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ITS 4450 - Fraud Risk Assessment Tools and Investigation


Chapter 10, Inquiry Methods and Fraud Reports

This lesson presents material from chapter 10. Objectives important to this lesson:

  1. The interviewing process
  2. Conducting an interview
  3. Seeking admissions from suspects
  4. Common lies used by perpetrators
  5. Honesty testing
  6. Creating a fraud report
Concepts:
Chapter 10

Despite its title, this chapter is mostly about conducting interviews with suspects. The text has mentioned these interviews for many pages, so it is time to consider them in detail.

The text explains that an interview should have a definite structure, and should seek four related things:

  • information about the elements of the crime
  • leads that will enable the investigator to build a case and gather necessary evidence
  • the names of victims and witnesses who may cooperate with the investigation
  • information about the backgrounds and motives of witnesses

The text continues with some remarks about three kinds of interviewees:

  • friendly - This interviewee will try to help with the interview, offering details that seem to further the investigation. The thing is, the friendly interviewee may actually be trying to help the investigator, or may be trying to shift attention to someone else, which puts them in another category.
  • neutral - These interviewees are not under suspicion, and they have no interest in the investigation. The text says we will get the most useful information from this type of interviewee, but it is also possible that the interviewee is just being closed mouthed about things that would point to their guilt.
  • hostile - These interviewees may be under suspicion. They are typically hostile because they have something to hide. The text recommends interviewing them without advance notice, if we know who they are.

The text reminds us that the highest purpose of an interviewer is to learn the truth, which may have to be assembled from the contents of a series of interviews. The interviewer should remain impartial and non-accusatory. If the person being interviewed is not of the hostile type, they are more likely to produce leads and evidence if the interviewer is professional and non-confrontational.

The author takes us onto what may be a new or unexpected path for you. When a person experiences a crisis, such as being involved in a fraud investigation, that person can be expected to pass through a series of emotional states that resemble the ones made famous by the work of Dr. Elisabeth Kübler-Ross. She wrote a book called On Death and Dying, which presents a remarkable study of the stages of grief that she saw in terminally ill patients. Her work defined a model for grieving that can be applied to many experiences that spring from a major life crisis.

The stages presented in Dr. Kübler-Ross's model are:

  1. Denial
  2. Anger
  3. Bargaining
  4. Depression
  5. Acceptance

The version of the stages presented in the text substitutes a different label for Bargaining: Rationalization.

  1. Denial - pretending that everything is normal, that there is no crisis, that we are innocent of any wrongdoing
  2. Anger - created by frustration with the situation not becoming normal again; may be directed at any and all who represent the current situation; angry managers, as well as perpetrators, may take rash actions leading to unjust acts
  3. Rationalization - a perpetrator may tell their sad story to a sympathetic manager or investigator who runs the risk of becoming an accomplice in the fraud if prosecution is not pursued; the perpetrator is plea bargaining, with "no punishment" being the goal
  4. Depression - the weight of what has gone wrong, what has been lost, and what has failed in the system cause a loss of hope in the victims and in the discovered criminals
  5. Acceptance - in this state, victims have put emotional reactions behind them and accept the loss or amount of justice they have received; a perpetrator in this state will be doing the same with regard to his/her fate

The text illustrates the concept by revisiting the story of the warehouse supervisor who covered stealing money from his operations fund with false credit memos that seemed to balance the books.

  1. In the denial stage, the managers of the company refused to believe that the supervisor was stealing. Further evidence took them to the next stage.
  2. The managers became angry, and demanded an explanation before an investigation was properly conducted. The supervisor, when confronted, denied that anything unusual had happened. The supervisor was fired, which could have gone badly for the company if the managers had not already found evidence of some of the false credit memos.
  3. In the bargaining and rationalization stage, the managers tried to rehire the supervisor to "save a valued employee". The action would have allowed the supervisor to destroy evidence if they had carried it out.
  4. In the depression stage, more details of the crimes of the supervisor came out, and the managers seemed to wish the situation had never been discovered. They wanted to forget the whole thing.
  5. In the acceptance stage, a proper investigation was conducted, and signs were discovered of drug abuse by the supervisor. Behavior problems had been noticed by employees, but no one had acted to deal with his problems. The managers accepted the situation and sought a resolution.

In the course of a proper investigation, there would have been one or more interviews with the supervisor in the example story. The text proposes several elements that should have been assembled before the first interview:

  1. What is the nature of the offense? What law has been broken?
  2. When and where did the offense happen?
  3. What is the detected or suspected method of the crime?
  4. Why might the suspect have committed the offense?
  5. What evidence has been collected?
  6. What background/biographical information do we have about the suspect?
  7. Which type of interviewee is the suspect?
  8. What pressures are on the suspect that might have led to an offense?

On page 287, the text offers some suggestions about the attitude of an interviewer. Some of the ideas are in conflict with each other. The following section about questions is more useful.

  • Make your questions short and easy to understand.
  • Ask open ended questions rather than questions with yes/no answers.
  • Don't lead the witness. Ask for an answer, don't suggest one.
  • Ask why the witness thinks or believes what they have told.
  • Keep the witness on point: require an answer to the question, not a discussion about something they would prefer to discuss.
  • Do not reveal all of your evidence to the witness.

The text also presents a list of five recommended types of questions to use in interviews:

  1. Introductory - Use these to introduce the topic and ask the witness to agree to discuss it.
  2. Informational - The interviewer is seeking information with open, closed, or leading questions as the situation requires.
  3. Assessment - The interviewer tries to determine whether the interviewee is giving truthful answers.
  4. Closing - The text suggests that you summarize the interview and ask three standard questions:
    Do you know anyone else I should talk to? (open question if the interviewee is friendly, closed if not)
    Is there anything else you know that is relevant? (open question)
    Can I talk to you again if necessary? (closed question)
  5. Admission-seeking - If your case has been made, you may ask the interviewee to confess to the crime. If not, you should not ask.

Moving on to page 289, the text discusses eight inhibitors to communication. A professional interviewer should avoid these problems:

  1. Competing demands for time - Sell the idea that the interview is going to be useful and productive, and that it can be scheduled when the interviewee is not busy.
  2. Threatened ego - The interviewee is likely to hold out some information if their self esteem is threatened. The text tells us that they may repress the truth, they may hide the truth to avoid disapproval, or they may keep silent on matters to avoid loss of status from associated guilt.
  3. Etiquette - Manners, social standards, and local cultures vary from group to group and place to place. When asking sensitive questions, make sure that the interviewee will not be offended by the question, the questioner, or the answer. The text suggests that choosing the correct interviewer can avoid this kind of inhibitor.
  4. Trauma - I recently sat in on an interview in which the interviewee relived a traumatic event. The memory of that event included physical and emotional responses that were therapeutic, but it also closed the door on any further new information in the session. The interviewee was so deeply affected by the original experience that reliving it ruined the prospect of closing the interview successfully.
  5. Inability to recall - The interviewee may be unable to remember the information being sought, which can happen due to time since the event, to the event lacking importance to the interviewee when it happened, or to the interviewer being less than skillful at conducting an interview
  6. Time confusion - Often an interviewee is unsure of the order in which several events occurred. The place in time of an event may be of high importance, but if the interviewee places them incorrectly, the truth may be hidden.
  7. Inferential confusion - The refers to errors in either induction or deduction. Induction is drawing a general principle from observed data, such as assuming that all hamburgers are disgusting after having eaten them three times at three different bad restaurants. Deduction is applying a known general principle to observed data, such as knowing that people can be made ill by bad food, noticing that your coworkers are always ill after eating at a particular restaurant, and drawing the conclusion that the food they are eating is bad food. Both kinds of reasoning can be flawed by bad data or bad conclusions.
  8. Unconscious behavior - The text is talking about behaving out of habit, behaving as a reaction to another person, or behavior from an emotional response. Each of these kinds of behavior can produce a response that is not thought out, and that may be inappropriate.

The text also offers a list of eight conversation facilitators:

  1. Fulfilling expectations - Act like you expect the interviewee to be friendly and cooperative. Convey the idea that you are friendly and that they should be friendly, too.
  2. Recognition - Listen to the interviewee, and give them approval when appropriate for their actions or insights. Recognize what they are telling you and their part in the story.
  3. Altruistic appeals - Let the interviewee know that there is a higher goal to be served, like justice or truth. Sincerely express your desire to have their help in reaching that goal.
  4. Sympathetic understanding - Let the interviewee know that you appreciate their situation, and that you understand their needs and desires. If you relate to the things that are important to the interviewee, you are more likely to get the true story they can tell you.
  5. New experience - Not everyone will be thrilled to be interviewed. Try to make the interview conversational, to make the interviewee comfortable enough to just have a talk with you. If the interviewee is tense, relieve the tension. If they are happy to be interviewed, work with that and let them enjoy it.
  6. Catharsis - The interviewee may need the emotional relief that comes from being honest about what they have been hiding, or from talking about what has been stressing them. If this happens in the interview, it is more likely that the interviewee will reveal whatever involvement they may have had in the fraud.
  7. Need for meaning - The author is talking about the interviewee's presumed need to feel that they are one of the "good guys", part of the valued group they want to belong to. The desire to belong may be a motivator for a non-professional fraud to confess and return to the fold.
  8. Extrinsic rewards - Does the interviewee stand to gain in status or reputation for providing evidence in an interview? If so, that is a reward that is extrinsic to the interview: related to it, but not part of it.

The text continues with a list of things that give structure to the interview:

  1. Introduce yourself.
  2. Talk about small things to establish rapport. Start with easy questions that have "yes" answers.
  3. State the purpose of the interview.
  4. Watch the reactions of the interviewee while asking more rapport questions, and while asking important questions. Look for cooperation or lack of it.
  5. Make sure to ask the interviewee to help with the project.
  6. Use nonsensitive, nonthreatening words in discussing the interview and the subject.
  7. Ask open questions that allow the interviewee to describe what they did, what they thought, and what they saw. Don't lead the witness.
  8. Maintain eye contact and note when the interviewee breaks contact with you.
  9. Begin with background questions, establishing the interviewee's relationship to events before fading into sensitive questions.

The text asks us to watch for information from the interviewees in several ways:

  • proxemics - Does the interviewee move away or turn away often?
  • chronemics - Does the interviewee waste time in the interview or arrive late for it? Try to use time productively in your question time.
  • kinetics - Does the interviewee fidget, break eye contact, touch their face or hide it?
  • paralinguistics - Does the interviewee mean the literal meaning of their answers, or are they meaning the opposite by their voice level or character?

The text goes on for several pages with examples of good and bad interviewing techniques. An important skill is to look for the truth by detecting lies. Here is another lesson in doing that,

The last part of the chapter talks about creating a report on the investigation. Your report should be factual, but it should not draw conclusions. It is possible that you did discover everything, and that conclusions you draw may be mistaken. One can be sure and still be wrong, so the author advises us to use words like "allleged", "purported", and "possibly", instead of "GUILTY, GUILTY GUILTY!!!"


Assignments

  1. Continue the reading assignments for the course.
  2. Complete the assignments and class discussion made in this module.