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Whether to conduct an investigation, and how

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Robert Ford, Director of Internal Auditing, received an anonymous tip from an employee in one of the high tech manufacturing plants. The employee noted that there was a major embezzlement taking place in one of the divisions. Internal audit had completed a routine review of internal control of that division the previous year and found that the control system was properly designed and operating effectively. Only minor recommendations were made, and the next review was scheduled for 3 years.

The employee noted the erratic behavior and lavish lifestyle of the plant controller and stated that the controller has been overriding existing controls so that any audit would not be able to detect the embezzlement. The plant controller is well respected and highly trusted by the CEO and CFO, and their families are involved in the same civic and religious organizations. Investigating the plant controller could cause considerable disruption in the company and in the personal lives of the employees.

Assuming the company decides to move forward with the investigation, prepare for the interviews: Note the order of the witnesses that would be interviewed and how you would plan, conduct, and document your interviews. Discuss how you would conduct an admission-seeking interview of the plant controller.

Your report should address the issues in the situation above and include your research on best practices in interviewing and taking witness statements. Include at least 2 other reference sources beyond the textbook and course materials

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Solution Summary

Fraud/Embezzlement case scenario based on anonymous informant. Proceed or not to proceed, If the decision is made to proceed, how should it be done? What interviews should be conducted, and how? Web based resources listed.

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First your report should recommend whether of not to proceed with an investigation based on an anonymous informant.

The posting states: Your report should address the issues in the situation above and include your research on best practices in interviewing and taking witness statements.
The issues in this situation should be considered before assuming that the company is going forward with the investigation. The first thing is that the informant is anonymous, and cannot be queried as to the veracity, validity or reliability of their information. They may have had a personal agenda of their own for reporting these "facts." Many good employees have left companies over allegations, because such an investigative process is stressful and insulting, regardless of the outcome. That might be the informant's goal. Secondly, the recent audit not only found nothing wrong, it said that the control system in place was functional and adequate, and was working properly to detect fraud. Third, there could be completely reasonable other explanations for the controller's erratic behaviour and irresponsible spending which have nothing to do with criminal activity at work. These other reasons might indicate a problem or area of concern in the controller's personal life, but not criminal activity or embezzlement. Suppose he won the lottery? Suppose he got an inheritance on the death of a loved one, and feels guilty that he got all this money when they died? Suppose he or a close family member just got a bad medical report - cancer or a terminal disease? Those would surely account for erratic behaviour and irresponsible spending. Suppose he is an addicted gambler, or drug user, or alcoholic? Suppose his marriage is falling apart, or he has other significant family problems? Suppose he sells drugs on the side? That would explain lots of extra cash, and it would not be work related - a problem, yes, but not criminal activity at work, necessarily. There could be many other legitimate reasons for his behaviour that do not include embezzlement.

Include at least 2 other reference sources beyond the textbook and course materials Assuming the company decides to move forward with the investigation, prepare for the interviews: Note the order of the witnesses that would be interviewed and how you would plan, conduct, and document your interviews. Discuss how you would conduct an admission-seeking interview of the plant controller.
First, I would suggest a second audit, paying particular attention to details. Since the first showed no irregularities, this second one may prove unfruitful, too - at that point, the decision whether to proceed or not will have to be made. Your scenario says the investigation will proceed.

Since the scenario states that the controller has strong social ties with at least two other high-ranking company executives, I would choose to approach this problem privately, at first. Perhaps he could just use a friend to talk to. Perhaps he will volunteer the reason. If this proves unfruitful and the decision is still to proceed, interviews and further investigation will have to be made.

Interviews with the support staff who work with and for this controller person should be conducted first. Many times, co-workers are suspicious or aware of shady dealings. They may be afraid to voice their suspicions during the regular work day, but might reveal such information in private interviews.

Then, based on second audit results and initial interviews with co-workers, a decision to continue or discontinue the investigation should be made.

The following Web sites discuss interview techniques for interviewing a suspect. Cite any of them you like for this project.
www.itworld2.com/frmfft1.aspx
www.interview-secrets.net/jobinterviews/fact-finding-interview-skills.html
http://www.nysscpa.org/cpajournal/2005/205/essentials/p34.htm
http://www.tpub.com/content/administration/14260/css/14260_128.htm
http://findarticles.com/p/articles/mi_m2194/is_11_71/ai_94873351/
http://www.crimeandclues.com/index.php/testimonial-evidence/46-interviews-and-interrogation/80-conducting-successful-interrogations

This quoted section comes from the following suggested Web site, and is right on topic for your assignment: http://www.nysscpa.org/cpajournal/2005/205/essentials/p34.htm

Interviews are a useful audit tool to gather information about internal controls and fraud risks for several reasons. First, employees involved in the day-to-day operations of a functional area possess the best knowledge of that area. They are in an excellent position to identify weak internal controls and fraud ...

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