Fraud Examination

Fifth Edition

Chapter 8
Investigating
Concealment

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 Learning Objectives

1. Describe concealment investigation methods and how

they relate to fraud.
2. Understand the value of documents and electronic
records in a fraud investigation.
3. List the different methods of obtaining documentary
evidence.
4. Understand how to perform discovery sampling to
obtain documentary evidence.
5. Explain how to obtain hard-to-get documentary
evidence.

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 Concealment

• Perpetrators must conceal their fraud by covering their

tracks, obscuring evidence, and removing red flags
where possible.
• Accomplished by manipulating documentary evidence
• For an electronic perspective, concealment can also be
accomplished by modifying or deleting records in
corporate databases, logs, and communications.

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Aspects of Documentary Evidence (1 of 24)

• Unlike witnesses, documents do not forget

• They cannot be cross-examined or confused by
attorneys
• They cannot commit perjury
• They never tell inconsistent stories on two different
occasions

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Aspects of Documentary Evidence (2 of 24)

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Aspects of Documentary Evidence (3 of 24)

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Aspects of Documentary Evidence (4 of 24)

• Investigators must understand the following aspects of

documentary evidence:
– Chain of custody of documents
– Marking of evidence
– Organization of documentary evidence
– Coordination of evidence
– Rules concerning original versus copies of documents

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Aspects of Documentary Evidence (5 of 24)

• Chain of custody documents

– Record must be kept of when a document is received
and what has happened to it since its receipt.
– For computer-based evidence, professional programs
like EnCase and The Forensic Toolkit calculate
checksums that support the chain of evidence.

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Aspects of Documentary Evidence (6 of 24)

• Marking the Evidence

– A transparent envelope should be used to store the
evidence, with the date received and the initials of the
examiner written on the outside.
– A copy of the document should be made, and the
original document should be stored in the envelope in a
secure place.

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Aspects of Documentary Evidence (7 of 24)

• Organization of the Evidence

– Fraud cases often create tremendous amounts of
documentary evidence
In one case, 100 people worked full time for over a year to
input key words into a computer so that the documents
could be called up on demand during the trial—there were
literally millions of documents.

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Aspects of Documentary Evidence (8 of 24)

• Today, in especially large cases, it is common to have

electronic files of all depositions and other testimony of
all exhibits coordinated electronically with the
testimony.
• FBI’s Bureau Investigative Document Management and
Analysis System (BIDMAS)
– Saves incredible amounts of time and space
– Increases search capabilities exponentially
– Reduces duplicate information

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Aspects of Documentary Evidence (9 of 24)

• Evidence database should include the following:

– Creation dates of documents
– Sources of documents
– Dates when the documents were obtained
– Brief descriptions of document contents
– Subjects of documents
– Identifying or Bates number

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Aspects of Documentary Evidence (10 of 24)

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 Aspects of Documentary Evidence (11 of 24)

• Coordination of Evidence
– Some investigations are simple and involve only a few
people.
– Some investigations are large and involve investigators,
legal counsel, accountants, expert witnesses, and
management representatives. In these type cases,
investigation analysis software can be useful.

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Aspects of Documentary Evidence (12 of 24)

• Two popular investigation analysis software are:

– i2 Analyst’s Notebook
– Xanalys Link Explorer

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 Aspects of Documentary Evidence (13 of 24)

• Original Documents versus Photocopies

– Originals are preferable to photocopies
• In certain jurisdictions, only the following four
situations permit photocopies

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Aspects of Documentary Evidence (14 of 24)

1. The original document has been lost or destroyed without

the intent or fault of the party seeking to introduce the
secondary evidence.
2. The original document is in the possession of an adverse
party who fails to produce it after a written notice to do so,
or when the party in possession is outside the jurisdiction
of the subpoena power of the court.
3. The document or record is in the custody of a public office.
4. The original documents are too voluminous to permit
careful examination, and a summary of their contents is
acceptable.

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 Aspects of Documentary Evidence (15 of 24)

• Obtaining Documentary Evidence

 The best way to obtain documentary evidence is through
computer-based queries of accounting and other
databases.
 Another useful method of obtaining documentary
evidence is through traditional audits, including
discovery sampling.

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 Aspects of Documentary Evidence (16 of 24)

• Audits
• Auditors conduct seven types of tests
1. Tests of mechanical accuracy (recalculations)
2. Analytical tests (tests of reasonableness)
3. Documentation
4. Confirmations
5. Observations
6. Physical examinations
7. Inquiries

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 Aspects of Documentary Evidence (17 of 24)

Because gathering documentation is a normal part of their

work, auditors can often gather documentary evidence as
part of an investigation without arousing suspicion.

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Aspects of Documentary Evidence (18 of 24)

• Discovery Sampling
– Discovery sampling is the easiest of all statistical
sampling variations to understand and implement.

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 Aspects of Documentary Evidence (19 of 24)

• Documentation of Discovery Sampling

– The investigator should document the method used for
determining sample size and the method used for
selecting the sample.
• Evaluation of Errors
– If the investigator finds errors, he or she must determine
whether the errors were unintentional or are indicative of
fraud.

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 Aspects of Documentary Evidence (20 of 24)

• Consideration of Sampling and Nonsampling Risk

– Sampling risk is the risk that the sample was not
representative of the population
– The investigator should also consider nonsampling risk,
which is the risk that a finding will be misinterpreted.
– Misinterpretation can be reduced by:
 careful planning,
 performance,
 evaluation of the sampling procedure

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 Aspects of Documentary Evidence (21 of 24)

• Hard-to-Get Documentary Evidence

The most common examples are
• Web-based e-mail accounts
• Private bank records
• Tax returns
• Brokerage records

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 Aspects of Documentary Evidence (22 of 24)

• Hard-to-Get
Documentary Evidence
• Three ways to obtain
documentary evidence:
– Subpoena
– Search warrant
– Voluntary consent

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 Aspects of Documentary Evidence (23 of 24)

• Document Experts determine whether…

– a document was written by the person whose signature it
bears
– a document has been forged
– a document has been altered by additions, deletions,
obliterations, erasures, or photocopying
– the handwriting is genuine
– the entire document was printed on the same machine
– a document was printed on the date it bears or before or after
– two or more documents are significantly different or
substantially the same
– pages have been substituted in a document.

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 Aspects of Documentary Evidence (24 of 24)

• Two well-known organizations of document experts can

offer help in fraud investigations.
– FBI: Questioned Documents Unit
– American Board of Forensic Document Examiners, Inc.

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