Expert Fraud Investigation

Tracy L. Coenen, CPA, MBA, CFE is a fraud expert and President of Sequence Inc., a forensic accounting firm with offices in Milwaukee and Chicago. She conducts financial investigations for private and public companies, reports her findings to executives and boards of directors, and testifies in court as an expert witness. She has provided fraud-related commentary to television and print media. Her commentary has been featured on NBC news and on CNBC's personal finance show, On the Money, and her comments have been printed in the Wall Street Journal, USA Today, BusinessWeek.com, CBSNews.com, and Entrepreneur.com, among others. Tracy writes articles on fraud for national business publications including Fraud Magazine.

• Preface xvAcknowledgments xviiChapter 1 Finding Fraud 1Signs of Fraud 1Looking for Suspects 9Evaluating Fraud Tips 11Should You Investigate? 12Confronting Suspects 13Skills of a Fraud Investigator 14Differences between Audits and Investigations 16Conducting a Fraud Investigation 19Notes 19Chapter 2 Beginning the Investigation 21Assessing the Engagement 22Making Recommendations 26Budgeting and Cost Control 28Fees 30Billing Practices 35Engagement Letters 36Chapter 3 Managing the Case 39Assembling the Team: Where to Start 40Assembling the Team: Company Insiders 41Assembling the Team: Key Participants 43Assembling the Team: Outside Consultants 44Importance of Credentials 45Management and Supervision of Staff 46Work Programs and Checklists 47Document Management 48Preserving Evidence 50File Maintenance 52Investigative Software 54Professional Standards 54When to Stop Investigating 57Chapter 4 Searching for Fraud 59Analytical Review 60Key Financial Ratios 61Write-offs, Adjustments, and Miscellaneous 65Manual Disbursements 67What about Financial Statement Audits? 68Looking for Fraud in Little Things 70Chapter 5 Sources of Information 73Who Acquires Information 73Internal Records 75Private Records 77Public Records 82The Internet and Search Engines 91Chapter 6 Investigative Techniques 93Corporate Background Checks 94Individual Background Checks 94Searching for Friends, Family, and Associates 95Surveillance 96Digital Data Analysis 97Computer Forensics 99Interviewing Witnesses and Suspects 99Confirmation with Customers and Vendors 104Creativity and the Fraud Investigator 106Chapter 7 Investigation of Asset Misappropriation Schemes 107Cash Receipts Schemes 108Disbursement Schemes 113Noncash Schemes 129Chapter 8 Investigation of Financial Statement Fraud 133Revenue Overstatement 134Channel Stuffing 137Round-Tripping 138Asset Overstatement 139Liability and Expense Understatement 143Reserve Manipulation 147Misrepresentation or Omission of Information 148Improper Recording of Mergers and Acquisitions 149Off-Balance-Sheet Items 150Accounting Involves Judgment and Estimates 151Earnings Management 152Note 152Chapter 9 Investigation of Corruption Schemes 153Bribes 154Kickbacks 155Extortion and Conflict of Interest 156Related-Party Transactions 156Money Laundering 158Foreign Corrupt Practices Act (FCPA) 160Prevention and Detection 161Note 162Chapter 10 Investigation of External Fraud Schemes 163Corporate Espionage 163Investment Schemes 165Pyramid or Ponzi Schemes 167Securities Fraud 169Hidden Income or Assets 170Insurance Fraud 173Bankruptcy Fraud 174Note 175Chapter 11 Reporting and Litigation 177Stick to the Facts 178Keep It Simple 178Background Information 179Investigation Procedures 181Opinions 182Attachments 183Draft Reports 184Unfavorable Opinions 185Follow-up to the Fraud Investigator’s Work 186Being an Expert Witness 189Preparing for Testimony 189Deposition Testimony 191Trial Testimony 194Note 195Chapter 12 Other Issues 197Moving Forward as a Company 197Preventing Future Frauds 199Marketing a Fraud Investigation Practice 201Competing with Other Firms 202Conducting a Global Investigation 203Professional Liability Issues 204Reducing Fraud with Investigations 206Note 207Appendix 209Index 215