2015 Association of Certified Fraud Examiners Inc - PDF document

1 © 2015 Association of Certified Fraud Ex
© 2015 Association of Certified Fraud Examiners, Inc. © 2018 Association of Certified Fraud Examiners, Inc. Principles of Fraud Examination Legal Elements of Fraud © 2018 Association of Certified Fraud Examiners, Inc. 2 of 27 Knowledge of the Law ▪ What must be proven ▪ What information will be admissible ▪ The legal right

2 s and obligations of subjects and fraud
s and obligations of subjects and fraud examiners ▪ How to be an effective witness © 2018 Association of Certified Fraud Examiners, Inc. 3 of 27 Practical Problem ▪ As an examiner in the Internal Audit Department, you receive an anonymous, handwritten allegation that checks are being stolen from the mail room at Jolie Com

3 pany. The note doesn’t give you any m
pany. The note doesn’t give you any more information other than the fact that an employee has stolen many checks and has been spending a lot of money. You don’t know whether the checks are incoming or outgoing. © 2018 Association of Certified Fraud Examiners, Inc. 4 of 27 Practical Problem Questions: 1. If true, is the a

4 lleged behavior a violation of criminal
lleged behavior a violation of criminal law and/or civil law? Why or why not? © 2018 Association of Certified Fraud Examiners, Inc. 5 of 27 Criminal Versus Civil Fraud ▪ Criminal: • Higher burden of proof • Charged by law enforcement • Punishment can include prison, fines, restitution ▪ Civil: • Lower burden of proof

5 • Filed by private party or governmen
• Filed by private party or government agency • Damages include money or injunction generally © 2018 Association of Certified Fraud Examiners, Inc. 6 of 27 Criminal Versus Civil Fraud ▪ Crime: • A public wrong that violates a statute and is punishable by deprivation of life, liberty, or property in a criminal prosecuti

6 on ▪ Tort: • A private wrong, such a
on ▪ Tort: • A private wrong, such as fraud, punishable by deprivation of property (damages) in a civil action for damages © 2018 Association of Certified Fraud Examiners, Inc. 7 of 27 Burden of Proof ▪ Criminal cases require a higher burden proof for conviction than in a civil case. ▪ Various standards of proof in th

7 e legal system include: • Reasonable
e legal system include: • Reasonable suspicion • Probable cause • Preponderance of the evidence • Clear and convincing evidence • Beyond reasonable doubt © 2018 Association of Certified Fraud Examiners, Inc. 8 of 27 Practical Problem Questions: 2. Based on the information known thus far, do you have sufficient predica

8 tion to continue your investigation? ©
tion to continue your investigation? © 2018 Association of Certified Fraud Examiners, Inc. 9 of 27 Predication ▪ Totality of circumstances that leads a trained person to believe fraud has occurred or will occur ▪ The basis for the fraud examination © 2018 Association of Certified Fraud Examiners, Inc. 10 of 27 Different L

9 egal Systems ▪ Common law systems: •
egal Systems ▪ Common law systems: • Laws developed through court decisions (common law), as well as codes and statutes • Judges bound by precedent set by other judges ▪ Civil law systems: • Laws based on a set of accepted principles set out in civil code • Judges bound by civil code, but not by precedent of other j

10 udges © 2018 Association of Certified Fr
udges © 2018 Association of Certified Fraud Examiners, Inc. 11 of 27 Stages of White - Collar Investigation and Prosecution in Common Law System ▪ Allegation of wrongdoing ▪ Preliminary investigation ▪ Report to prosecution ▪ Prosecutor has discretion to proceed ▪ Prosecutor may convene grand jury, who can: • Ta

11 ke testimony • Grant immunity • Serv
ke testimony • Grant immunity • Serve subpoenas • Indict © 2018 Association of Certified Fraud Examiners, Inc. 12 of 27 Trial Stages in Common Law System ▪ Opening statements ▪ Prosecution case ▪ Defense case ▪ Rebuttal ▪ Instructions to the jury ▪ Closing arguments ▪ Jury deliberations and verdict ▪ Sent

12 encing ▪ Appeal © 2018 Association of
encing ▪ Appeal © 2018 Association of Certified Fraud Examiners, Inc. 13 of 27 Stages of Typical Civil Case in Common Law System ▪ Allegation of wrongdoing ▪ Preliminary investigation ▪ Attorney review ▪ Filing of civil suit ▪ Service on the defendant © 2018 Association of Certified Fraud Examiners, Inc. 14 of 27 S

13 tages of Typical Civil Case in Common L
tages of Typical Civil Case in Common Law System ▪ Discovery ▪ Depositions: • Requests for production • Interrogatories • Requests for admission ▪ Pretrial pleadings and motions ▪ Alternative dispute resolution © 2018 Association of Certified Fraud Examiners, Inc. 15 of 27 Stages of Typical Civil Case in Common La

14 w System ▪ Trial: • Opening statemen
w System ▪ Trial: • Opening statements • Plaintiff’s case • Defendant’s case • Instructions to jury • Closing arguments • Deliberations and verdict ▪ Judgment ▪ Appeal © 2018 Association of Certified Fraud Examiners, Inc. 16 of 27 Stages of White - Collar Investigation and Prosecution in Civil Law System â–

15 ª Investigative: • Police collect evid
ª Investigative: • Police collect evidence and notify prosecutor • Prosecutor directs activities of police • Prosecutor decides whether to prosecute ▪ Examining: • Judge conducts comprehensive examination, taking evidence, and developing a written record of facts • Judge determines the next step (acquit, send to tria

16 l, or convict and sentence) © 2018 Asso
l, or convict and sentence) © 2018 Association of Certified Fraud Examiners, Inc. 17 of 27 Criminal Trial in Civil Law System ▪ Purpose is to present the case to the trial judge and, in some cases, the jury. ▪ Witnesses are questioned and challenged: • No cross - examination or reexamination ▪ The judge designates expe

17 rt witnesses. © 2018 Association of Cer
rt witnesses. © 2018 Association of Certified Fraud Examiners, Inc. 18 of 27 Civil Case in Civil Law System ▪ Series of meetings, hearings, and written communications: • No single trial event. • No pretrial phase. • No jury. ▪ Evidence is submitted to a judge, who questions witnesses and develops a written record o

18 f facts. ▪ Judges review a written sum
f facts. ▪ Judges review a written summary record, review briefs, hear arguments, and render decisions. © 2018 Association of Certified Fraud Examiners, Inc. 19 of 27 Practical Problem Questions: 3. Depending on the circumstances, what legal elements would you have to prove to establish liability for fraud under these facts

19 ? © 2018 Association of Certified Fraud
? © 2018 Association of Certified Fraud Examiners, Inc. 20 of 27 The Elements of Fraud ▪ A representation ▪ About a material point ▪ That is false ▪ Intentionally or recklessly so ▪ Which is believed ▪ And acted upon by victim ▪ To the victim’s damage © 2018 Association of Certified Fraud Examiners, Inc. 21

20 of 27 Proving Intent or Knowledge ▪
of 27 Proving Intent or Knowledge ▪ No legitimate motive for actions ▪ Altered documents or concealed actions by destroying evidence ▪ Giving false, misleading statements under investigation ▪ Repeatedly engaged in activity of apparent wrongful nature ▪ Personally gained from the fraudulent act © 2018 Association of

21 Certified Fraud Examiners, Inc. 22 of 2
Certified Fraud Examiners, Inc. 22 of 27 Practical Problem Questions: 4. Assume you discover evidence that an employee stole checks made payable to the Jolie Company, endorsed them with the company’s name and their own signature, and then deposited the check into their personal account. In this scenario, what cause(s) of

22 action for theft (embezzlement, larceny
action for theft (embezzlement, larceny, and misappropriation), if any, does the Jolie Company have against the employee, and what specific elements would you have to prove to establish those actions for theft? © 2018 Association of Certified Fraud Examiners, Inc. 23 of 27 Common Civil and Criminal Actions ▪ Misrepresentati

23 on of material facts: • Deliberately m
on of material facts: • Deliberately making false statements to get victim to part with money • Materiality: • Statements that are sufficiently important/relevant to influence decision ▪ Concealment of material facts: • If the defendant had a duty to disclose © 2018 Association of Certified Fraud Examiners, Inc. 24 of

24 27 Theft of Money and Property ▪ Emb
27 Theft of Money and Property ▪ Embezzlement: • Wrongful taking or conversion of property of another for perpetrator’s benefit ▪ Larceny: • Intentional taking of money or property without the consent and against the will of the owner ▪ Misappropriation: • Intentional but unauthorized use of money or property (o

25 r ideas) for an illicit purpose © 2018 A
r ideas) for an illicit purpose © 2018 Association of Certified Fraud Examiners, Inc. 25 of 27 Common Civil and Criminal Actions ▪ Bribery: • Giving or receiving (or offering or soliciting) • Any “thing of value” • To influence • An official act ▪ Illegal gratuity: • Giving or receiving (or offering or soliciti

26 ng) • Any “thing of value” • For
ng) • Any “thing of value” • For or because of • An official act © 2018 Association of Certified Fraud Examiners, Inc. 26 of 27 Conflict of Interest ▪ An agent ▪ Taking an interest in a transaction or enterprise ▪ That is potentially adverse to the principal ▪ And is not disclosed and approved by the principa

27 l © 2018 Association of Certified Fraud
l © 2018 Association of Certified Fraud Examiners, Inc. 27 of 27 Breach of Fiduciary Duty ▪ Duty of loyalty: • Act in best interest of the principal ▪ Duty of care: • Occupied position of trust or fiduciary responsibility • Breached that trust (duty) to advance a personal interest ▪ Business judgment rule — prudent