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Essential Techniques for Interviewing in Forensic Accounting

This guide covers critical interviewing techniques in forensic accounting, focusing on the various types of questions, transparency barriers, and the nature of financial fraud. It highlights general guidelines for effective interviews, including understanding the crisis cycle and engaging interviewees. Additionally, it discusses common facilitators and inhibitors of interviews, fraud reporting strategies, and the drivers behind financial fraud. This resource is vital for professionals looking to improve their interviewing skills and enhance fraud detection capabilities in their practice.

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Essential Techniques for Interviewing in Forensic Accounting

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  1. Today’s Topics • Interviewing Techniques • Types of Questions • Transparency Barriers • Nature of Financial Fraud • Detection of Financial Fraud FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-1

  2. General Interview Guidelines • Be aware of the “crisis cycle” • Remain a people person • Engage rather than challenge • Conduct the interview as close to the event as possible • Plan for the interview • See text for demeanor (p.281) & language (p.281) FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-2

  3. Types of Questions • Introductory • Informational • Assessment • Closing • Self Admission-use carefully FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-3

  4. Interview Facilitators • Expectation fulfillment • Recognition • Altruism • Sympathy • Newness • Catharsis • Sense of meaning • Availability of rewards Don’t try to memorize the details of this list. Know how to use some of them. FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-4

  5. Interview Inhibitors • Time demands • Ego threats • Etiquette • Trauma • Forgetfulness • Time-line confusion • Logic confusion • Unconscious behaviors Unwilling Don’t try to memorize the details of this list. Know how to use some of them. Unable FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-5

  6. Fraud Reporting • WFO Suggestion: • Summary • Chronology • Interview & Procedural Summaries • Admission information • Loss Assessment FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-6

  7. Barriers to Transparency • Transparency defined • WYSIWYG • Management bias • Measurement bias FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-7

  8. Financial Fraud Statistics • Key players • COSO • The Treadway Comm.-NCFFR • SEC’s AAERs • Accounting & Auditing Enforcement Releases • Treadway Commission: 1987 • Infrequent but costly • COSO Update: 1999 • 300 AAERs 1987-1997 FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-8

  9. Drivers of 2000’s Meltdown • Booming economy • Moral decay • Incentives • Analysts’ expectations • Debt • Rules versus principles • Auditor independence issues • Greed • Educator failure • Failure to forecast FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-9

  10. Financial Fraud Motivation • Greed • Fear of failure • Lack of accounting expertise • Scope of operations—too broad FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-10

  11. 18 Key Tidbits • Average period: 23.7 months • Revenue frauds were #1 • Asset misstatement-spread around • Mean misstatement = $25 M • CEO involved in 72% of the cases • Last audit was unqualified in 55% of the cases • Mean assets = $532 M; revenues = $232 M • S/W and manufacturing involved in 12% of the cases • NASDAQ had 78% • 36% filed for bankruptcy • Non-existent or uninvolved audit committees • Insiders on Boards of Directors • Family relationships were common • Financial pressures were high • 56% of auditors were Big 6 • Auditors named in 30% of cases • 25% changed auditors after the fraud • Relatively few executives went to prison FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-11

  12. Financial Fraud Detection • KTT is the key • Use the Fraud Exposure Rectangle • Management & Directors • Background, motivation & influence • Company relationships • Obligations, related party transactions & compliance • Nature of organization & industry • Financial results & operations • GAAP, attitude FORENSIC ACCOUNTING - BA124 – Spring 2013 Slide 15-12

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