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Fraud Investigation And The Computer

Computers – A Gateway For The Fraudster?

As soon as the word “computer” is added, a fraud seems to take on an even more sinister and secretive veneer. It is one thing for losses to take place hidden amongst the documents contained within dusty lever arch files and accounting ledgers, another for it to be happening within the electronic box sitting on a desk!

However, a computer is simply a more efficient way to store documents and to work with the data held on them. Once it is realised that the computer is another tool, providing an easier way to manage information than using pages and pages of data, there is no reason to believe that the fraudster should have any advantage over the computer’s owner or the fraud investigator.

These days the vulnerabilities of computer activity, often via remote access from criminals using the Internet, is well known. Yet, as with all forms of fraud, the complacency of users allows the fraudster to ply his trade. We know that we must not share passwords with anyone, or use simple numbers such as birthdays or even the word “password”! We must not respond to “phishing” emails that allow the hackers to access our bank accounts and we are all aware of the need for anti-virus software on our devices. Yet, many people still get caught out to the ever more sophisticated fraudster.

We must not forget the benefit of Information Technology when it comes to preventing crime. The use of CCTV is an obvious example, as is mobile phone cell site analysis and data mining software that can identify likely fraudulent activity quickly within millions of transactions.

Computers – A Tool For Forensic Accountants And Fraudsters

A forensic accountant examining a fraud must be aware of the characteristics of any computer system being used by a business, and understand its user interface and processing capabilities. Familiarity with a variety of accounting software and processing packages is essential, normally obtained when auditing companies or providing corporate services to a wide variety of clients. Drawing on this experience allows the forensic accountant to understand the data being presented by a computer system, or to know what summary records must be interrogated to provide evidence supporting the suspected fraud. The forensic accountant must be comfortable working within any financial recording system, even if he might well draw upon the resource of a specialist technical data management expert to download a particular data set for further examination.

Investigating Fraud – An Example

The interaction of the criminal fraudster and data storage can be illustrated with a case involving the theft of millions of pounds from a series of car insurance companies. The insurers collaborated to promote free windscreen inspection and repair to all customers calling out a replacement company for broken rear and side windows. The simple repair job was intended to prevent more costly emergency replacements at a later date.

The windscreen company would receive a payment from the insurer for each repair job taken out, and in turn encouraged staff to look for cracks in windscreens by offering a bonus payment for each repair carried out. The intention was to make windscreens safer, and reduce the cost of more expensive replacements to the insurers.

The problem turned out to be the bonus incentive paid to the fitters. They realised that if they “found” a windscreen repair each time they mended a rear or side window in a vehicle, they could earn a substantial bonus. So they started raising a separate repair invoice every time they were called out for rear or side replacements even though no additional repair was carried out.

This seemed to be a perfect fraud. A large number of the fitters took advantage of the bonus system, once the word got round. It was impossible to spot the fraud by looking at the results produced by the accounting system. The evidence of all the fraudulent transactions was contained in physical records so voluminous that they could only be identified through accessing the computer database behind the windscreen business.

The fraud came to light after a whistle blower’s report. In order to investigate the fraud the forensic accountants needed to inspect invoices for windscreen repairs that were offered at the same time as rear or side glass replacement jobs, along with the corresponding glass replacement invoice (a relatively small proportion of all the jobs taking place). A forensic data management expert inspected the company’s computer records using a data management tool to obtain lists of all such pairs of jobs since the repair bonus system had started. The forensic accounting team investigating the fraud used these lists to obtain the pairs of relevant invoices. The company staff was tasked to retrieve the invoice copies from the archives and the forensic accountants began the gruelling task of comparing customer signatures on the pairs of documents.

In the end, several millions of pounds worth of repair job invoices were found to have customer signatures that appear to be counterfeit when compared to the signatures on the main replacement document. In many cases, the fitter had become complacent, adding a cursory squiggle assuming the repair invoice would never be checked. While the forensic accountants’ evidence of handwriting differences might never be adequate for a criminal court, it was enough to convince the windscreen company and they repaid a large sum to the insurers.

The case example shows how a forensic accountant must adapt his or her accountancy and fraud investigation expertise when working in different environments. Virtually all cases examined by Mark Jenner & Co Limited involve transactions passing through a computer system. Simple examples are bank transactions through the computers used by financial institutions or digital records kept by any moderate sized business. A computer adds the extra capability to any system, by allowing vast quantities of data to be processed. The forensic accountant, often assisted by data mining technology, must be able to extract the correct part of that data needed to evidence a fraud and not be daunted by the scale of the records, which are otherwise the same as any cash book or ledgers for the smallest of concerns.