John J. Hall, CPA

Program Titles

• The challenge is that those individuals committing wrongful acts & fraud can—and do—lie to the auditor or manager.
• Members of an organization who may have knowledge of wrongdoing but aren’t involved in perpetrating it are often a good source of information
• When a subject gives answers that conflict with known information, attempts to direct questioning away from a sensitive area or topic, changes his or her attitude or cooperation level or displays suspicious body language in response to certain questions.
• On the fly responses to a prepared auditor’s questions often trip up fraudsters by revealing more than they intend
• Suggestions on Prevention, Detection & Handling
• Developing a Fraud Loss Scorecard for your organization
• Creating and maintaining an anti-fraud environment
• Detection skills for managers
• Management’s role in investigations

John J. Hall, CPA, specializes in fraud prevention programs and creates a comprehensive anti-fraud environment.

Fraud-risk indications may be present in documents, reports, exception statistics and behaviors, and there are many effective discovery-based tests auditors can perform.

People who commit financial reporting fraud or misappropriation usually create plausible cover stories by blending elements of truth with fiction. They rely heavily on two tools: deceptive statements and falsified documents. People committing a fraud will lie, bend the truth, withhold or hide information and documents, and otherwise act to confuse, delay or block the path of the auditor—that’s why deeper questioning is called for.

Wants to follow up a routine discussion of procedures and controls. Auditors in organizations all over the world discuss and cross-check internal controls hundreds of times each day.

Suspects an interview response is fishy. For example, the subject gives answers that conflict with known information, attempts to direct the questioning away from a sensitive area or topic, or changes his attitude or cooperation level in response to certain questions. The subject also might suddenly avert his eyes, make hand or other movements or change posture, facial expression or speech patterns. Don’t overreact to a discrepancy between body language and what a subject says, but do take the time to question more deeply.

Gets a tip that possible wrongdoing has occurred. A fraud-based interview can help confirm or disprove it.

UNCOVERING VERBAL DECEPTION: Lying is a learned skill for most people, who generally have little knowledge of how to lie and are uncomfortable doing so. Altered or fraudulent documents can tell a false story dispassionately, but “on the fly” responses to a prepared auditor’s questions often will trip up fraudsters by getting them to reveal more than they intend—which is exactly the point of an interview.

The following suggestions can help auditors plan a fraud-based interview:

Gather relevant background information. Before conducting an interview, gather as much background information as possible from files, information systems and all available sources. Include information on the interview subject’s background and responsibilities.

Organize, organize, organize. Anticipate obstacles and resistance and plan the entire interview in depth: opening comments, the body of the discussion, the introduction of documents into the interview and a closing strategy.
Move from the general (“Tell me about…”) to the specific (Who, what, where, when, why, how?). Start with nonsensitive issues; ask questions to which you know the answer before proceeding to questions to which you don’t. Actively listen, both with your ears and with your eyes. If a verbal response and visual clues differ, probe deeper.

Structure the interview. Plan the three main phases of an interview. In the opening, make introductions, establish rapport, provide background information and observe. Develop your baseline for gauging the interview subject’s veracity from observing his or her responses to questions to which you know the answers. In the middle (core) of the interview obtain information, asking the “Who, what, where, when, how, why?” questions.

Use scripted questions if you need to. Many auditors prefer to work from a script, which will vary in formality with their experience and the specific situation. Simple bullet-point questions plus opening and closing remarks constitute an informal script. It’s important to establish and maintain rapport with a subject, so if a script feels awkward and you think it will inhibit free-flowing dialogue, practice first. Interviewers of all experience levels occasionally forget crucial questions in the heat of the moment. Use the script to support the purpose and tone of the interview and to make sure you cover all important items.

Use silence to your advantage. A long period of silence after a question has been answered, or during the time it takes the interviewer to record the answer, creates a vacuum that people tend to want to fill. That tension may provoke a subject to reveal cues that he or she is lying or withholding information. Quiet periods also give the interviewer an opportunity to assess the progress of the interview and change an upcoming question as needed.

Anticipate what might go wrong. Things rarely go as expected. Be prepared in advance to react. Make a list of things that could go wrong, and think through the actions you should or should not take in response to each possibility.

Control the discussion. Audits often expose problems and other issues and create a need for corrective action, so even routine financial statement audit procedures can be stressful to both auditor and client. When you actively probe for the cause of fraud indicators, your questions may peel away layers of fabrication and expose the truth. Be prepared for subjects to react with an abusive outburst attacking your qualifications, competence, integrity or some other feature. Don’t let it detract from the task at hand.

Deal with reluctance. When sensitive issues come up, many interview subjects are reluctant to cooperate. This may be based on legitimate concerns about how much they should reveal to an auditor, fear of recrimination or disapproval for saying too much, cultural norms and business etiquette or even faulty memories. As much as possible, convey an attitude of cooperation. Use an interested, sympathetic tone in questioning and listening.

Be direct. Often the interview subject is an important executive or client representative. Auditors should be appropriately circumspect about the lasting impression the interview can create, but balance that against the need to get to the truth. Occasionally it may be necessary to ask a direct and potentially unsettling question, for example, “Do you know of any dishonest or fraudulent activity?”

Be prepared to read the answer with both your ears and your eyes.

Continuing Professional Education Credits for financial professionals (CPAs, etc) using my CPE sponsor number with the National Association of the State Boards of Accountancy.

Books by John J. Hall, CPA

• Do What You Can! Simple Steps – Extraordinary Results

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