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FORENSIC AUDIT PREPARED BY - AMEER SHAFIQ BIN KAMALULLAIL 1

FORENSIC AUDIT

PREPARED BY - AMEER SHAFIQ BIN KAMALULLAIL

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PRESENTATION OUTLINE 1 Understanding the terms Forensic accounting Forensic auditing 2 FORENSIC AUDIT PREVENTION DETECTION INVESTIGATION
PRESENTATION OUTLINE
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Understanding the terms
Forensic accounting
Forensic auditing
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FORENSIC AUDIT
PREVENTION
DETECTION
INVESTIGATION
Culture of honesty, openness and
assistance
Identify and understand how
accounting and behavioral symptoms
help in detection of fraud
Understand various types of
fraud investigation
Know how to eliminate
opportunities of fraud
Describe internal control to detect
fraud
Understand how to coordinate
in an investigation
Understand how to create
effective organization to minimize
fraud
Explain how to obtain
evidence by using different
forensic tools and kits
Understand the proactive of fraud
auditing
Understand the importance of
creating a comprehensive
approach of fighting fraud
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CASE STUDY
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FORENSIC AUDIT an examination and evaluation of a firms or individuals financial information for use as
FORENSIC
AUDIT
an examination
and evaluation of
a firms or
individuals
financial
information for
use as evidence in
court. Forensic
audit can be
conducted in order
to prosecute a
party for fraud,
embezzlement or
other financial
claims.

UNDERSTANDING THE TERMS

FORENSIC AUDIT an examination and evaluation of a firms or individuals financial information for use as

FORENSIC

ACCOUNTING

The use of accounts skills to investigate fraud or embezzlement and to analyse financial information for use in legal proceedings.

FORENSIC AUDIT an examination and evaluation of a firms or individuals financial information for use as

FORENSIC

AUDITORS

employed by corporations, government agencies, public accounting firms and consulting and investigative firms. Trained in detecting, investigating and deterring fraud and white collar crimes.

TO : Differentiate between forensic audit, forensic accounting and forensic auditors

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UNDERSTANDING THE TERM – Prevention Cure Preventing fraud is generally the most cost effective way to

UNDERSTANDING THE TERM – Prevention

Cure Preventing fraud is generally the most cost effective way to reduce losses from fraud. Prevention
Cure
Preventing fraud is generally the
most cost effective way to
reduce losses from fraud.
Prevention
3 fundamental activities:
is better than

Taking steps to create and maintain a culture of honesty and high ethics

Assessing the risks for fraud and developing concrete responses to mitigate the risks

Eliminate the opportunities for fraud

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CREATING A CULTURE OF HONESTY AND HIGH ETHICS 1 2 Tone at the top (proper modelling)
CREATING A CULTURE OF HONESTY AND HIGH ETHICS
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2
Tone at the top (proper
modelling)
Hiring the right kind of employees
Honesty can be reinforced
when a proper example is set
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Provide an employee
assistance program (EAP)
Verify all information on the applicants resume and
application
Require all applicants to affirm the truth of the matters
set forth in their application and resume
Train management to conduct thorough and skilful
interviews.
Implement and EAP that helps
employees deal with personal
and non-shareable pressures
in their lives.
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Create a positive work environment
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Ethical Maturity Model that
explains why people make
unethical decisions.
Create expectations about honesty by having a good
corporate code of conduct and conveying those
expectations throughout the organization.
Have open-door or easy policies.
Have positive personnel and operating procedures.
Ethical Ethical Leadership Leadership
Helping Helping others others to to be be Ethical Ethical
Honesty
Ethical Ethical Courage Courage
Willingness Willingness to to Pay Pay the the Price Price for for Ethics Ethics
Application Application of of Ethics Ethics to to Business Business Situations Situations
Fraudulent Fraudulent Practices, Practices, Misleading Misleading Advertising, Advertising, Unfairness Unfairness
 Those who will almost always be
honest
 Those who are situational-ly honest
 Those who will always be dishonest
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Personal Ethical Understanding
Personal Ethical Understanding
Right/Wrong, Fairness, Honesty, Personal Integrity, Respect for Others
Right/Wrong, Fairness, Honesty, Personal Integrity, Respect for Others
TO : Understand how to create a culture of honesty, openness and assistance.
ASSESSING AND MITIGATING THE RISK OF FRAUD 6 Accurately identifying sources and measuring risks Implementing appropriate

ASSESSING AND MITIGATING THE RISK OF FRAUD

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Accurately identifying sources and measuring risks

Implementing appropriate preventive and detective controls to mitigate those risks

Creating widespread monitoring by employees

Having internal and external auditors who provide independent checks on performance Identify, sourcing, measuring risks

TO : Know how to eliminate opportunities for fraud

ELIMINATING OPPORTUNITIES OF FRAUD Having good internal controls Discouraging collusion between employees and customer vendors and

ELIMINATING OPPORTUNITIES OF FRAUD

ELIMINATING OPPORTUNITIES OF FRAUD Having good internal controls Discouraging collusion between employees and customer vendors and

Having good internal controls

Discouraging collusion between employees and customer vendors and clearly informing vendors and other outside controls at the company’s policies against fraud

Monitoring employees and providing a hotline for anonymous tips (whistle- blowing system)

Creating an expectation of punishment

Proactive auditing

TO : Know how to eliminate opportunities for fraud

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CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action
CURRENT MODEL
VS
1
Fraud
occur
4
2
Resolu
Investi
tion
gation
3
Action

CREATING AN EFFECTIVE ORGANIZATION TO MINIMIZE FRAUD

SOUND ORGANIZATION – MINIMAL FRAUD Tone at the top

CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN
CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN
CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN

Education and Training

CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN

Integrity risk and control

CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN

Reporting and monitoring

CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN

Proactive fraud detection

CURRENT MODEL VS 1 Fraud occur 4 2 Resolu Investi tion gation 3 Action CREATING AN

Investigation and follow up

TO : Understand how to create effective organization to minimize fraud

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GOOD FRAUD AUDITING INVOLVES: Identifying the Building audit fraud programs to Identifying fraud symptoms of proactively
GOOD FRAUD AUDITING INVOLVES:
Identifying the
Building audit
fraud
programs to
Identifying fraud
symptoms of
proactively look
risk exposures
each
for symptoms
exposures
and exposures
Investigating
fraud
symptoms
identifies
GOOD FRAUD AUDITING
Very few organizations actively audit for fraud. Rather, their auditors are content to conduct financial,
operational, and compliance audits and to investigate fraud only when symptoms are so egregious that fraud
is suspected.
Organizations that proactively audit for fraud create awareness among employees that their actions are
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subject to review at any time. By increasing the fear of getting caught, proactive auditing reduces
fraudulent behavior.
TO : Understand the proactive of fraud auditing
3 •Identifying symptoms •Indicators •Red flags •Analyze data
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•Identifying symptoms
•Indicators
•Red flags
•Analyze data

UNDERSTANDING THE TERM – Detection

3 •Identifying symptoms •Indicators •Red flags •Analyze data UNDERSTANDING THE TERM – Detection Steps or action

Steps or action taken to discover a fraud that has been or is being committed.

Common proactive fraud detection – whistle blowing systems

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Ways fraud are

Primary ways to detect fraud

usually detected

By chance By providing ways for people to report suspicion of fraud By examining transaction records and documents to determine if there are anomalies that could represent fraud

2 nd proactive fraud detection:

Transaction to look for suspicious trends, numbers and other anomalies

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DETECTION THROUGH ACCOUNTING & BEHAVIORAL SYMPTOMS 1 Analytical symptoms 2 Accounting or documentary symptom 3 Lifestyle

DETECTION THROUGH ACCOUNTING & BEHAVIORAL SYMPTOMS

1 Analytical symptoms 2 Accounting or documentary symptom 3 Lifestyle symptoms 4 Control symptoms 5 Behavioural
1
Analytical symptoms
2
Accounting or documentary symptom
3
Lifestyle symptoms
4
Control symptoms
5
Behavioural and verbal symptoms
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Tips and complainants
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TO : Identify and understand how accounting & behavioral symptoms help in detection of fraud

UNDERSTANDING THE TERM – Investigation Investigation process Pre During Post The art of interviewing
UNDERSTANDING THE TERM – Investigation
Investigation process
Pre
During
Post
The art of
interviewing
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UNDERSTANDING THE TERM – Investigation Investigation process Pre During Post The art of interviewing 12
TYPES OF FRAUD INVESTIGATION a) Emotional, hostile or resistant witness Pre b) Irrelevancies 1. Know what
TYPES OF FRAUD INVESTIGATION
a)
Emotional, hostile or resistant witness
Pre
b)
Irrelevancies
1.
Know what are the information required
c)
Getting of the track
2.
Identify the difficulties
d)
Disruption
e)
Unexpected answer but relevant direction
3.
Developing the questions
4.
Choosing the interview settings
a)
Control
b)
Free from distractions
c)
Face to face – most preferred, instead of
telephone interview and written responses
DURING
d)
Recording oral evidence
1.
Oral evidence
2.
Team based approach for investigation
3.
Forensic examination
4.
Honesty Testing
5.
Data analysis - mining
POST
1.
Testimonial evidence
2.
Documentary evidence
3.
Physical evidence
4.
Personal observation
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TO : Understand various type of investigation
Explain how to obtain evidence using different forensic tools and kits
THE ART OF INTERVIEWING Minimize the possibility of people subsequently denying, changing or contradicting the information

THE ART OF INTERVIEWING

THE ART OF INTERVIEWING Minimize the possibility of people subsequently denying, changing or contradicting the information

Minimize the possibility of people subsequently denying, changing or contradicting the information they has given.

To ensures that the IO is properly prepared for the interview.

Be seen to be impartial throughout the investigation.

At the outset of every interview it is important that the IO clearly inform the interviewee of the reason for the interview, although it is not necessary to mention all he factors relevant to the subjects under discussion at this stage.

The IO must avoid making any statements that cause a witness to believe that they will obtain any privilege, concession or immunity from official action.

TO :Understand how to coordinate in an investigation

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CASE STUDY – ATM SKIMMING Skimming is any scheme in which cash is stolen from an
CASE STUDY – ATM SKIMMING
Skimming is any scheme in which cash is stolen from an organization before it is recorded on the
organization’s books and records.
Fraudster places
Customer performs
Fraudster obtains ATM
Fraudster perform
skimming device
withdrawal at the
card information and
withdrawals at
at the ATM
affected ATM
produce clone card
overseas ATMs
PREVENTION
DETECTION
INVESTIGATION
1.
Conversion to chip-
1.
Detection through
1.
Engagement with
based ATM card
reported cases
Customer to gauge
2.
Introduction of
2.
Setting of parameters
information
Overseas Withdrawal
to identify anomalies
2.
Establishing the
Flag facilities
transaction
existence of 2 nd ATM
3.
Daily-frequent
3.
Post detection
card
inspection at ATMs by
escalation procedure
3.
Reviewing the pattern
various parties
by various
of disputed withdrawal
4.
Installation of anti-
stakeholders
4.
Establishing the most
skimming devices at
possible point of
the ATM
compromise
5.
Review placement of
5.
Reviewing the gaps
ATMs
and recommending
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controls
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