formal inquiry or systematic study
from Latin in- “into” + vestigare “track, trace out”
A financial investigation commonly includes the following steps:
- understanding the matter to be investigated and the potential outcome of the investigation
- an initial assessment of current information
- gathering information and analysis
- drawing conclusions, reporting and following up
An investigation engagement needs to be clear as to the time frame to investigate, the authority to investigate, the access to evidence and who the report is for.
Under Queensland legislation, as a firm of Chartered Accountants, employees don’t need a license for private investigation work. In recognition, however, of the private investigator license requirements, we do adhere to the professional training in investigation services.
As part of a financial investigation, an investigation plan is required. The investigation plan sets out:
- what is to be done
- why it is being done
- who is to do it
- how is it to be done
- when it is to be done
A financial investigation plan ensures the investigation is carried out methodically and resources are used efficiently. An investigation plan typically includes:
- overview, investigation scope and allegations
- identifying information and sources of information, such as witnesses, experts, and records
- risks to the preservation of evidence
- what facts need to be established, the action to be taken and if the evidence will support the facts at issue
- team composition and resource allocation
- work time-frame and phases of work
- any potential changes to the scope of work
Types of evidence
An investigation provides evidce and there are three main types of evidence:
- direct evidence – what was actually said or happened
- circumstantial evidence – evidence from which facts may be inferred
- indirect evidence – witness evidence that testifies what others said they had seen or done; hearsay evidence is generally inadmissible in court
Evidence maybe through documents, witness evidence, expert evidence, electronic evidence, and physical evidence.
Documentary evidence may include legal documents such as contracts, HR documents such as personnel files and financial documents such as general ledgers. Documentary evidence is either primary evidence, being the original, or secondary evidence being a copy of the original. Real evidence is evidence other than documents. Electronic evidence may include direct evidence, such as emails and phone calls, and indirect evidence such as internet history.
Evidence needs to be reliable and relevant and to resolve the facts at issue, per the investigation plan. The strength of evidence required depends on the seriousness of the allegations, likelihood of a thing occurring and the gravity of the consequences from a finding.
Chain of custody
It is essential that evidence obtained through an investigation is carefully looked after. Chain of custody refers to the chronological paper trail that records the sequence of custody, control, transfer, analysis, and disposition of evidence. Evidence must be carefully handled to prevent tampering or contamination. The chain of custody maintains the integrity of the evidence.
When evidence is secured, the date and time of possession are recorded as well as the location of the evidence, how it was obtained and how the evidence is stored. Original documents are immediately secured and photocopies worked from. If evidence is to be accessed, the name of the person accessing the evidence is recorded, the purpose for accessing the evidence, the date and time.
In an investigation, interviews may be carried out to obtain evidence. Interviews may be with witnesses, suspects, and whistleblowers. Consideration is given to the rights and consent of the interviewee. To ensure good communication a well-structured process is followed, technical language is limited and the information is kept clear.
The aim of the interview is to obtain the witness’s own account of relevant events, uncontaminated by other issues and influences. As such, leading questions are avoided.
Interviewees are provided with sufficient notice prior to the interview. The account is recorded as accurately as possible and using the words of the witness. The information is recorded in a comprehensive and confidential statement that deals with all relevant matters. The statement is framed in the first person and usually follows a chronological order. At the end of the interview, the witness signs and dates the statement and given a copy of the record of the interview.
In the interview, open-ended questions may be used, for example: tell me about what happened? explain to me how it worked? describe to me the circumstance? Questions are understandable, concise and appropriate.
The path of the interview will often follow this structure
- Introduction – which includes the purpose of the interview, the parties, how the interview is to be conducted, any questions from the interviewee
- what happened – open-ended questions for the interviewee to describe what happened
- specific questions – questions to clarify issues or to deal with facts at issue that have not been covered
- interview close – issues raised by the interviewee are summarised
Typical investigation tools for data analysis include spreadsheets and databases. To assist in the analysis data may be standardised to allow accurate keyword searching. Examples of standardising data include splitting names in to first and last and setting a date format.
A spreadsheet allows a large amount of data to be quickly sorted, for example by date, vendor or amount, so that unusual transactions can be identified. Unusual transactions might include a large number of transactions – on a certain date, to a vendor or with rounded-number amounts.
Sorting through data also allows the detection of duplication. Duplicate transaction dates, amounts or invoice numbers can reveal questionable transactions. Duplicate analysis may also reveal duplicate addresses, employees, and vendors.
Most accounting software systems maintain transaction audit logs. The logs provide details such as the date transactions were entered if transactions have been altered and by whom.
Electronic (E-discovery) discovery software, such as Ringtail and Relativity, can be used to analyse large amounts of data. Through processes such as deduplication, near duplication, email threading, and predictive coding, large amounts of data can be reduced to relevant documents. Through planned and effective keyword searching, relevant evidence may be identified. Methods for improving keyword searches include using relevant specific language or terminology, for example, nicknames or project names, using sample searches and then refining searches.
Other analytical methods include link analysis, showing the unknown or unidentified relations, relationship charts, showing associated entities and individuals, and timelines, showing the sequence of event.
Background research can include public records, such as ASIC, data services, such as LexisNexis, social networks, search engines, company websites, newspapers, industry magazines, and journals.
Investigation reports are free from opinion, objective, factual and unbiased. The reports are accurate, clear and relevant. A report will typically include:
- executive summary
- introduction to the investigation, including the background to the investigation, the process undertaken and applied
- outline of the evidence that emerged, in chronological order
- outline of the analysis of the evidence relevant to each core factual issue
- outline of the findings of fact
- findings and recommendations based on the evidence generated and analysis
Simon is a CA Accredited Business Valuation expert, Chartered Accountant and a Certified Fraud Examiner. Simon specialises in providing forensic accounting and valuation services. Prior to founding Lotus Amity, he was a Forensic Accounting partner with BDO Australia and led their National Forensics practice. He has worked as a forensic director for a major offshore forensic accounting practice which included assisting in multi-billion-dollar litigation in relation to the giant Bernie Madoff Ponzi scheme. Simon provides valuation services in disputes, for raising finance, for restructuring, transactions and for tax purposes.