The nature and scope of a fraud investigation are dependent on the instructions given. The main problems usually are:
a) The past time period that needs to be investigated. This could be a few days or many years.
b) The scope of the investigation. We have to determine whether we are investigating an individual, a whole company, a whole department or a group of companies.
c) The questioning of individuals. This can be a very painful exercise and the following general rules can be helpful:
i. The questioner should have a colleague present;
ii. The person being interviewed should be allowed to have a friend present;
iii. Accusations should not be made but evidence should be presented and explanations requested;
iv. The questioning should be in private;
v. If necessary, judges rules should be observed. This means that a person being questioned understands the nature of the question and should not unwittingly incriminate himself;
There are two broad categories of fraud
a) Fraud involving the manipulation of the records and the accounts usually by the company's senior officer with a view to benefiting in some way from the false picture which they convey.
b) Frauds usually by employees involving the theft, misappropriation or embezzlement of the company's funds usually in the form of cash or other assets.
Below is a summary of procedures the investigating accountant will be required to follow in arriving at estimates of losses from case (b), assuming that it is already known that a defaulting employee has been at work.
i. He has to ascertain the level of authority and the nature of duties of the defaulting employee;
ii. Cast and vouch the cash book and obtain certificates of opening and closing balances from the bank;
iii. Check the cash book against bank statements paying particular attention to the dates of lodgement to ascertain whether receipts were banked promptly;
iv. Examine pay-in-slips at the bank and compare with counterfoils as these may reveal teeming and lading;
v. Carry out a positive circularisation of debtors;
vi. Scan the cash book for any apparently irregular payments;
vii. Examine returned cheques comparing names or payees with the details in the cash book and invoices;
viii. Obtain duplicates of missing expenditure vouchers;
ix. Vouch all amounts shown as partners or directors drawings or loans;
x. Vouch and cast the petty cash book;
xi. Confirm names of all employees shown on payroll with the chief accountant and the personnel manager and confirm amounts payable to them;
xii. If the defrauder has access to all books then all postings should be checked and a trial balance extracted;
xiii. Confirm all bad debts written off, discounts allowed and returns of goods;
xiv. Check the order book against the sales day book, or copy sales invoices in order to detect any unrecorded sales;
xv. Vouch purchase invoices with purchases day book and see that none of them has been processed twice;
xvi. Obtain duplicates of all missing purchase vouchers;
xvii. Compare the creditors statements against purchase ledger balances;
xviii. Check goods inwards book or order against invoices to ensure that the latter relate to genuine purchases.