AYB115 Assessment 2

Weekly Blog #1

I agree that Cressey’s fraud triangle is an outdated approach to understanding fraud and does not address cybercrime or how groups are formed to commit fraud. Based on learning experiences in a university unit it is evident that elements beyond the fraud triangle need to be addressed. Bristol Myers Squibb (BMS) is a US company that committed health insurance fraud through inflated earnings management and other schemes which include evidence that sub-groups have been formed, an element not considered in the fraud triangle. General strain and differential association theory are emerging theories that consider why fraud is committed and how groups are formed.

In the BMS case, strain was identified as employees were threatened, creating pressure on senior executives to heighten performance to display favourable results to compete with rivals at all costs. The existence of a deviant sub-culture was evident in BMS as company executives were aware of and perpetuated the fraud knowingly. Fraud has increased as some organisations have eliminated some internal controls to reduce costs as a consequence of the competitive economy.  Consequently, embezzlement is increasing given the increased financial pressure on employees to maintain their position in organisations. In addition to this, the incentive for executives to maximise their compensation has grown as the percentage of pay linked to stock price has increased, presenting a motivation of manipulating financial information (Dorminey, Fleming, Kranacher, & Riley, 2010).

With internal controls such as the following; composition and role of the board of directors, tone from the top, internal control environment, internal and external audit function and strength and composition of audit committees, corporate crime should be greatly reduced (Kaplan, 2010).

http://www.acfe.com/fraud-triangle.aspx

Figure 1: The Fraud Triangle

Weekly Blog #2

I agree that in recent times it is more successful to use a more humanitarian interview approach as opposed to techniques traditionally used. After viewing the interviewing techniques in the Russell Williams case, it is evident that motivational interviewing produced a successful result in regards to obtaining a confession.  

Regardless of the approach used, a confession must be obtained within the parameters of the law in the jurisdictions in which they are operating in, as confessions resulting from “fear of prejudice, oppression or hope of advantage” will be made inadmissible (AICPA, 2017).

REID is non-accusatory interview, followed by a behavioural analysis interview, designed to prompt verbal/ non-verbal cues to identify deception. An interrogation commences if there is sufficient evidence to suggest the suspect is guilty. This technique is criticised as it promotes psychological coercion and in recent times this approach is ineffective. The PEACE model was developed given the issues with the REID technique and is where the interviewer asks the suspect for their account of events, which are challenged by the interviewer. While this is a non-interrogatory approach that results in fewer inadmissible questions, effectiveness remains a contentious issue.

While there are many factors that lead to confessions, it has been shown that strong evidence is the primary reason suspects decide to confess and where contextual and criminological factors have a reduced impact. Despite this, empathy and rapport-building is of critical importance as confessions were associated with a humanitarian approach, where suspects feel respected and acknowledged (Porter & Crumbley, 2012). Therefore I do not believe good cop/bad cop techniques should be used in the current environment and motivational interviewing produces the most successful results. 

https://www.youtube.com/watch?v=s3MCJZ7OGRk  

Figure 2: Interviewing

Weekly Blog #3

I disagree with the statement that Australian Standard 8001-2008 is only relevant to large organisations, not SMEs. A family friend of mine ran a small business and all accounting responsibilities were delegated to their cousin. Three months later, she began to pay herself false overtime and use her business purchases card for personal expenses, due to minimal oversight. The $50,000 fraud was only discovered a year later when the owner accessed the system to check an invoice to a customer whilst the cousin was on vacation.

Australian Standard 3001-2008 is extensive and has four main elements; planning, prevention, detection and response, while the entire standard would not apply to SMEs, it is recommended to implement certain parts in each of the elements. Fraud is a major issue for SMEs as these victims are unable to recover the losses as larger corporations can which compromises revenue, reputation and long-term health of the business (CPA Australia Ltd, 2015). Small businesses are more often victims of risk as they do not have the appropriate measures in place to combat fraud. (Bowman & Gilligan, 2007). Figure 3 is a generic risk management process which establishes the context, identifies, analyses and evaluations risks and then how to treat the risks, which should be implemented by SMEs to reduce the risk of fraud.

Had such a system been in place for my family friend it would have been acknowledged that having one person in charge of all the book-keeping duties is not viable and internal controls such as segregation of duties or an independent person cross-checking records the fraud would not have begun, or progressed to the level that it did.

https://www.saiglobal.com/PDFTemp/Previews/OSH/AS/AS8000/8000/8001-2008.pdf 

Figure 3: Risk Management Process

Weekly Blog #4

The role and reputation of forensic accountants and the level of qualifications, skills and experience that is required has been continually questioned in court. The expert witness has a paramount duty to the court to provide an unbiased opinion on factual information based on the expert’s competence in a subject (APESB, 2013). Preparing and presenting evidence in an unbiased manner requires a significant level of knowledge, training and experience to provide admissible evidence (Stockdale & Jackson, 2016).

Expert witnesses are to follow five rules; expertise, common knowledge, area of expertise, ultimate issue and the basis rule, these will be elaborated on by providing case law examples. In a unit at university I learnt of a number of expert witness cases where claims provided by a forensic accountant expert witness were made inadmissible, two examples are; Asic v Rich and Makita v Sprowles. Following these cases, the court re-enforced the expert’s report must disclose the facts on which an opinion is based and provides the reasoning by which the opinion has been reached, the report must not contain unexplained assumptions and must explain how it reaches the conclusions that it did in each case respectively. In these cases, the expert witnesses failed to provide reasonable explanations as to how their opinion was formed, making the evidence inadmissible.

 As the forensic accounting profession is still relatively new there are substantial limitations in the level of certification that is attainable. Despite this guidance there is not currently a professional program to provide further certification beyond tertiary level, which makes forensic accountant expert witnesses difficult to be relied on in court proceedings given there nature of the industry environment. 

http://www.apesb.org.au/uploads/standards/apesb_standards/13092014103232p1.pdf

Figure 4: Expert Evidence

Weekly Blog #5

After participating in a mock trial I disagree with the statement that an expert witness report is sufficient preparation for a court appearance due to the many problems faced by an expert witness. An expert witness can never be too prepared as an expert witness and the report is not sufficient to rely on during examination in chief and cross examination (Rahman, 2016). An expert witness in preparation for a court appearance would be expected to confer with other people involved, in order to assist the barristers in having an understand of strengths and weaknesses in both arguments (Russell & Reddy, 2004).

The barristers are trained to identify and exploit all weaknesses in your argument, therefore you must be familiar with all the material prepared and will need to explain them without the use of accounting jargon. While two expert reports are prepared for the prosecution and defence it is crucial to remain impartial to either side, as the role of an expert witness is to provide unbiased evidence to the court to assist in reaching a verdict.

During examination in chief, the barrister will ask open-ended questions to allow the expert witness to elaborate on the most important points of testimony. Conversely, the cross examination barrister often phrases the questions to have “Yes” or “No” answers, which often ends with the expert witness being unable to argue against the proposition addressed.

When I was giving expert evidence, I was given insight into the stress and pressure that is felt by being questioned on the stand. The two areas where I could have improved on most that would have benefitted from better preparation was being able to confidently and fluently present my evidence in chief and being able to explain the thought process of the report as trust is gained through development. The class found it difficult to link diagrams to fraud which impacted on the ability of the witness to explain certain parts of the report, some also struggled to remain an unbiased person, showing signs of partiality in their responses. Relationships between suspects and evidence were not linked, an area that was exploited by the barrister in the cross-examination. Paul Vincent, the presiding judge provided us with a range of techniques that would assist us if we were to ever become an expert witness in court. There was emphasis in being consistent in examination in chief and cross-examination, be familiar with both reports (prosecution and defense) to not be blindsided by questions.

When answering a question it is of utmost importance to listen to the question asked carefully and if you still do not fully understand it, ask the barrister to clarify what they are asking you. This prevents an expert witness from anticipating a question and responds prematurely before the question is asked. It is also recommended to not answer more than the question that is asked as this provides too much weight and will often confuse the judge or jury. Another important consideration is that a forensic accountant expert witness must maintain integrity and honesty at all costs. Given the issues above, it is recommended that a forensic accountant expert witness be as prepared as possible through strategies addressed previously and they should not rely solely on the expert report.

https://www.youtube.com/watch?v=iPF8dgB9fGg  

Figure 5: Expert Witness

                            

Reference List

AICPA. (2017). Conducting Effective Interviews. Retrieved May 15, 2017, from QUT Blackboard: https://blackboard.qut.edu.au/bbcswebdav/pid-6608229-dt-content-rid-7738557_1/courses/AYB115_17se1/AYB115_17se1_ImportedContent_20170109101145/AICPA_Conducting%20Effective%20Interviews.pdf

APESB. (2013). APES 215 Forensic Accounting Services. Retrieved May 20, 2017, from APESB: http://www.apesb.org.au/uploads/standards/apesb_standards/13092014103232p1.pdf

Bowman, D., & Gilligan, G. (2007). Public awareness of corruption in Australia. Journal of Financial Crime , 14 (4), 438-452.

CPA Australia Ltd. (2015). Financial investigation and forensic accounting. Retrieved May 14, 2017, from CPA Australia: https://learn.cpaaustralia.com.au/public_content/CPA/PRODUCTION/PD/Extracts/Fin%20investigation%20and%20forensic%20accounting_Extract%20April2015.PDF

Dorminey, J., Fleming, S., Kranacher, M.-J., & Riley, R. (2010). Beyond the Fraud Triangle. The CPA Journal , 80 (7), 17-23.

Kaplan, J. (2010). Why corporate fraud is on the rise. Retrieved May 10, 2017, from Forbes: https://www.forbes.com/2010/06/10/corporate-fraud-executive-compensation-personal-finance-risk-list-2-10-kaplan.html

Porter, S., & Crumbley, L. (2012). Teaching Interviewing Techniques to Forensic Accountants is Critical. Journal of Forensic & Investigative Accounting , 4 (1).

Rahman, M. (2016, September 26). Preparing your expert witness for trial- a checklist. Retrieved May 20, 2017, from The Expert Institute: https://www.theexpertinstitute.com/preparing-expert-witness-trial-testimony/

Russell, C., & Reddy, P. (2004). Assessment of the expert evidence of accountants. Australian Accounting Review , 14 (1), 73-80.

Stockdale, M., & Jackson, A. (2016). Expert Evidence in Criminal Proceedings. The Journal of Criminal Law , 80 (5).

AYB115: Weekly Blogs

Weekly Blog 1:

I disagree with the statement that fraud is out of the control of management. From my experience in working in a small business, it was found that an employee had been stealing money from the register for many months. She stole the money when completing the cash-in procedure at close. It was not until openers did a reconciliation of cash in the morning that these discrepancies were discovered.

Larger organisations face the same risk of fraud, but on a greater scale. As shown by Halbouni,Obeid and Garbou (2016), internal and external auditors noticed that corporate governance is significant in preventing and detecting fraud. It was discovered that corporations that had comprehensive internal controls and effective auditing procedures had less instances of fraud and were further equipped at preventing and managing fraud.

COBIT 5 is a tool that organisations can use to ensure they have adequate control over their business operations , in particular battling issues related to IT and other technologies, while addressing the requirements of internal and external stakeholders (ISACA, 2012). COBIT 5 has five principles, that should assist management control of fraudulent situations. As my personal experience of fraud occurred in a small business it is unlikely COBIT 5 would have prevented the fraud. However, better internal control measures would definitely have picked up on these discrepancies sooner.

Reference List:

Halbouni, O., & Garbou, A. (2016). Corporate Governance and Information Technology in Fraud Prevention and Detection Evidence from the UAE. Managing Auditing Journal, 31(6) 589-628.

ISACA. (2012). COBIT 5 A Business Framework for the Governance and Management of Enterprise IT. ISACA .

Weekly Blog 2:

I agree with the statement that with the increase of mobile devices created greater fraud threats and risks for organisations. I had a friend who left her desk unattended in the library with an assignment opened and someone inserted their usb and copied the entire assignment and had disappeared by the time she returned. This incident was unknown to her until she was questioned for plagiarism after submitting the assignment.

Situations like this occur in an organisation context as well, to a much larger extent. “Business is the largest victim of crime and economic espionage perpetrated through cyberspace” (Renaud, 2013). Data loss has the ability to seriously affect a business’ competitiveness and reputation and can potentially lead to civil penalties. Data is lost because devices uses infrastructures that are uncontrolled and cannot be monitored by individual organisations. Another risk is information leakage caused by people who have damaging intensions and agendas.

An information security and risk assessment is created and has a few key features; tone from the top, board of directors, internal controls, internal/external audit function and an audit committee. These elements are designed to address IT threats to an organisation (ISACA, 2017). An internal control to solve my friends problem would be to always ensure a computer is locked and external devices are always removed.

Reference List:

Renaud, K. (2013). The Risk of Mobile Information Leakage. International Journal of Cyber Warfare and Terrorism , 3 (4).

ISACA. (2017). CIO Strategy for Mobile Security. Retrieved from ISACA: https://www.isaca.org/CIO/Pages/CIO-Mobile-Security.aspx

 Weekly Blog 3:

I agree with the statement that Forensic Accountants must be familiar with the law to protect the public interest.  As learned in a university lecture in the case of ASIC v Rich it was made very clear how forensic accountants should behave and what the repercussions are if they do not have a good understanding of the law in the presentation of an expert report.  It was found that crucial evidence presented in the Carter report were reliant on assumptions which were difficult to prove and were rejected due to inadmissibility in court. This case wasted court time, the client’s money and tarnished the reputation of forensic accountants who produce expert reports.

APES215 is a framework that sets out mandatory requirements for professionals who provide forensic accounting services. The main provision in this standard is for protecting public interest by addresses the following; integrity, objectivity, professional competence and due care, confidentiality and conflict of interest (CPA Australia, 2017).

Forensic examiners have utilised a variety of different expressions to represent and support the conclusions they have provided, however these are usually opinions (Edmond, 2013). The revised APES215 has a stronger emphasis on protecting public interest and would have reduced the impact of the ASIC v Rich case as it is a mandatory standard and does not accept evidence based on assumptions.  

Reference List:

CPA Australia. (2017). APES215: Forensic Accounting Services. Retrieved from CPA Australia: https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-standards/apes-215-forensic-accounting-services

Edmond, G. (2013, March 25). Expert Evidence in Reports and Courts. Australian Journal of Forensic Sciences .

 Weekly Blog 4:

I agree with the statement to a large extent that strict or vicarious liability is the only way to make directors and senior management serious about minimizing fraud, bribery and corruption. As learned from the Bitcoin case, where two people who ran a company where money laundering occurred were charged, thus imposing strict liability.

As stated by (Shiffrin, 2016) “strict liability for performance represents an interesting division of moral labour in the practice of taking and assigning responsibility”. There are four categories of crime in the business world; white-collar crime (embezzlement), organized crime (illegal drugs), computer crime (computer fraud) and regulatory, corporate and compliance offences (cartel conduct) (CCH, 2014).

While courts have issues imposing strict liability provisions due to their belief that liability of employers requires participation or negligence, I support the approach in the Corporations Act. This is where a director may be held personally liable unless proven that due diligence was exercised as they should be taking an active role in ensuring that employees comply with the law. It is hoped from steps taken in the Bitcoin case that corporations will become more vigilant in the prevention, detection and reporting of fraudulent acts to reduce incidences of fraud, thus becoming more serious about minimizing fraud, bribery and corruption.

Reference List:

Shiffrin, S. V. (2016). Enhancing Moral Relationships through Strict Liability. University of Toronto Law Journal , 66 (3).

CCH. (2014). Crime in the Business World. In Australian Business Law.

Weekly Blog 5:

Specialised knowledge is vital in the forensic accounting role when considering civil action law suits, due to the many complexities involved. As seen in the case of Labelmakers Group Pty v LL Force Pty Ltd it is evident that there is not a clear way to establish the exact figure of damages that should be awarded, due to the different assumptions made by the prosecution and defence.

In particular, I would like to focus on the complexities within valuation and taxation. The valuation of damages is complex due to the fact that they are awarded in a lump sum, with no future payments allowed. Forensic accountants have to estimate the value of future losses that are expected to continue at the time of the civil action which is difficult. To do this the FA should understand the nature of dispute and events that have occurred to obtain an accurate loss figure (DiGabriele, 2008).The tax position is also important to consider as to place a successful plaintiff in the same position as if the violation of rights had not occurred, the tax effect must be considered (Australian Competition and Consumer Commission, 217).

In the Labelmakers case, the calculation of a profit margin and the discount rate were the issues in calculating damages. This shows the amount of information that needs to be considered when calculating damages and why specialised knowledge is crucial.

Reference List:

DiGabriele, J. (2008). Litigation Support and the Forensic Accountant. Forensic Examiner , 17 (2).

Australian Competition and Consumer Commission. (217). Compensation for Damages and Loss. Retrieved from Australian Competition and Consumer Commission: https://www.accc.gov.au/consumers/consumer-rights-guarantees/compensation-for-damages-loss