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CCH® CPELink Basics of Fraud Investigations
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Materials, including a copy of your final exam questions, are
available to download from the top bar. The final exam is
Dr. Robert K. Minniti, DBA, CPA, CFE, Cr.FA, CVA, MAFF, CGMA, PI
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Webinar Objectives
• After completing this webinar, you will be able to:
1. Recognize which states require PI licensing
2. Recognize illegal investigative activities
3. Understand the predication of fraud
4. Review the procedures for conducting a fraud investigation
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Accepting an Engagement
• Do you have the appropriate knowledge of the industry and type of fraud?
• Do you have the required licenses?
• Have you conducted a conflict check?
• Developing the scope of the engagement.
• Best Practice - Retainers
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Do You Need a PI License?
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PI License Requirements
• Requirements for a PI license vary by state but generally include:
1. Must be 21 Years old
2. Must have a high school diploma or GED
3. No criminal record
4. FBI fingerprint check
5. Experience and testing requirements vary by state
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States Requiring a PI License With No Exceptions
• Nebraska
• New Jersey
• Oklahoma
• Pennsylvania
• Rhode Island
• Connecticut
• Delaware
• Massachusetts
• Montana
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States Requiring a PI License With Exceptions for CPAs
• Kansas
• Kentucky
• Louisiana
• Maryland
• Michigan
• Missouri
• Alabama
• Arkansas
• Colorado
• Florida
• Illinois
• Indiana
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States Requiring a PI License With Exceptions for CPAs
• Oregon
• Tennessee
• Texas
• Utah
• Virginia
• Nevada
• New Hampshire
• New Mexico
• New York
• North Dakota Ohio
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States Requiring a PI License With Exceptions for CPAs
• Note:
▪ The Virginia CPA exception only applies to Virginia CPAs
▪ CPAs licensed in other states must obtain a Virginia PI license
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States Requiring a PI License With Exceptions for Attorneys
• New York
• North Carolina South Carolina Vermont
• West Virginia Wisconsin
• Florida
• Georgia
• Iowa
• Louisiana
• Maine
• Minnesota
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States Requiring a PI License With Exceptions for Specific Types of Investigations
Arizona
California
Hawaii
Maine
Washington
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States That Do Not Require a PI License
Some municipalities in Alaska and Wyoming do require licensing at the local level
Alaska
Idaho
Mississippi
South Dakota
Wyoming
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PI License Requirements for CFEs & MAFFs
• Generally speaking, a CFE or MAFF needs a PI license to conduct an investigation
• Except for the 5 states that do not require licensing
• Maine, Ohio and Tennessee have exceptions if you are investigating for expert witness testimony
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Interstate Investigations
• The reciprocity for licensing varies between states.
• Generally, you must report to the licensing authority of the state you will be working in
• You should check with the state in question prior to commencing an investigation
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What Could Go Wrong?
• There could be both civil and criminal penalties for operating without a license.
• California has a special unit called the Unlicensed Activity Action Unit (UAAU) which is part of the Bureau of Security and Investigative Services (BSIS) whose sole mission is to investigate and punish individuals and firms conducting investigative services without proper licensing.
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What Could Go Wrong?
• Motion to exclude testimony at trial
• Inadmissibility of evidence
• Sanctions and loss of CPA and other professional licenses
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What Could Go Wrong?
• In some states anyone can report unlicensed activity by completing a form on the internet
• The penalties for performing unlicensed activity can be severe, in Michigan, for example, it is a felony punishable by up to four years in jail and/or a $5000.00 fine
• In Indiana, although it is only a misdemeanor the penalty is forfeiture of all compensation earned while performing unlicensed activities
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Pretexting
• One thing to avoid when conducting an investigation is pretexting for information.
▪ Although pretexting used to be a common method for locating financial assets it is now illegal as it was banned by the Gramm-Leach-Bliley Act of 1999 and pretexting should not be used to find financial assets.
▪ Pretexting is defined as the practice of presenting oneself as someone else in order to obtain private information.
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Three Types of Surveillance
1. Stationary or Fixed Point
2. Moving or Tailing
3. Electronic Surveillance
▪ KNOW THE LAW
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Recording Conversations
• Federal law allows you to record a conversation or phone call as long as one party to the conversation consents.
• See 18 U.S.C. 2511(2)(d)
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Recording Conversations
▪ Massachusetts
▪ Nevada
▪ New Hampshire
▪ Pennsylvania
▪ Vermont
▪ Washington
• States that require two party consent:
▪ California
▪ Connecticut
▪ Delaware
▪ Florida
▪ Illinois
▪ Maryland
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Review Question 1
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Video Recordings
• Video recordings without sound are usually legal
• Except when there is an expectation of privacy
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Public Records
▪ Court Records
▪ Social Media
▪ Internet
• Searching public records is always legal including:
▪ Driving Records
▪ Criminal Records
▪ Real Estate Records
▪ Bankruptcy Records
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Consent Required
• Consent is required to search:
▪ Credit Reports
▪ Medical Records
▪ Tax Records
▪ Academic Records
▪ Clue Reports
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Consent Required
• When consent is required, although it is not required, it is recommended that you have the suspect sign a written consent agreement.
• Suspects often forget verbal conversations
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Illegal Investigation Activities
• Trespassing
• Wiretapping
• Tampering with Mail
• Hacking
• Bribery
• Impersonation of a law enforcement officer
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Gathering Evidence
Direct Evidence
VS
Circumstantial Evidence
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Gathering Evidence
• Types of Evidence
1. Documentary Evidence
2. Physical Evidence
3. Testimonial Evidence
4. Personal Observation
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Review Question 2
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Documentary Evidence
• Consists of information obtained from paper and electronic documents, found on hard drives, data storage media (for example, CDs, DVDs, and jump drives), communication networks (phone systems and servers), online (web sites and social media), and mobile devices and other sources of data.
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Physical Evidence
• Includes items such as canceled checks, signed documents, misappropriated assets, signatures, fingerprints, DNA, photos, video, and other tangible evidence that can be associated with the investigation.
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Testimonial Evidence
• Is provided by individuals who are interviewed for information.
▪ These individuals can include suspects as well as other individuals who have information pertinent to the investigation.
▪ t can also include evidence from deposition testimony.
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Personal Observation
• Is evidence that is personally observed by the forensic accountant and can include surveillance and covert operations.
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Obtaining Evidence
➢Consent
➢Subpoena
➢Warrant
➢Deposition
➢ Interrogatories
➢Public Domain
➢ Interviews
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Gathering Electronic Evidence
➢Use a hardware blockers
➢Mirror all devices
➢Metadata
➢Removable media analysis
➢Recycle bin and deleted files
➢Review backup media
➢The cloud
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Data Formats
• Unstructured data
▪ Email
▪ Documents
▪ Social Media
▪ Demographics
▪ Geographic
▪ Internet
• Physical documents
▪ Electronic information
• Structured data
• Transactional data
• Audit trails
• Databases
• Spreadsheets
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Data Analysis
• Quantitative Analysis
▪ Performed on numerical data
➢ Accounting data
➢ Performance data
• Qualitative Analysis
▪ Performed on unstructured data
➢ Information from questionnaires
➢ Customer, employee, and vendor surveys
➢ Email, text messages, etc.
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Data Mining
• Data mining uses algorithms to identify data in large data bases. There are many types of algorithms, some of the most common are the following:
• A chain of custody form is used to document who has care, custody and control of the evidence from the time it is collected until it is delivered to the court.