Forensic Accounting vs

Investigative Audit
Juli 2022
Table of Contents

01. Fraud Overview

04. Forensic vs Investigative Audit

02. Type of Fraud

05. Forensic Accountant

03. Fraud Case

06. QnA

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Fraud Overview

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 FRAUD
FRAUD ACT 2006
Fraud by False Representation
When a person makes any representation which they
knew to be untrue or misleading

Fraud by failing to disclose information

When a person fails to disclose any information to third
party when they are under a legal duty to disclose such
information

Fraud by abuse of position

When a person occupies a position where they are
excpected to safeguard the financial interest of another
person, and abuses that position
Fraud VS Error

FRAUD ERROR
Deception with the intention of Inaccuracy or incompleteness in
cheating or injuring other the measurement of an act

Intentional Accidental

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 THE FRAUD TREE

Asset
Corruption Fraudulent Statements
Misappropriation

Conflict of Interest Illegal Gratuities Financial Non-Financial

Economic Asset/ Revenue Liabilities/Expense

Bribery Cash Non-Cash Asset
Extortion Overstatement Understatement

Employee
Fraudulent Misuse Larceny
Larceny Skimming Credential
Disbursement

Internal
Document

Account External
Larceny Sales Refunds & Others Document
Receivable

Expense
Billing Scheme Payroll Scheme Check Tampering Register Disbursement
Reimbursement

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 Fraud Theory

Fraud consists of some deceitful practice or willful device,

resorted to with intent to deprive another of his right, or
in some manner to do him an injury. As distinguished
from negligence, it is always positive, intentional.

RATIONALIZATION
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Overview of Corruption Crime Data di Indonesia

First place: bribery cases

Bribery amounted to 67% or 602 cases

Corruption in Procurement
Second place: 22% of cases of
67% corruption in the goods and
services procurement process or
22% Money Laundering
195 cases
3%

Third place: 5% of cases of misuse of

the budget or 47 cases

Fourth place: 3% or 25 cases of Money

Licensing Laundering (“TPPU”)
3% Misuse Budget

5% The fifth place: 3% of cases of Licensing

Crime or 23 cases

Corruption data statistics in Indonesia (KPK: 2014 - 2019)

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Corruption Perception Index

Definition

The Corruption Perceptions Index is an index which ranks countries "by their perceived levels of public sector
corruption, as determined by expert assessments and opinion surveys

Rank: 96/180
0 10 20 30 40 50 60 70 80 90

Singapore

Malaysia

Timor Leste

Vietnam

Indonesia

Thailand

Philippines

Laos

Myanmar

Cambodia

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Type of Fraud

10
Types of Frauds Home

Home

FINANCIAL FINANCIAL PAYMENT FRAUD

Financial Statement STATEMENT FRAUD INSTITUTION FRAUD

Financial Institution

Payment

Insurance

INSURANCE FRAUD PROCUREMENT CONSUMER FRAUD

Procurement FRAUD

Consumer

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Types of Frauds Financial Statement Frauds Earnings Management

Definition
The deliberate misrepresentation of a financial condition of an enterprise accomplished
Home Financial Statement through the intentional misstatement or omission of amounts in the financial statements to
Fraud deceive financial user

Financial Statement Motivation Forms

Encourage Investment through the Overstated Assets or Revenue:

Financial Institution sale of stock
Falsely reflects a financially stronger
Cover inability to generate cashflow company by inclusion of fictitious asset
Payment Demonstrate compliance with cost or artificial revenues
financing covenant
Understated Liabilities or Expenses:
Insurance Receive Higher purchase prices for
Accomplished through exclusion of costs or
acquisition
financial obligations
Receive performance-related bonus
Procurement

Consumer
Fictitious Improper Assets Improper
Revenue Timing Concealed Liability and Expenses
Valuation Disclosure
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Types of Frauds Revenue Scheme Earnings Management

Definition
We can define the separation of ownership and control with reference to the owner
Home Separation of managed firm. In such a firm, the owner/manager possesses two principal attributes. The
Ownership Control owner/manager (1) makes management decisions of the firm and (2) has a claim to the
profits of the firm.
Financial Statement
Separation of ownership & control
Financial Institution

Principal: Monitoring Cost (Auditor Fee) Agent:

Payment
(Investor) (Manager)
Insurance

Procurement
Utility maximization
Long Term Short Term
Consumer

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Types of Frauds Financial Statement Frauds Enron

Definition
the use of accounting techniques to produce financial statements that present an overly
Home Earnings positive view of a company's business activities and financial position
Management

Financial Statement

Agency Problem Accounting Policy Earnings

Financial Institution Management
Choices
Judgement
Payment Incentive/Pressure to misreport
(self serving behavior) Discretion

Contractual Motivation
Insurance

Opportunity to Misreport
Procurement

Consumer Equity Debt

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Types of Frauds Financial Statement Frauds Enron

Timeline Case Highlight

Enron hire Jeff

Skilling
Home 1985 1990
The merger between Houston
Natural Gas and InterNorth inc
Financial Statement Kenneth Lay Jeff Skilling Andy Fastow
Enron CFO Enron COO Enron CFO
Enron enter the blockbuster deal
where they took the profit that
Financial Institution they expect to have it on the
future anda recognize it as profit 1992
Payment
2000 SEC Approve Mark to
Market Accounting
Insurance The Change of Accounting Firms Order

Procurement 2001 2002

Consumer Enron admits it has been Enron Files for

inflating income by around bankruptcy
586 Million in 1997
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Types of Frauds Financial Institution Frauds

Definition
Financial Institution include banks, saving and loans, credit unions. Financial Institution fraud
Home Financial Institution is also known by the more generic terms of Bank Fraud
Fraud

Financial Statement Loan Fraud Schemes Mortgage Fraud Schemes

Loan to non-existent borrowers Air Loan

Financial Institution
Double Pledging Collateral Fraudulent Sale
Side Streaming Fraudulent Second lien
Payment
Loan Application with False Property Flipping
Information
Insurance

Procurement

Consumer
Non-Performing Loan High turnover in developer Change order abuse Missing
personnel Documentation
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Types of Frauds Payments Frauds

Definition
Payment fraud occurs when someone steals another person’s payment information and uses
Home Payment Fraud it to make unauthorized transactions. The owner of the payment information then notices
their account being used for transactions they did not authorize.

Financial Statement Credit Card Fraud Prepaid Card Fraud

The misuse of credit card information to make

Financial Institution Prepaid card involves prepaid debit and gifts card,
unauthorized purchased and are attractive to fraudster because it is easy to
use and hard to track
Payment
Stolen Card Number
Skimming
Insurance

Procurement

Consumer
Unauthorized Transactions Request for personal number Bad Reputation on Website/E-
from ANYONE Comerce
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Types of Frauds Insurance Frauds Jiwasraya

Definition
Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper
Home Insurance Fraud payment from an insurer. The pervasiveness of insurance fraud drives up costs for all
consumers and costs the insurance industry billions of dollars each year.

Financial Statement Agent Fraud Vehicle Fraud Worker Compensation

Fictitious Payees Ditching Claimant Fraud

Financial Institution

Fictitious Death Claim Past Posting Organized Fraud Schemes

Payment
Settlement Payment Staged Accident Premium Fraud
Insurance

Procurement

Consumer
Insurer does not remember the events Track record of insurer have history of Insurer asked hypothetical question about
insurance claims and losses coverage in the similar area
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Types of Frauds Insurance Frauds Jiwasraya

Timeline Case Highlight

BPK issued
disclaimer
Home 2006 2008 opinions for the
2006-2007
Jiwasraya's equity was financial
recorded negative statements due
Financial Statement Rp3.29 trillion. to Benny Tjokro Hendrisman Rahim Heru Hidayat
untrustworthy Direktur Utama Hanson Direktur Utama PT Komisaris Utama
reserve International Jiwasraya Inti Agri Resources
Hanson debt securities were
Financial Institution bought up by Jiwasraya documents
Fixed Income Investment Comparison
amounting to Rp680 billion 2012
Type of Investment Return
Deposit 3% - 5%
Payment
Bapepam-LK granted a Obligation 6% - 7%
2015 permit for the JS JS Saving Plan 9% - 13%
Saving Plan.
Insurance
Financial Highlight Selected Investment
MYRX SMBR
Procurement 2017 2018
IIKP SUGI

Asset POLA PCAR

Consumer premium income from JS Jiwasraya announced that
Debt
29 46
Saving Plan products they could not pay the policy TRAM LCGP
reaching Rp21 trillion. claims due amounting to
Rp802 billion. BJBR JGLE
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Types of Frauds Procurement Frauds Garuda Indonesia

Definition
Procurement fraud is the unlawful manipulation of a procurement process to acquire
Home Procurement Fraud contracts, good or services or to obtain an unfair advantage during the procurement process.

Financial Statement Collusion Between Contractor Collusion Between Contractor & Employee

Complementary Bidding Need Recognition

Financial Institution
Bid Rotation Bid Tailoring
Bid Suppression Bid Manipulation
Payment Market Division Leaking Bid Data

Insurance

Procurement

Consumer
The Industry Qualified When new The Industry Suspect Employee Disqualifying bids for High Number of
No Adequate
have limited Contractor do contractor enter, have Limited displays sudden
Assessment improper reason Competitive awards
Competition not submit bid the bid start to fall Competition wealth to one supplier
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Types of Frauds Procurement Frauds Garuda Indonesia

Timeline Main Actor

Procurement of
11 units of
Home 2008 2011 Airbus A330-300
Airbus 330-300 engine
maintenance contract
Financial Statement with Rolls Royce Emirsyah Satar Hadinoto Soedigno Soetikno Soedarjo
Direktur Utama Direktur Teknik Komisaris Utama
Garuda Pengelola Armada
UK SFO accuses Rolls
Financial Institution Royce of bribery in 7 IDR 5.9 Miliar USD 2.3m IDR 10 Miliiar
countries 2012 USD 1.62m EUR 477

Payment Procurement Goods

2016 Purchase of 25
units of Airbus
A320 Neo
Insurance
CRJ 1000 Airbus A330
USD 46.7m USD 245m
Procurement 2017

Consumer Former CEO of Garuda

Rolls Royce Trent 700
Indonesia sentenced to 8 years
in prison and a fine of 1 billion USD 23.25m

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Types of Frauds Consumer Frauds

Definition
Consumer fraud is commonly defined as deceptive business practices that cause consumers
Home Consumer Fraud to suffer financial or other losses. The victims believe they are participating in a legal and
valid business transaction when they are actually being defrauded.

Financial Statement Pyramid Scheme Ponzi Scheme

Generate revenue by continually recruiting new Business practice which new investor money is
Financial Institution members used to make payments to early investors

Payment Continual needs for new investor Ponzi scheme is a pyramid schemes, but
masquerades as some type of investment

Insurance

Procurement

Consumer
Lack of Sounds too good High Pressure Sales Tactics History of Consistent
Transparency Pressure to reinvest
to be true Returns
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Fraud Case

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Case Study: Project Alchemist
Rp17.45M
Total Sales Payment Deposited to Illegal bank
account
Background
• The company was a subsidiary of
multinational manufacturing company in
Indonesia. Its business is mainly
manufacturing and trading synthetic
resin and organic chemicals. The suspect
was “AA”, a Head of Collections.
• Deloitte was engaged to conduct an
independent investigation in relation to
alleged fraud conducted by AA in Target
during period 2008 to 2011.
How to discover Fraud
• The fraud was discovered by one of the
company’s collector, who found out about
the outstanding receivable of one of the
customer which has been settled by a
cheque collected by him. He then checked
with the customer and obtained
information that the cheque was deposited
into the “illegal bank account” under
Target’s name.
• The “illegal bank account” was later closed,
one day after AA submitted his resignation.
Indonesia Manufacturing
Company
How was the Fraud Perpetrated
• There was a bank account opened under Company’s name. The account was
opened by AA on 12 August 2008 by using falsified signature of Company’s
President Director.
• The opening of account process was done with the assistance of AA’s wife.
She worked in a bank as an account officer during that period.
• During 2008 to 2011, AA had committed alleged fraud by depositing selective
customers’ cheques into the account and then he made withdrawals
subsequently for his personal use. In his operation, he was also assisted by
his family and friends.
• Total sales payment deposited to “illegal bank account” was amounting to
IDR 17.45 billion.
Procedure Conducted
• Reconciliation between bank statement (company’s official bank account,
illegal bank account) with customer sales payment received (direct
confirmation)
• Review company’s internal policy and interview all related personnel in the
company to identify gap between policy and actual practice
• Digital forensic on AA’s computer to identify all related documents and
people involved
• Perform background search on AA and his relatives to identify his association
and his other activities after work
Digital Forensic
Forensic Investigation
Root Cause
• Internal control weaknesses in collection process, the Company was still
using manual documentation for collection
• Management and internal audit failure to detect the frauds
• Lack of attention to detail and the exercise of very minimal supervision
over the collections function, as well as failure to initiate appropriate
inquiry into long overdue receivables.
• The poor security control of company director identity documents
(president director’s personal documents were copied and used as
supporting documents for “illegal bank account” opening)
• The fact that suspect’s wife worked for the bank with lack of internal
control
• The apparent collusion of his wife in opening a false account to enable
suspect to deposit funds misappropriated from Target and its
customers.
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Case Study: Project Bumblebee

Indonesia Multinational
$40,000,000 Company
Digital Forensic
Total Sales increase between 2009 to 2013
Forensic Investigation

Background Allegation How the Fraud Perpetrated

• The Company was a subsidiary of a
multinational company in Indonesia.
The suspect was “BB”, an Indonesia
Area Manager, an expat who has
been offered for higher position in
Singapore but he preferred to stay in
current position in Jakarta.
• The company was showing a good
performance during the last years
with sales increasing from USD 11
million in 2009 to USD 40 million in
2013.
• The Company has received tipoff,
former Finance and Accounting
Manager who has been trying to
resign for several times, alerting the
situation
• A decrease in operating profitability
is noted in the reporting for the
period ending 31 August 2014 as well
as an increase in some Customers’
overdue
• A non-budgeted company’s team-building trip to Thailand using
money from unethical practice
• Additional bonus payment to employee in late 2013, made in cash to
employees
• Alleged tax manipulation, i.e. Corporate Income Tax, and Employee
Income Tax art.21
• BB’s personal expenses charged to Company
• Cost living charges
• Personal tax consultant
• Personal trips (domestic and international trips)
Procedure Conducted
• Background research on BB and personnel in the company, i.e.
directors, shareholder, payroll, HR, tax, account payable, and project
• Interview of whistleblower, and several personnel in the company
• Digital forensic, i.e. seized all related personnel’s computer and
conducted email review to identify other personnel involved, obtain
digital evidence
• Performed documents review on all suspicious transactions and all
transactions related with the allegation in areas of travel and
entertainment expenses, tax consultant fee, and personal expenses
related with BB.
• BB was supported by his wife, and her family relatives which have
a connection with police department, immigration, and
manpower agency. Several personal expenses are related with
BB’s family.
• BB has a bid arrangement with the other competitors to have
“winning schedule” in several project bidding
• BB has other business operation outside the company, i.e. villa in
Bali, car rental company, and others
• BB believed the expenses incurred were to generate employees’
loyalty and as a reward of their hard work
Root Cause
• All payment approvals are direct to BB, including his personal
expenses
• Lack of segregation of duties
• Payment made in cash or cheque with no beneficiary name
• Tax payment was using a third party, tax consultant
• Lack of written policies
• Payroll process involved manual tasks which increase risk of error
and manipulation

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Forensic vs Investigative
Audit

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Forensic Investigator and
Auditor
What is Forensic Accounting

“Simply put, forensic accounting

is legally accurate accounting.
That is, accounting that is
sustainable in some adversarial
legal proceeding, or within some
judicial or administrative review”

D. Larry Crumbley
Journal of Forensic Accounting
Forensic Investigator vs Audit
Objectives Audit
Auditing is a thorough and systematic
examination, by independent party, over a
financial statements prepared by management
along with books and records and its supporting
documents with the purpose of giving an
opinion on the fairness of the financial
Qualification statements based on accounting standard.
Auditor mostly have education background
from accounting / finance. Certification, CA,
CPA, and CPMA.
Fraud Theory
Time & Scope of Work
Auditing is a regular, periodic and recurring
process by focusing on general examination on
financial data and/or information, mostly a
non-adversarial engagement.
Methodology & Presumption
Methodology used in auditing mainly is
financial data examination to ensure the
financial records are in accordance with
accounting standard. Auditor also needs to
have a professional skepticism.
Forensic Investigator
Forensic investigation is a research, inquiry,
investigation, examination, data evidence and
information collection to present a fact based on
findings and conclusions on chronological order.
Fraud investigator have a varied education and
profession background, i.e. accounting,
finance, computer science, engineering, law,
criminology, psychology, tax, and others.
Certification, CFE, CISA, CIA, CPA, CA, etc.
Forensic investigation is conducted only when
there is an indication of fraud, and a non-
recurring process. Its scope of examination is
specific and based on accusation and/or
allegation, mostly an adversarial engagement.
Forensic investigation used a fraud
examination techniques, i.e. documents
review, interview, computer forensic, etc. Its
objective is to collect evidence to prove of
guilty or innocence of a fraud allegation.
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Forensic Investigator vs Audit

Purpose
Audit Forensic Investigator

To audit the financial statement To dig out the fraud (5W + 1H)

Documentary Evidence

“Professional Skepticism “Heightened degree of Skepticism”

Other Evidence Gathering

Sampling, data analysis and observation Interview (or interrogation), forensic computer

Scope and Materiality

Materiality matters, control-risk based Materiality doesn’t apply, higher level of

scrutiny in suspected area

Urgency

Routine, doesn’t interfere company’s Extremely urgent, top priority

operation

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 Forensic Investigation
The Profession

Essential Characteristics:

Analytical Insightful Skepticism Makes People at

Ease
Detail Oriented Inquisitive Evaluative
or Curious Team Player
Ethical Function well
Intuitive Under Pressure Adaptive
Responsive
Persistent Confident Fun Personality

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PATROLMAN DETECTIVE
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 Forensic Investigation
When to use Forensic Accounting Investigator

Triggering point of fraud may include:

A predication, the totality of
• Anonymous allegation
circumstances that would lead a
reasonable, professionally trained • Misleading information provided to the auditor
and prudent individual to believe a • Indication of improper accounting treatment
fraud has occurred, is occurring or
• Indication of fictitious vendor
will occur, must exist before an
investigation undertaken. • Investigation by law enforcement agency

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Forensic Scope of Services

Bankruptcy Fraud Risk M&A Forensic

litigation Assessment Support

Computer Forensic FCPA Review

Anti Money Asset Tracing

FORENSIC & Recovery
Laundering

Business
Intelligence Investigation
Services

Whistleblowing
services
Dispute and
Expert witness Litigation
Support

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Investigation Skill
Introduction
Every investigator responsible for conducting
investigations on behalf of their employer
has a responsibility to ensure they have the:
• Appropriate Skills
• Training, and
• Commitment to Effectively and
Efficiently Conduct an Investigation
of a complaint or allegation of a breach of
law or company policies.
Not every individual charged with investigations
responsibility can necessarily merely undertake formal
training and quickly become an accomplished investigator.
Primarily this is because Investigations Skill is an:
Art and not a science. The principles of being
a good investigator can be taught the same
as the principles of painting can be taught,
but not every body can become a master of
painting.
It takes both training and built-up experience
implementing the learned techniques and a
lot of patience
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Investigation Skill
Principle of Investigation

Basic Principle
The objectives to be met in achieving that aim are to identify
“An investigation is a search for the truth in the and confirm about each allegation is the following:
interests of justice and in accordance with the law”.

•An objective assessment of an act, omission, Who

situation or event to determine any breach.
What Where
•Evidence obtained lawfully.

How Why

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Investigation Skill
Role of Investigator

01. Responsible for the investigation.

02. Objective Approach

03. Concern with Proof of Innocence (exculpation)

and not only conviction of the guilty.

04. Objective Collector of Fact

05. Protect interests of organization in relation to

revenues, security and reputation.

06. Will be held accountable for actions and decisions.

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Investigation Skill
Role of Investigator

* College of Policing (2013) : Investigation process. https://www.app.college.police.uk/app-

content/investigations/investigation-process

Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 3838
Investigation Skill
Role of Investigator

The role of the investigator: Exhaust all avenues of inquiry Main Responsibilities

In carrying out the role of investigator, he or she must Determine Fraud

01.
consider carefully all potential sources of information and Committed
evidence and make full and proper inquiries. Sources to
be considered must include: Identify the
02.
Offender
Inspecting & Searching all Scenes Experts
Locate the
03.
Interviewing All Suspects Intelligence Database Offender

Provide Evidence
All Witness Digital or CCTV Recordings 04.
of Guilt

All Victims Telephone, Banking, Credit Cards

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Forensic Accounting

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Certified Fraud Examiner
The Profession

Financial Transactions &

Fraud Schemes Certified Fraud Examiner
(CFE) is a specialist in
Fraud Prevention & preventing and combating
Deterrence fraud.

Laws

Investigation

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Career Path in Consulting Firms
Partner

Director

Associate
Director

Manager

Assistant
Manager

Auditor Forensic Senior

Associate
Accountant
Associate
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 The Future of Forensic Accounting Investigation

Looking Forward Agencies

1. Changing corporate environment Government Audit Bodies (BPK & BPKP)

• Increasing awareness on good
corporate governance KPK
• Shifting role of internal audit
• Increasing regulatory requirement PPATK

2. Increasing public demand for good Big Four Firms (Deloitte, PWC, EY, KPMG)
governance and clean government.
Greater role of forensic accounting Financial Institution
profession in public area
Listed Companies
3. Increasing Global Investigation

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