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Fraud Auditing

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					Document Examination

        Professor Tim Louwers, CPA, CIA, CISA
        James Madison University
        Professor Angela Woodland, CPA
        Louisiana State University


                         2005 LSU Fraud and Forensic
July 18, 2005               Accounting Conference      1
  Document Examination
      A specialized form of investigation that
       applies forensic chemistry, microscopy,
       psychology and other sciences in order to
       make determinations such as:
           Was the document written by the person whose
            signature it bears?
           Was the document forged?
           Has the document been altered by additives,
            deletions, obliterations, erasures, or photocopying?
           Is the document genuine?

                           2005 LSU Fraud and Forensic
July 18, 2005                 Accounting Conference                2
Documentary Evidence

           Records
           Documents
                   Sales Receipts
                   Checks
                   Expense Reimbursements
               Computer-Based Information



                            2005 LSU Fraud and Forensic
July 18, 2005                  Accounting Conference      3
Role of Documentary Evidence

     Circumstantial, not direct evidence
          “Documentary evidence is the proof of the
           suspect’s representations, evidence of
           their falsity, and evidence of the suspect’s
           intent to commit fraud.”
     “Similar act evidence”
          “…Shows common scheme or plan, lack of
           mistake or accident, modus operandi , and
           intent.”
                Source: Fraud Examination for Managers and Auditors, p. 147.

                                       2005 LSU Fraud and Forensic
July 18, 2005                             Accounting Conference                4
Gathering Documentary Evidence

            Auditors should attempt to locate and retain all
             records involved in the suspected fraud – basically,
             gather as much documentary evidence as possible.
            Make sure the documents are originals and not
             copies or photocopies.
                The original document is the best or primary evidence.
                A copy of the original document is secondary evidence.
            Finger-printing and other forensic examination may
             take place at a later date so use latex gloves.
            Maintain records of how documents were obtained
             and create a journal documenting meetings and
             relevant statements.

                                 2005 LSU Fraud and Forensic
 July 18, 2005                      Accounting Conference                 5
Care of Documents
       The document should be placed in a sealed transparent
        protective envelope, so that it can be examined without
        contact.
       All evidence received should be uniquely marked so it
        can be later identified.
       Rather than initialing and dating the item itself, the
        protective envelope should be initialed and dated by
        whomever examines the document -- i.e., maintain a
        chain of custody.
       Don’t repair mutilated or torn documents.
       Use copies of the document during investigation -- the
        original should be handled as little as possible.


                         2005 LSU Fraud and Forensic
July 18, 2005               Accounting Conference            6
Documentary Evidence Validity

    Genuine
    Altered -- tampered with.
    Counterfeit -- of spurious origin.
    Fraudulent -- intentionally perverted or
     misleading
    Questioned -- dubious.



                   2005 LSU Fraud and Forensic
 July 18, 2005        Accounting Conference      7
  Manipulated Documents
 Most frauds are concealed by manipulating some kind of source
 document, such as checks, p/o, sales invoices, credit memos, etc.


                                                                   June 10, 2005
                             Tim Louwers                                  7(0).00
                Seven(ty) and no/100 ----------------------




  Check for $7 (seven dollars)
         --Add a zero to the check numeral.
         --Add a “ty” to the word seven.
                                     2005 LSU Fraud and Forensic
July 18, 2005                           Accounting Conference                       8
Expense Account Padding

   “Robert” obtained blank letterhead
    sheets from hotels and then created an
    Excel template to reproduce hotel
    invoices. He created and printed, using
    the hotel’s letterhead sheets, invoices for
    fictitious dates and amounts.
   Caught when internal auditor noticed
    invoices from different hotels with same
    format.
   Fraud loss: $160,000
                    2005 LSU Fraud and Forensic
July 18, 2005          Accounting Conference      9
                2005 LSU Fraud and Forensic
July 18, 2005      Accounting Conference      10
Forged Endorsement Scheme




                                 FOR DEPOSIT ONLY




                                                                82803
                                  RICH’S CAMERA
                 ENDORSE HERE




                                                                        ATLANTA, GA
                                                    DEC 14 01




                                                                        0510-00253
                                       SHOP




                                                                        FEDERAL
                                                                        DE ‘01’ 30
                                                                        PAID BY
                                                                3333




                                                                        BANK
John Hunt signs check over to                       Processing date, proof
Rich’s Camera Shop, who then                            numbers, bank
    deposits it. Such dual                            processed through
endorsements are common to
  check tampering schemes.
                                2005 LSU Fraud and Forensic
 July 18, 2005                     Accounting Conference                              11
      When To Have A Document Examined:
      Things that make you go hmmmm….
 The following signs indicate reasons a document should
   be submitted for examination:
  Abrasions or chemical pen or pencil erasures.
  Alterations or substitutions.
  Disguised or unnatural writings.
  Use of different colored ink.
  Charred, mutilated, or torn pages.
  Pencil or carbon marks along the writing lines.
  Existence of lines from photocopying.
  Signs of inconsistency or disruption of continuity of
   content.
  Any suspicious appearance or unusual form.
                      2005 LSU Fraud and Forensic
July 18, 2005            Accounting Conference             12
Your Responsibility with Questioned Documents


    To collect, protect, identify, and preserve
     the questioned document in as good a
     condition as possible.
    To collect and be able to prove the origin
     of adequate companion specimens to a
     document examiner.
    To submit both the questioned and
     comparison documents to a examiner.

                   2005 LSU Fraud and Forensic
 July 18, 2005        Accounting Conference        13
Document Examinations

      Handwriting                      Damaged document
       comparisons                       analysis
      Ink analysis                     Typing defects
                                        Typewriter ribbon
      Paper analysis
                                         analysis
      Alteration                       Electronic image
      Folds, staples                    analysis
      Date of document                 Sequence of writing
      Indented writing                 Dating of writing

                     2005 LSU Fraud and Forensic
July 18, 2005           Accounting Conference                  14
Determinations made by document examiners

      Was the continued writing genuine?
      Was the writing disguised?
      Who did the unknown writing?
      Can the hand printing be identified?
      Can the handwritten numerals be identified?
      Which was written first, the signature or the
       writing above it?
      Can the forger be identified?
      Is the the handwriting or signature consistent
       with the date of the document?
                       2005 LSU Fraud and Forensic
July 18, 2005             Accounting Conference         15
Determinations made by document examiners

      Is the handwriting/signature genuine?
      Was the entire document typed on the same
       machine?
      Was the document typed on the date it bears
       or before or after?
      Have there been any additives (typed or
       handwritten) or alterations of the document?
      Were extra or substituted pages typed on the
       same or different machines?
      Are two typed documents substantially the
       same or significantly different?
                      2005 LSU Fraud and Forensic
July 18, 2005            Accounting Conference        16
Summary: Documentary Evidence

    Because the success or failure of a fraud
     investigation is dependent on the validity of the
     evidence presented, it is important to:
          Collect as much documentary evidence as early as
           possible in the investigation.
          Ensure that the documentary evidence is valid.
          Protect the original documents and use photocopies
           for the ongoing investigation.
          Remove original documents from the control of the
           alleged perpetrator and ensure that the documentary
           evidence remains in the control of the investigative
           team for the duration of the investigation.
                           2005 LSU Fraud and Forensic
 July 18, 2005                Accounting Conference               17

				
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