The aftermath of Fraud: Working with law enforcement agencies, the criminal justice system and moving on

So, you have identified fraud in your organization, you want to get to the bottom of the matter (unlike our government), how do you involve the relevant law enforcement agencies, the criminal justices system (am not sure whether ours is a system yet…) and then ‘move on’.

Forensic investigators or internal auditors may be required to work with law enforcement agencies at some point of their career. Law enforcement agencies could include the following: The local Police, The CID, Ethics and Anti-Corruption Commissions, Central Bank Investigative units. Law enforcement agencies may not be limited to local agencies but could include agencies from other countries such as the FBI, the Scotland Yard among others. This is more so the case where matters involved covers more than one particular jurisdiction or in cases where foreign laws apply. For example if a listed American Company is involved in  bribery or corruption allegations in Kenya, an investigator could end up dealing with the Kenya Police, the EACC, the Securities and Exchange commission investigators and the FBI, just to mention but a few.

An understanding of how the various law enforcement agencies operate and their objectives is therefore important for any investigator/auditor.

In most cases, law enforcement agencies have wide experience in handling court proceedings and complex criminal cases, while forensic accountants have the technical skills required to understand technical accounting and financial issues. It is therefore important and advisable that by working together, the objective should be to realize the synergies of the two teams working together.

Working with law enforcement agencies requires an understanding of the roles, mandates and objectives of all parties. Ideally, Law enforcement agencies and investigators should complement each other. Differences may arise due to the following:

• Different mandates – investigators may have a narrower mandate and law enforcement agencies may not want to share all the relevant information. Sharing information on investigation mandates may prevent duplicity of roles.

• Time constraints – in my experience law enforcement agencies seem to have unlimited time to investigate a case. In working with the CID in Kenya for example, once they present suspects in court, they may request a number of months to complete investigations. This sometimes affects the work if forensic investigators who work with definite timetables.

• Access to information – Each team (investigators/ law enforcement agencies) may have access to privileged information that the other should not access for certain reasons. Understanding this is key for court purposes. For example, if investigators are reviewing loss of funds and want to trace proceeds, they may have difficulties obtaining the bank accounts of the suspect, however, these can be obtained easily by law enforcement agencies. If the information is shared with investigators, they may be able to use it in drafting their reports, as they cannot proof the information was obtained legally by them.

• Sharing of documents – it is important to maintain chain of custody.

• Be careful not to use confessions obtained by law enforcement agencies as part of the report.

• It is important to appreciate the different working cultures of the different groups and their reporting hierarchy. Public sector working culture is fundamentally different form private sector.

Some of the benefits of working with the law enforcement agencies include:

• Have access to resources not available to the public – e.g. Bank accounts, phone records, mobile money, etc, recovery

• Can go to high risk areas as they are armed and well trained in hostile environments – adversarial in nature

• Can easily get a court order to search the suspects residence and other relevant places

• They apply a street smart approach -Law enforcement officers apply a street smart approach which adds value to the investigation, law enforcers may also be in a position to cover a wider jurisdiction.

While working has its benefits it is important to bear in mind the following:

• Law enforcement agencies will only be interested in certain aspects of an investigation report, they will not read the entire forensic/audit report, therefore, ensure the report is not prone to misinterpretation and most importantly let it be factual.(remember that once the case goes to court, you have to share any investigation or audit report with the defendants)

• Law enforcement agencies in certain jurisdictions are susceptible to bribery or other forms of misconduct which may have far reaching implications on the success of criminal or civil proceedings.

Once investigations are over and court proceedings commence, bear in mind or note the following tips that may assist during the court process:

• Document the source of evidence – Make sure you get the evidence through the right channels otherwise it won’t be admissible in court.

• Scan the evidence and preserve the originals in evidence bags to avoid contamination

• Index the evidence to allow for easy reference and retrieval

• In case of signatures, always state that you are not a handwriting expert when alleging a suspect signed the document. Obtain a copy of signature from the HR file and get his/her colleagues to attest that the signature is his/hers, this adds weight to your claim.

• Always try to get an interview from the suspect to query him/her on the suspicious transactions– Helps show that you were not biased or witch hunting.

• Get all the minutes/consultation notes signed.

• Be aware of strong and weak points in your report ie, know or understand your report by heart.

• Explain technical issues in a language that the judges understand, avoid jargon.

• Remember, when testifying, your credibility is on the line, be factual, in most cases you will be a witness of fact and not an expert witness.

Working with Law enforcement agencies can enrich an investigation if the two teams understand that they bring different skill sets/ resources. As noted above, there are a few things to consider to ensure a successful working relationship which will result to a conviction.

This article was prepared with great input of David Mathuva of Strathmore Business School (dmathuva@gmail.com). David presented a paper on the same topic during a ICPAK organized workshop held on 15^th-16^th October 2015 at Park Side Villa Hotel, Kitui, Republic of Kenya.

Understanding Risk

Certain events, which have happened in the recent past, have got me thinking about the concept of risk and risk management itself. When organizations or their management state that they are managing risk, do they fully appreciate, what risk is all about?

The scandal at Volkswagen and the closure of Imperial Bank in Kenya, a few days should really be a wakeup call for anybody with the responsibility of managing any organization.

I am sure, risk management reports at both entities indicated that management had put in place measures to manage the various risks that the two organizations would face.

Many organizations spend much time worrying about operational risks, more so to protect their jobs, but as the two events demonstrate, the ultimate question that management should ask is – What threatens our ultimate Survivor? Have we done enough to ensure we will be operating tomorrow?

After all the hard work that employees have put in, it is not right that something beyond them, that could have been managed, threatens their livelihoods. While facts are unclear about who did what at VW, it is clear that shortcuts were taken in order to meet short-term gains (sales and profits). Clearly, somebody did not think about the consequences of being caught and therefore exposing the organization to financial implications that will be felt for a long term. Something that could have been fixed technically, with little financial implication now threatens the existence of VW, as we know it….to quote VW’s new CEO "Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear,"

While it is not clear of what happened at Imperial Bank, the implications of CBK’s action are far reaching – over 500 jobs are at risk, Shs 58 billion of depositors money and Shs 2 billion of bond holders funds is at risk.

As a bank CEO, what should be keeping you awake, meeting the half-year numbers or providing confidence to depositors and investors that their money and investment is safe?

As a CEO or CFO, it’s important to have the big picture about your organization, look beyond the numbers…ask yourself, will my risk management ensure profitability and survival in 10 years’ time or will I work to ensure I meet the numbers as long as I am here….and the rest will somehow sort itself?

Risk management is beyond making your Internal Auditors and your Board Audit Chair happy……there are wider implications…think about your staff, your investors, the society just to name but few….see the big picture?

Pointers for Fighting Fraud

The September/October 2014 issue of the Fraud magazine carried an article by Dr Joseph T Wells, Founder and Chairman of the Association of Certified Fraud Examiners on 10 pointers of fighting fraud.

Here is the list as:

1     Be nice and smile often –although fraud fighting is an adversarial process, it doesn’t mean you cant be nice….as a matter of fact the best fraud examiners and investigators ive met are also the nicest..they smile a lot, even when staring down crooks..it completely disarms them.

2     Do your homework first – don’t talk to suspects until you have done your homework

3     Develop a fraud theory – in order to investigate a case have a theory of how it happened. Learn how to develop these theories.

4     Don’t overcomplicate a case - ..”if you investigate enough frauds, you will learn that the offender almost always finds the easiest way to commit the crime…”

5     If you don’t know what to do next, stop – if you get to the point where you don’t know what to do next, stop. ..take a breather

6     Don’t overstep your authority – investigations must be guided by law…you cannot coerce people..or obtain documents secretly that you are not entitled to. Nothing good comes out overstepping your authority

7     Always look for more leads – the work of an investigator is to develop leads. People to talk to, documents to review and places to look. If you develop enough leads the case will solve itself.

8     Be very careful about expressing opinions – investigations should result in facts coming out. A report should clearly explain itself.

9     Books and records don’t commit fraud: people do – don’t get carried away by numbers…look for intent.

10   Understand what the framers of the constitution intended – no matter where you come from…the point is that..dont be out there to get someone. “It’s better that 100 guilty persons should escape than one innocent person should suffer” Benjamin Franklin