduct of the interview brings to light the potential challenges and areas for improvement (King, 2021). If the structure lacks clarity or the sequence of questions is not thoughtfully organized, the interview may fail to extract relevant information effectively (King, 2021). To address this, employing established interview models, such as the PEACE model, could enhance the structure, ensuring a comprehensive and systematic approach (King, 2021). A potential risk lies in the failure to adapt the interview structure dynamically based on the interviewee’s responses (Wells, 2003). Being prepared with a better questioning sequence is vital, either employing cone or inverted-cone sequencing in the question (ACFE, 2012). v. Stage Five: It is crucial to anticipate potential challenges overall (King, 2021). If there is insufficient preparation, including a lack of background research on the case, understanding of the organization's dynamics, and familiarity with relevant laws and regulations, the effectiveness of the interview plan may be compromised (King, 2021). Fraud Triangle 1. Explain how to involve the role of pressure/motive in the conduct of the interview for a fraud case. Understanding the potential pressures or motivations behind the alleged activities is crucial for comprehensively understanding the situation (Wells, 2004). Employing techniques that explore the individual’s motivations can reveal underlying factors contributing to fraudulent behavior. Questions should be designed to uncover financial pressures, personal incentives, or external influences that may have led to questionable activities (Wells, 2004). A cognitive approach was used to interview the alleged fraudster to uncover any pressures from learning about the director and their personal life as much as possible (Dellaportas, 2013). In the interview, my moral

compass needs to be suspended, allowing the fraudster to provide insight into their thought process (Dellaportas, 2013). Allowing the director or other possible fraudsters to feel heard and understood should prompt them to fill in more gaps, completing more of the picture of the fraud. 2. Explain how to involve the role of opportunity in the conduct of the interview for a fraud case. It is essential to explore the role of opportunity in the alleged fraud. Opportunity, as a component of the fraud triangle, refers to the conditions or situations that enable individuals to commit fraud (Wells, 2004). Questions during the interview should focus on identifying vulnerabilities in the organization’s internal controls, monitoring systems, and overall operational structure that may have provided opportunities for the alleged fraud to occur (Dellaportas, 2013). During the interview, stopping to allow the suspect to recount what they have shared and asking questions on details provides a more vital idea of the opportunities for fraud within the organization (Dellaportas, 2013). 3. Explain how to involve the role of rationalization in the conduct of the interview for a fraud case. Rationalization is a critical component of the fraud triangle and involves individuals justifying their misconduct to themselves (Wells, 2004). It is vital to craft questions that delve into the individual's perceptions and justifications for their actions to uncover any ethical or cognitive distortion that contributed to the fraud. Building rapport with the director or potential fraudster by emotional interviewing and questioning the “why” of a fraud is essential to understanding the full scope of the fraud (Collins & Carthy, 2019). Showing empathy and understanding towards the director may help uncover areas where they felt justified in their fraud (Collins & Carthy, 2019). In emotional interviewing, we stop questioning and start talking, only allowing the

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director to confess (Yeschke, 2004). Here, the fraudster feels you understand, and you would have done the same, that they were justified in their fraud (Yeschke, 2004). Admission 1. Provide a plan to take necessary steps to gain an admission for a fraud case. Tag questions for admission: If you were in a financial bind, taking items from the store would be beneficial, wouldn’t it? The organization is committed to its employees to ensure they are taken care of, aren’t they? Isn’t it true that the director of this organization would do what is best for the whole? Isn’t it true that if employees knew anything about items missing from the store, they would share that information with management? To gain admission for the case, it is essential to have a rapport with the interviewee with open communication and empathy (Collins & Carthy, 2019). The interview should consist of polite and straightforward questions; when trying to gain admission, the questions should transition to polite and relentless (Wells, 2003). It is vital to confront the alleged fraudster directly, stating that we know their fraud (Wells, 2003). Asking a leading question provides two options for the interviewee, both an admission and one in a bad light (Wells, 2003). For example, ask the alleged fraudster, “Did you do this because you are dishonest, or did you do it because you were in a financial bind?” (Wells, 2003). Reinforcing their responses is essential once the fraudster commits to a choice (Collins & Carthy, 2019). The admission is followed by orally going back through the fraud chronologically, allowing the fraudster to fill in gaps and confirm information found during the investigation (Wells, 2003). During this time, the following questions should be asked to confirm the admission.

1. Can you provide more details about the specific instances or transactions where you were involved in purchasing items from the store at a discounted rate, as well as when you resold them? 2. Were other organization members aware of or participated in these activities with you? If so, could you provide their names and roles? 3. What motivated you to engage in these activities, and how did you rationalize or justify your actions internally? 4. How did your involvement affect the lack of documentation for donations, merchandise, and sales? Were there deliberate efforts to conceal these transactions? 5. Can you explain the correlation between your actions and the observed decrease of $100,000 in bank deposits for this fiscal year compared to the previous year? These questions seek clarification of the evidence and background that should have been learned in previous interviews and investigations (Wells, 2003). The corroborative details the interviewee provided would reinforce the confession's credibility. Phatic communication, which includes social niceties and rapport-building language, can be employed to conclude the interview positively (Collins & Carthy, 2019). Using polite and appreciative language expresses gratitude for the interviewee’s cooperation and willingness to share information (Collins & Carthy, 2019). Acknowledging the interviewee’s role within the organization and respecting their time and contributions is vital for continued positive relationships and potential future interactions. In conclusion, phatic communication demonstrates professionalism and respect, providing a more collaborative atmosphere (Collins & Carthy, 2019).

Resources: ACFE. (2012). Post-Conference Auditing and Investigating Fraud Seminar. https://www.fraudconference.com/uploadedFiles/Fraud_Conference/Content/ Course-Materials/presentations/23rd/ppt/post-Inv03-General-Interview-Techniques.pdf ACFE. (2022). Planning & Conducting a Fraud Examination. Fraud Examiners Manual. https://www.acfe.com/-/media/images/acfe/products/publication/fraud-examiners- manual/2022_fem_sample_chapter.ashx Collins, K., & Carthy, N. (2019). No rapport, no comment: The relationship between rapport and communication during investigative interviews with suspects. Journal of Investigative Psychology & Offender Profiling, 16(1), 18–31. https://doi-org.ezproxy.snhu.edu/10.1002/jip.1517 Dellaportas, S. (2013). Conversations with inmate accountants: Motivation, opportunity and the fraud triangle. Accounting Forum, 37(1), 29–39. https://doi.org/10.1016/j.accfor.2012.09.003 King, M. (2021). Financial fraud investigative interviewing – corporate investigators’ beliefs and practices: a qualitative inquiry. Journal of Financial Crime, 28(2), 345–358. https://doi- org.ezproxy.snhu.edu/10.1108/JFC-08-2020-0158 Rabon, D., & Chapman, T. (2022). Fraud-Related Interviewing (2nd ed.). Carolina Academic Press. https://mbsdirect.vitalsource.com/books/9781531016357 Wells, J. T. (2003). Sherlock Holmes, CPA, Part 2. Journal of Accountancy, 196(3), 70–75. Wells, J. T. (2004). Corporate Fraud Handbook: Prevention and Detection. John Wiley & Sons.

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Wicklander-Zulawski. (2023, November). Interview and interrogation training: Rationalize the motive, not the act. Loss Prevention Media. https://losspreventionmedia.com/interview- and-interrogation-training-rationalize-the-motive-not-the-act/ Yeschke, C. L. (2004). Interrogation: Achieving Confessions Using Permissible Persuasion. Charles C Thomas Publisher, Ltd.