Advanced Financial Crime Investigations and Anti-Money Laundering Overview

FINANCIAL CRIME
INVESTIGATIONS
Advanced Financial Crime Investigation & Anti -
Money Laundering
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Presenters’ Profile
Sina Kamagate is a Chartered Accountant, Chartered Banker and
a faculty member of the National Banking College, Accra. Sina
holds Master of Research in Finance and is currently pursuing a
Doctoral programme in Finance.
Sina also holds Association Cambiste International (ACI) in
Treasury Management. He has over 10 years experience in
finance and accounting, having work with EY Ghana, Fidelity
bank and currently the Chief Internal Auditor of GCB Bank Ltd.
He lectures Risk Management,  Corporate Governance,  Treasury
Management  and Finance of International Trade at the Chartered
Institute of Bankers (Gh).
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Overview
Estimates in Financial Reporting
Errors
Fraud in Perspective (Financial Crime)
Internal Audit & Investigations
Understanding Investigations
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Change in Accounting Estimate? IAS 8
An adjustment of carrying amount of an asset or liability;
 
A
n adjustment of the amount of periodic
consumption of an asset; that results from the assessment of
the present status of assets and liabilities
Expected future benefits of assets
Obligations associated with liabilities
 
Change in accounting estimates result from:
New information; or
New developments
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Reason for Estimation
When an item of financial statements cannot be
measured precisely, it can only be estimated. This is
because of:
      
Uncertainties inherent in the business;
      
Where judgments are involved;
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Where Estimation is Required?
Estimates may be required of:
Impairment of financial instruments;
Inventory obsolescence;
Fair value of financial assets or financial liabilities;
Warranty obligation etc
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Change in Accounting Estimate
Change in the accounting estimate becomes necessary:
If changes occur in the circumstances on which the
estimate was based; or
 
 
As a result of a new information; or
 
More experience
ERRORS……………?
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Definition of Errors
An error is a financial misstatement that was not caused
intentionally. In other words, unintentional misstatement of
entries. An accounting error can include discrepancies in
figures, or might be an error in using accounting policy
incorrectly (i.e., a compliance error).
Accounting error should not be confused with 
fraud,
 
which
is an intentional error in an accounting item, usually to
hide or alter data for personal gain.
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Definition of Errors
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Types of Errors
Error of Principle
Error of Omission
Error of Commission
Complete Reversal of Entries
Compensating Errors
Error of Transposition
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FRAUD…………?????
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Defining ‘Fraud’ (Financial Crime)
“..a deliberate act of omission or commission by any
person, carried out in the course of a banking
transaction or in the books of account maintained
manually or under computer system in banks, resulting
into wrongful gain to any person for a temporary period
or otherwise, with or without any monetary loss to the
bank
.”
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Who to Look Out For
In ‘How to Embezzle a Fortune’, Bev Harris says that fraudsters and
embezzlers are the nicest people in the world:
People who profess deep religious commitments
CAs/ACCAs with impeccable resumes
Loyal business managers who arrive early, stay late, and never take a
vacation
Your best friend
Your partner
Family members
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WHY………………..?
Loyal employees have bills to pay and families to feed.
IN A GOOD ECONOMY
, 
they would never think of
committing fraud against their employers.
 
BUT
ESPECIALLY NOW,
 
organizations must be vigilant
during these turbulent times by ensuring proper fraud
prevention procedures are in place.
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Why People Commit Fraud
Most people who commit fraud against their employers are not career
criminals. The vast majority are trusted employees who have no
criminal history and who do not consider themselves to be lawbreakers.
So the question is, what factors cause these otherwise normal, law-
abiding persons, to commit fraud?
 
The best and most widely accepted model for explaining why 
"good
people" 
commit fraud is the 
FRAUD TRIANGLE
. This is a model
developed by Dr. Donald Cressey, a criminologist whose research
focused on embezzlers, people he called "trust violators." 
 
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The Fraud Triangle
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Pressure
Inability to pay one's bills
Drug or gambling addiction
Need to meet earnings to sustain investor confidence
Need to meet productivity targets at work
Desire for status symbols such as a bigger house, nicer
car, etc.
Threat of imminent bankruptcy, foreclosure or hostile
takeover
Non-shareable problems and the importance of status 
 
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Opportunity
The nature of the industry or the entity’s operations may
provide opportunities to engage in fraudulent financial
reporting due to:
Domination of a certain industry sector that allows the
entity to dictate terms or conditions to suppliers or
customers that may result in inappropriate or non–arm’s-
length transactions
Assets, liabilities, revenues or expenses based on
significant estimates that involve subjective judgments or
uncertainties that are difficult to corroborate
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Opportunity
Significant operations located or conducted across
international borders in jurisdictions with differing
business environments and cultures
Management may be ineffective in its monitoring
due to:
Domination of management by a single person or small group, in a
non–owner-managed business, without compensating controls
Ineffective oversight over the financial reporting process and internal
control by those charged with governance
The organizational structure may be too complex
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Opportunity
Difficulty in determining which individuals have a
controlling interest in the entity
Overly complex organizational structure involving
unusual legal entities or managerial lines of author
Significant, unusual or highly complex transactions,
     especially those close to year-end, that pose difficult
     “substance over form” questions
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Rationalisation
The third leg of the fraud triangle is rationalization. As we stated
already, the vast majority of fraudsters are first-time offenders with no
criminal past.
They do not view themselves as criminals. They see themselves as
ordinary, honest people who are caught in a bad set of circumstances.
Because the fraudster does not see himself as a criminal, he must justify
the crime to himself in a way that makes it an acceptable or justifiable
act. This is known as rationalization. Common rationalizations include
the following: I was only borrowing, I must get my fair share, the bank
is not been fair
 
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Fraud Trends
1990–1999
Ponzi schemes
Fake currency
Cheque forgery
Advancing loans without adequate due diligence
Siphoning of investors’ money through fictitious
companies
Use of fictitious government securities
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Fraud Trends
2000–2015
Tax evasion and money laundering
Cybercrime
Debit/credit card fraud
Identity theft
Collusive frauds emanating kickbacks to employee of
financial institutions
Use of forged instruments such as stamp papers and
shares
Violation of ‘Know Your Customer’ (KYC) norms
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Fraud Trends
2015 to date
Tax evasion and money laundering
Cybercrime
Debit/credit card fraud
Cash suppression
Social engineering
Use of forged instruments such as stamp papers and
shares / clone cheques
Violation of ‘Know Your Customer’ (KYC) norms
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Managing the Risk
Managing fraud risks and factors
Cultivate and demonstrate an honest and ethical corporate
culture
Be skeptical, inquisitive and diligent
Understand fraud risks, including potential management
override of controls and potential fraud related to revenue
recognition
Discuss fraud risks with other audit committee members
Communicate with management and the auditors about
fraud risks, known and suspected fraud, and controls to
prevent and detect fraud
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Combating the Challenge………
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Technology Solutions
Awareness/ Training
Policy Changes
Awareness
Customer awareness
Newspapers & other media
SMS alerts
Emails
Staff awareness
Training programmes
Practicals
Online
Culture building
Rewarding ‘fraud preventers’
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Internal Audit & Investigation
Internal audit is an assurance and consulting activity designed to
add value to and improve an 
organisation’s 
operations. 
This 
is
done through evaluating a company's internal controls, including
its  
corporate 
governance and accounting processes. It is mainly
driven 
by the 
three 
lines of defence model for 
effective
governance,  
risk 
management and
 
control.
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Internal Audit & Investigation
An investigation in its 
general 
sense is an active 
effort
to find  out something, involving a systematic process
and thorough  attempt to 
learn 
the facts about something
usually complex  or hidden.
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Compare
INTERNAL AUDIT
A proactive
 
process
A continuous process of risk
 
assessment
Broader scope
Stakeholders are usually clear what
to  expect
Reporting is more general
 
purpose
A walkthrough of defined
 
processes
Conducted by auditors
Laws 
are not a significant consideration
More influential and persuasive in
nature
INVESTIGATION
A reactive
 
process
An intentional 
effort 
to address an
allegation
Limited
 
scope
Need 
to conscientize the
 
requestor
Private communication of
 
results
More than just
 
walkthroughs
Conducted by an expert or specialised
investigative team
Need 
to be aware of relevant
 
laws
Critical and
 
conclusive
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Assessing the Work Requested
Is an investigation
 
required?
Identify all
 
stakeholders
Outcomes sought by the
 
stakeholder
Regulatory or legal
 
concerns
Access to available knowledge and
   sources
 
of  information
Format 
of the
 
investigation
Legal
 
process
Who 
must be notified
Immediate steps
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Investigation Specific Consideration
Physical 
risk 
factors and team
    
safety
Multi-institution
 
investigations
Regulatory and legal
 
factors
Language and cultural
 
factors
Transportation 
and
 
coordination
Data privacy
 
laws
Working 
with government, local
    officials 
and law  enforcement
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Necessary Skills and Resources
General 
considerations
 
include:
Investigation subject
 
matter
Tasks
 required
Locations
 
involved
Specific requirements (e.g., background  checks, data analytics, forensic
technology)
Collaboration with other financial
 
institutions
Allocation of common
 
tasks
Training 
and
 
supervision
Use of external
 
specialists
Expert
 
witnesses
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Why Planning?
Co-ordinate 
strategy and approach
 
to:
Measure 
progress 
against
 
objectives
Co-ordinate
 
resources
Estimate time and cost for
 
completion
Identify
 
risks
Manage stakeholder
 
expectations
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Work Plan Development
Enables the investigation team to
 
answer:
What are 
our
 
objectives?
What 
actions/ activities 
are 
we taking
 
to
       achieve those
 
objectives?
How 
are 
we 
progressing 
towards
       achieving  our objectives?
Have we achieved our objectives at
 
the
       conclusion of the
 
engagement?
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Basic Principles- Mandate to Report
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Design a plan that 
fits 
and suits overall approach
 
adopted
reconsider on continuous basis and record
amendments
Discuss and
 
reconsider
M
anda
te
Investigation
 
objectives
Sub-objectives
Activities
T
a
sks
Typical Tasks for an Incident
Understand
1.
Obtain all relevant documents in support 
of
the  particular
 
transaction
2.
Understand the relationship and
interaction  between the various
documents
3.
Map 
out 
the transaction in the process
considering amounts, dates, relativity 
of
documents with each other and individuals
that  performed certain actions in the
process
4.
Where possible, interview individuals to
obtain a  better understanding (only in
instances where 
it  
will 
not 
create
unnecessary
 
suspicion) 
 
Gather and
 
analyse
1.
Extract or summarise transactions
associated  with the incident – such as the
same vendor  through data
 
analytics
2.
Extract documents in support 
of 
the
above  extraction
3.
Supplement the data extracted above with
information that is 
not 
captured 
but
critical in  our understanding obtained
above
4.
Extract transactions through data analysis
that  fit a similar pattern based on the
understanding  obtained above (the data
analysis should be  applied across all parts
of 
the business to  determine whether
similar patterns exist  elsewhere)
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Typical Tasks for an Incident
G
a
th
er
 
a
n
d
 
a
n
alyse
 
(
c
ont
’d)
5.
Advise other 
affected 
work streams 
of
results  
affecting 
their areas 
of
investigation
6.
Repeat tasks 1 to 3 above on additional
transactions identified through the data
analysis
7.
If no more transactions are
identified,  reconsider our
understanding, conclude
, 
document
conclusion and continue to
investigate the known
 
instances
Select
1.
Based on the analysis performed through the
gathering and analysis tasks, identify those
that  are confirmed to be suiting the
 
pattern
2.
Select from those transactions for
detailed  investigation (agree with team
leader on  selection)
3.
Prepare a schedule reflecting the selection
made and extend with additional
information  such as individuals 
affected
and other  information 
not 
captured in the
data 
but  
required for further
 
investigation
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Typical Tasks for an Incident
Investigate
1.
Collate documentation in support 
of 
the
schedule prepared in task 
2. 
in the
selection  part (main
 
exhibits)
2.
Identify individuals and collate additional
sets 
of  
documents per individual (interview
exhibits)
3.
Perform interviews with individuals,
using  documentary and other support
as
 
basis
4.
Evaluate results 
of 
interviews and
consider  whether our understanding was
correct 
and  accurate as well as whether
our findings are  conclusive.
Conclude and
 
report
1.
Consider the findings made and conclude
whether the transactions are isolated
instances.  
If 
so, prepare a report on the
findings made either as an isolated instance
or as part  
of 
a
 
pattern
2.
When reporting on patterns, consider the
use 
of  
schedules and tables to capture the
pattern in  the report as opposed to a
discussion on  individual
 
transactions
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Typical Tasks for an Incident
UNDERSTAND
1.
Obtain a clear understanding 
of 
the relevant
pattern
2.
Identify reasons and support for assessment  and
conclusion on risk
 
pattern
3.
Determine, based on our process analysis  already
completed, the various elements 
of 
the  transaction
cycle 
(if 
the process is 
not 
fully  understood 
at 
this
point, proceed to task 4)
4.
Select a transaction and map 
out 
the  transaction in
the process considering amounts,  dates, relativity 
of
documents with each other  and individuals that
performed certain actions in  the process
5.
 Based on task 
4, 
confirm our understanding 
of  
the
process and only 
if 
still 
not 
completely  understood,
conduct additional
 
interviews
Gather and
 
analyse
1.
Extract or summarise transactions associated  with
our understanding 
of 
potential
 
pattern
2.
Extract documents in support 
of 
the
 
above
3.
Supplement the data extracted above with
information that is 
not 
captured 
but 
critical in  our
understanding obtained
 
above
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Typical Tasks for an Incident
Gather and 
analyse
 
(cont’d)
5.
Extract transactions through data analysis that
fit a similar pattern based on the
understanding  obtained above (the data
analysis should be  applied across all parts 
of
the business to  determine whether similar
instances 
exist  
elsewhere)
6.
Advise other 
affected 
work streams 
of
results,  
affecting 
their areas 
of 
investigation
7.
Repeat tasks 1 to 3 above on additional
transactions identified through the data
analysis
8.
If no more transactions are identified,
reconsider our understanding,
conclude,  document conclusion and
continue to  investigate the known
instances
If more instances are identified, continue to  investigate
selection 
of 
instances
 
separately
Select
1.
Based on the analysis performed through the
gathering and analysis steps identify those
transactions that are confirmed to be suiting the
pattern
2.
Proceed to investigate instances selected for
investigation – see Incident tasks
 
briefing
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Planning Deliverables
Beginning at the end, consider the end
 
result:
What 
deliverable will be 
required 
to address
        the issues
What 
information will the deliverable contain
Work 
backwards to determine how and
        
where 
the team will obtain the
 
information
Other factors to consider:
To 
whom 
are 
we
 
reporting?
Purpose of
 reporting
Progress reporting
Format 
of
 
deliverables
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Format for Deliverables
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Subcontractors
Forensic
 
subcontractors
Circumstances in which the services of
a  subcontractor may be
 
needed:
Document
 
analysts
Handwriting/fingerprint
 
experts
Private
 
investigators
Industry/sector
 
experts
Scanning service
 
providers
Sampling
 
expert/statistician
Non-forensic
 
subcontractors
Circumstances in which the services
of a  
non-forensic 
professional may be
needed:
Valuation
Determination of quantities or
physical  characteristics
Determination of amounts
derived
 
by  using specialized
techniques or  methods
Interpretation of technical
requirements,  regulations, or
agreements
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Key Points to Remember
Assess the investigation requested carefully 
before 
you  begin.
You 
may not have the 
skills 
and/or 
resources 
to  complete it.
There 
may also be things you need to do  
immediately!
Have clear objectives. 
Periodically 
confirm the  objectives
with the stakeholders. Regularly confirm
 
if  you 
are 
on
 
track.
Begin at the end. Be clear on the
 
deliverables.
Continually 
re-evaluate 
whether 
there 
is adequate
predication.
Maintain a dynamic 
work
 
plan.
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Information & Evidence
INFORMATION
Things 
that 
are or can be
known about a  
given 
topic;
communicable 
knowledge of
something
Devoid of some or 
all 
of
the
 
integrity  features
required 
for
 
evidence
Not per se capable of
admission
 
as  evidence 
in
a legal dispute
 
forum
EVIDENCE
Facts or observations
presented in
 
support  of an
assertion
Describable and
capable of
 
being
assessed 
for truth 
of
contents
Capable of being recognised
as
 
evidence  and 
tested in
legal dispute
 
forums
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Assessing the Information
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Recognise 
that
timing is
 
crucial
Ask
 
questions
It is 
a
 
continuous
process
Alternative sources
to obtain various
versions of a
document
Consider 
the
 
end
state 
of 
the
investigation
Have a clear
under
s
t
an
d
i
ng
of
 
issues
Barriers to Gathering Information
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Ethical
 
barriers
Data privacy laws
Mandate
 
restrictions
Legal process and law of evidence
Professional
 
standards
Sanctity of contract
Determining the Source of Information
Medium/
 
Nature
Location
Custodian
Information
 
management
Investigate for
 
sources
Technology
Feasibility and
 
reasonability
Alternatives
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Sources of Documentary Evidence
PUBLIC
 
RECORDS
By 
law, 
a 
requirement for
governmental  
agencies 
to
keep
Examples:
-
Real property
 
records
-
Birth 
and Death
 
records
-
Property tax
 
records
NON-PUBLIC
 
RECORDS
Information 
about a person
or business  considered 
to 
be
private 
and
 
confidential
Examples:
-
Banking
 
records
-
Tax
 
records
-
Credit records of
 
individuals
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Sources of Documentary Evidence
DIRECT
Shows 
the facts at issue 
based on 
first
impression  
from direct
 
observation
Examples:
-
Written/ signed
 
statements
-
Cheque 
in the 
name 
of a
 
suspect
INTERNAL
Generated and 
kept 
within 
the
 
organisation
Examples:
-
Accounting system
 
data
-
Expense
 
documentation
-
Proof of 
payment 
to
 
vendors
CIRCUMSTANTIAL
Proves or disproves 
facts of 
an 
issue
indirectly, 
by  
inference
Examples:
-
Deposits 
into 
suspect’s
 
account
EXTERNAL
Generated and 
kept 
outside 
the
 
organization
Examples:
-
Property 
records
-
Legal
 
records
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Key Points to Remember
Involve the lawyers from the
 
bank
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Areas of Consideration
1.
Chain of custody – collect, manage and
 
preserve
2.
Interest of relevant
 
Regulators
3.
Reliance in formal
 
proceeding
4.
Originals remain in same
 
conditions
5.
Reporting
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Interview Goals
A professional
 
conversation
Structured
Purpose
The main objectives of an interview is
 
to:
Collect 
information 
or
 
evidence
Resolve an
 
issue
Determine a course of
 
action
Provide 
persons 
opportunity to 
respond
 
to  allegations
     
concerning
 
them
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Interview Participant Voluntarily
Interviewee participates under
   their own free
 
will
Access to
 
representation
Consideration of organisational
Codes of
 
Conduct
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Who Do We Interview?
Normally our first interview will be with the
     reporting person or
 
department
We 
then interview a neutral
 
witness
Interview corroborating
 
witnesses
Prime 
person of interest (suspect) are normally
     interviewed upon completion of the
 
investigation
*Suspects 
may 
be interviewed earlier if
 
needed.
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Interview & Interrogation
Interview
A 
professional discussion with
a  specific
 
goal
Normally a person of
interest/witness
Interviewee must be
 
comfortable
Anticipate the fears, needs 
and
anxieties 
of the interviewee
and  
address
 
these.
Allow interviewee 
to
 
speak.
Interrogation
Designed 
to 
extract confessions
where we already have other
concrete evidence connecting the
suspect 
to 
the
 
crime.
Normally a
 
suspect/accomplice
Normally involves direct questions
being asked by
 
interrogator
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Preparation
Prepare a comprehensive list of
all  aspects that need 
to 
be
addressed
Prepare two sets of all
supporting  documentation
Allow for adequate time 
to
prepare  with interview
 
team
Normally only interview one person
at  a time.
Allow for adequate time 
to 
conduct
the
 
interview.
Decide on a location that is private
and do not allow any
 
interruptions
Do not encourage the use of mobile
phones
Give interviewees breaks if they
want
 
one
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The Interview
Introduction
-
Introduce yourself and 
the
 
team
-
Explain 
the background and purpose 
the
 
interview
-
Explain to the interviewee if you 
are
 
recording
The
 
interview
-
Commence 
with 
general and simple
 
questions
-
Consider 
varying 
roles of 
the 
team
 
members
-
For 
pertinent 
questions, 
allow the interviewee to 
complete 
their 
answers and do not
disrupt  
them
-
Maintain 
control of the
 
process
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The Interview
-
Explain to interviewee that you will 
be taking 
notes 
or
making a recording 
to 
accurately reflect  
their
 
responses.
-
When 
to 
complete 
note
 
preparation?
-
Who takes 
the
 
notes?
-
Reflect 
all 
basic 
information 
(Could become
 
evidence)
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Explore the world of advanced financial crime investigations, anti-money laundering, and the importance of estimating financial reporting errors. Delve into the role of internal audit and investigations, understand the significance of changes in accounting estimates, and learn why estimation is vital in financial statements. Discover where estimation is required and why changes in accounting estimates are necessary in today's financial landscape.


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  1. FINANCIAL CRIME INVESTIGATIONS Advanced Financial Crime Investigation & Anti - Money Laundering www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  2. Presenters Profile Sina Kamagate is a Chartered Accountant, Chartered Banker and a faculty member of the National Banking College, Accra. Sina holds Master of Research in Finance and is currently pursuing a Doctoral programme in Finance. Sina also holds Association Cambiste International (ACI) in Treasury Management. He has over 10 years experience in finance and accounting, having work with EY Ghana, Fidelity bank and currently the Chief Internal Auditor of GCB Bank Ltd. He lectures Risk Management, Corporate Governance, Treasury Management and Finance of International Trade at the Chartered Institute of Bankers (Gh). www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  3. Overview Estimates in Financial Reporting Errors Fraud in Perspective (Financial Crime) Internal Audit & Investigations Understanding Investigations www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  4. Change in Accounting Estimate? IAS 8 An adjustment of carrying amount of an asset or liability; An adjustment of the amount of periodic consumption of an asset; that results from the assessment of the present status of assets and liabilities Expected future benefits of assets Obligations associated with liabilities Change in accounting estimates result from: New information; or New developments www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  5. Reason for Estimation When an item of financial statements cannot be measured precisely, it can only be estimated. This is because of: Uncertainties inherent in the business; Where judgments are involved; www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  6. Where Estimation is Required? Estimates may be required of: Impairment of financial instruments; Inventory obsolescence; Fair value of financial assets or financial liabilities; Warranty obligation etc www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  7. Change in Accounting Estimate Change in the accounting estimate becomes necessary: If changes occur in the circumstances on which the estimate was based; or As a result of a new information; or More experience ERRORS ? www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  8. Definition of Errors An error is a financial misstatement that was not caused intentionally. In other words, unintentional misstatement of entries. An accounting error can include discrepancies in figures, or might be an error in using accounting policy incorrectly (i.e., a compliance error). Accounting error should not be confused with fraud,which is an intentional error in an accounting item, usually to hide or alter data for personal gain. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  9. Definition of Errors www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  10. Types of Errors Error of Principle Error of Omission Error of Commission Complete Reversal of Entries Compensating Errors Error of Transposition www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  11. FRAUD????? www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  12. Defining Fraud (Financial Crime) ..a deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of account maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  13. Who to Look Out For In How to Embezzle a Fortune , Bev Harris says that fraudsters and embezzlers are the nicest people in the world: People who profess deep religious commitments CAs/ACCAs with impeccable resumes Loyal business managers who arrive early, stay late, and never take a vacation Your best friend Your partner Family members www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  14. WHY..? Loyal employees have bills to pay and families to feed. IN A GOOD ECONOMY, they would never think of committing fraud against their employers. BUT ESPECIALLY NOW, organizations must be vigilant during these turbulent times by ensuring proper fraud prevention procedures are in place. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  15. Why People Commit Fraud Most people who commit fraud against their employers are not career criminals. The vast majority are trusted employees who have no criminal history and who do not consider themselves to be lawbreakers. So the question is, what factors cause these otherwise normal, law- abiding persons, to commit fraud? The best and most widely accepted model for explaining why "good people" commit fraud is the FRAUD TRIANGLE. This is a model developed by Dr. Donald Cressey, a criminologist whose research focused on embezzlers, people he called "trust violators." www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  16. The Fraud Triangle www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  17. Pressure Inability to pay one's bills Drug or gambling addiction Need to meet earnings to sustain investor confidence Need to meet productivity targets at work Desire for status symbols such as a bigger house, nicer car, etc. Threat of imminent bankruptcy, foreclosure or hostile takeover Non-shareable problems and the importance of status www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  18. Opportunity The nature of the industry or the entity s operations may provide opportunities to engage in fraudulent financial reporting due to: Domination of a certain industry sector that allows the entity to dictate terms or conditions to suppliers or customers that may result in inappropriate or non arm s- length transactions Assets, liabilities, revenues or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  19. Opportunity Significant operations located or conducted across international borders in jurisdictions with differing business environments and cultures Management may be ineffective in its monitoring due to: Domination of management by a single person or small group, in a non owner-managed business, without compensating controls Ineffective oversight over the financial reporting process and internal control by those charged with governance The organizational structure may be too complex www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  20. Opportunity Difficulty in determining which individuals have a controlling interest in the entity Overly complex organizational structure involving unusual legal entities or managerial lines of author Significant, unusual or highly complex transactions, especially those close to year-end, that pose difficult substance over form questions www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  21. Rationalisation The third leg of the fraud triangle is rationalization. As we stated already, the vast majority of fraudsters are first-time offenders with no criminal past. They do not view themselves as criminals. They see themselves as ordinary, honest people who are caught in a bad set of circumstances. Because the fraudster does not see himself as a criminal, he must justify the crime to himself in a way that makes it an acceptable or justifiable act. This is known as rationalization. Common rationalizations include the following: I was only borrowing, I must get my fair share, the bank is not been fair www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  22. Fraud Trends 1990 1999 Ponzi schemes Fake currency Cheque forgery Advancing loans without adequate due diligence Siphoning of investors money through fictitious companies Use of fictitious government securities www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  23. Fraud Trends 2000 2015 Tax evasion and money laundering Cybercrime Debit/credit card fraud Identity theft Collusive frauds emanating kickbacks to employee of financial institutions Use of forged instruments such as stamp papers and shares Violation of Know Your Customer (KYC) norms www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  24. Fraud Trends 2015 to date Tax evasion and money laundering Cybercrime Debit/credit card fraud Cash suppression Social engineering Use of forged instruments such as stamp papers and shares / clone cheques Violation of Know Your Customer (KYC) norms www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  25. Managing the Risk Managing fraud risks and factors Cultivate and demonstrate an honest and ethical corporate culture Be skeptical, inquisitive and diligent Understand fraud risks, including potential management override of controls and potential fraud related to revenue recognition Discuss fraud risks with other audit committee members Communicate with management and the auditors about fraud risks, known and suspected fraud, and controls to prevent and detect fraud www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  26. Combating the Challenge Technology Solutions Awareness/ Training Policy Changes www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  27. Awareness Customer awareness Newspapers & other media SMS alerts Emails Staff awareness Training programmes Practicals Online Culture building Rewarding fraud preventers www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  28. Internal Audit & Investigation Internal audit is an assurance and consulting activity designed to add value to and improve an organisation s operations. This is done through evaluating a company's internal controls, including its corporate governance and accounting processes. It is mainly driven by the three lines of defence model for effective governance, risk management and control. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  29. Internal Audit & Investigation An investigation in its general sense is an active effort to find out something, involving a systematic process and thorough attempt to learn the facts about something usually complex or hidden. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  30. Compare INTERNAL AUDIT A proactive process A continuous process of risk assessment Broader scope Stakeholders are usually clear what to expect Reporting is more general purpose A walkthrough of defined processes Conducted by auditors Laws are not a significant consideration More influential and persuasive in nature INVESTIGATION A reactive process An intentional effort to address an allegation Limited scope Need to conscientize the requestor Private communication of results More than just walkthroughs Conducted by an expert or specialised investigative team Need to be aware of relevant laws Critical and conclusive www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  31. Assessing the Work Requested Is an investigation required? Identify all stakeholders Outcomes sought by the stakeholder Regulatory or legal concerns Access to available knowledge and sources of information Format of the investigation Legal process Who must be notified Immediate steps www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  32. Investigation Specific Consideration Physical risk factors and team safety Multi-institution investigations Regulatory and legal factors Language and cultural factors Transportation and coordination Data privacy laws Working with government, local officials and law enforcement www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  33. Necessary Skills and Resources General considerations include: Investigation subject matter Tasks required Locations involved Specific requirements (e.g., background checks, data analytics, forensic technology) Collaboration with other financial institutions Allocation of common tasks Training and supervision Use of external specialists Expert witnesses www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  34. Why Planning? Co-ordinate strategy and approach to: Measure progress against objectives Co-ordinate resources Estimate time and cost for completion Identify risks Manage stakeholder expectations www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  35. Work Plan Development Enables the investigation team to answer: What are our objectives? What actions/ activities are we taking to achieve those objectives? How are we progressing towards achieving our objectives? Have we achieved our objectives at the conclusion of the engagement? www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  36. Basic Principles- Mandate to Report Design a plan that fits and suits overall approach adopted . Discuss and reconsider Choose the right mix of staff Plan the application of technology and data analytics Allocate objectives to managers Allocate tasks to staff Manage accountability and responsibility Allocate time and expected dates of completion Determine and agree on milestones Record Identify new issues, record, discuss and reconsider Mandate reconsider on continuous basis and record limitations and flag for Identify report Investigation objectives Identify assumptions and flag for report Sub-objectives Consider results and possible amendment to plan Activities Consider results as deliverable and flag for report amendments Tasks Prepare report Continuous process of management and reconsideration of tasks, time and output until completion www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  37. Typical Tasks for an Incident Understand 1. Obtain all relevant documents in support of the particular transaction 2. Understand the relationship and interaction between the various documents 3. Map out the transaction in the process considering amounts, dates, relativity of documents with each other and individuals that performed certain actions in the process 4. Where possible, interview individuals to obtain a better understanding (only in instances where it will not create unnecessary suspicion) Gather and analyse 1. Extract associated with the incident such as the same vendor through data analytics 2. Extract documents in support of the above extraction 3. Supplement the data extracted above with information that is not captured but critical in our understanding obtained above 4. Extract transactions through data analysis that fit a similar pattern based on the understanding obtained above (the data analysis should be applied across all parts of the business to determine whether similar patterns exist elsewhere) or summarise transactions www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  38. Typical Tasks for an Incident Gather and analyse (cont d) Select 5. Advise other affected work streams of results affecting their areas of investigation 1. Based on the analysis performed through the gathering and analysis tasks, identify those that are confirmed to be suiting the pattern 6. Repeat tasks 1 to 3 above on additional transactions identified through the data analysis 2. Select from those transactions for detailed investigation (agree with team leader on selection) 7. If no more transactions are identified, reconsider our understanding, conclude, document conclusion and continue to investigate the known instances 3. Prepare a schedule reflecting the selection made and extend information such as individuals affected and other information not captured in the data but required for further investigation with additional www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  39. Typical Tasks for an Incident Investigate Conclude and report 1. Collate documentation in support of the schedule prepared in task 2. in the selection part (main exhibits) Identify individuals and collate additional sets of documents per individual (interview exhibits) Perform interviews with individuals, using documentary and other support as basis Evaluate results of interviews and consider whether our understanding was correct and accurate as well as whether our findings are conclusive. 1. Consider the findings made and conclude whether the transactions are isolated instances. If so, prepare a report on the findings made either as an isolated instance or as part of a pattern When reporting on patterns, consider the use of schedules and tables to capture the pattern in the report as opposed to a discussion on individual transactions 2. 2. 3. 4. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  40. Typical Tasks for an Incident UNDERSTAND Gather and analyse 1. Obtain a clear understanding of the relevant pattern Identify reasons and support for assessment and conclusion on risk pattern Determine, based on our process analysis already completed, the various elements of the transaction cycle (if the process is not fully understood at this point, proceed to task 4) Select a transaction and map out the transaction in the process considering amounts, dates, relativity of documents with each other and individuals that performed certain actions in the process Based on task 4, confirm our understanding of the process and only if still not completely understood, conduct additional interviews 1. Extract or summarise transactions associated with our understanding of potential pattern Extract documents in support of the above Supplement the data extracted above with information that is not captured but critical in our understanding obtained above 2. 2. 3. 3. 4. 5. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  41. Typical Tasks for an Incident Gather and analyse (cont d) 5. Extract transactions through data analysis that fit a similar pattern based on understanding obtained above (the data analysis should be applied across all parts of the business to determine whether similar instances exist elsewhere) 6. Advise other affected work streams of results, affecting their areas of investigation 7. Repeat tasks 1 to 3 above on additional transactions identified through the analysis 8. If no more transactions are identified, reconsider our understanding, conclude, document conclusion and continue to investigate the known instances If more instances are identified, continue to investigate selection of instances separately Select 1. Based on the analysis performed through the gathering and analysis steps identify those transactions that are confirmed to be suiting the pattern 2. Proceed to investigate instances selected for investigation see Incident tasks briefing the data www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  42. Planning Deliverables Beginning at the end, consider the end result: What deliverable will be required to address the issues What information will the deliverable contain Work backwards to determine how and where the team will obtain the information Other factors to consider: To whom are we reporting? Purpose of reporting Progress reporting Format of deliverables www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  43. Format for Deliverables Purpose Audience Form of deliverable Board, boardcommittees Decisions Conclusions and recommendations, summary in ppt Management Action Full report of findings Lawyers Action Full report of findings and oral evidence Court Litigation Affidavit, sworn statement (written or oral), oralevidence Law enforcement Gathering of evidence Affidavit, sworn statement (written ororal) Law enforcement Litigation Affidavit, oral evidence Regulators Action Full report of findings and evidence Arbitration Dispute resolution Affidavit, oral evidence Mediation Bringing parties to solution Briefing note, explanatoryschedules Disciplinary hearings Labour dispute resolution Oral evidence www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  44. Subcontractors Forensic subcontractors Circumstances in which the services of a subcontractor may be needed: Document analysts Handwriting/fingerprint experts Private investigators Industry/sector experts Scanning service providers Sampling expert/statistician Non-forensic subcontractors Circumstances in which the services of a non-forensic professional may be needed: Valuation Determination of quantities or physical characteristics Determination derived by using specialized techniques or methods Interpretation requirements, agreements of amounts of regulations, technical or www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  45. Key Points to Remember Assess the investigation requested carefully before you begin. You may not have the skills and/or resources to complete it. There may also be things you need to do immediately! Have clear objectives. Periodically confirm the objectives with the stakeholders. Regularly confirm if you are on track. Begin at the end. Be clear on the deliverables. Continually re-evaluate whether there is adequate predication. Maintain a dynamic work plan. www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  46. Information & Evidence INFORMATION Things that are or can be known about a given topic; communicable knowledge of something Devoid of some or all of the integrity features required for evidence Not per se capable of admission as evidence in a legal dispute forum EVIDENCE Facts presented in support of an assertion Describable capable of assessed for truth of contents Capable of being recognised as evidence and tested in legal dispute forums or observations and being www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  47. Assessing the Information Consider theend state of the investigation Have a clear understanding of issues Ask questions Alternative sources to obtain various versions of a document Recognise that timing is crucial It is a continuous process www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  48. Barriers to Gathering Information Ethical barriers Data privacy laws Mandate restrictions Legal process and law of evidence Professional standards Sanctity of contract www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  49. Determining the Source of Information Medium/ Nature Location Custodian Information management Investigate for sources Technology Feasibility and reasonability Alternatives www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

  50. Sources of Documentary Evidence PUBLIC RECORDS NON-PUBLIC RECORDS By law, a requirement for governmental agencies to keep Information about a person or business considered to be private and confidential Examples: - Real property records - Birth and Death records - Property tax records Examples: - Banking records - Tax records - Credit records of individuals www.ermigh.com +233 (055 808 3643, 055 047 4673) info@ermigh.com

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