Winning the Case with a Strong Written Report, Part Two

The savvy fraud examiner includes signed statements, visual aids, summaries of witnesses' statements, and the engagement contract in the written case report. 

Fraud cases can be won or lost on the strength of the written report. In the September/October issue of The White Paper, we reviewed the basic mechanisms of a strong report, described reporting mistakes, showed how to organize a report, and discussed reader analysis. In this issue, we cover signed statements, visual aids, summaries of witnesses' statements, and elements of the engagement contract.

Signed Statements
Reduce the verbal confession to a short and concise written statement. Prepare the statement and present it to the confessor for his signature before he leaves the interview. Do not exceed two or three handwritten pages. Cover the following points in every signed statement:

Voluntary Confessions
The general law of confessions requires that they be completely voluntary. This should be set forth specifically.

Intent
There is no such thing as an accidental fraud or crime. Both require as part of the elements of proof the fact that the confessor knew the conduct was wrong and intended to commit the act. This can best be accomplished by using precise language in the statement that clearly describes the act (e.g., "I wrongfully took assets from the company that weren't mine" versus "I borrowed money from the company without telling anyone.").

As a general rule, strong emotive words, such as "lie" and "steal" should be avoided, as the confessor might balk at signing the statement. Still, the wording must be precise. Following are suggested wordings:

Approximate Dates of Offense
Unless the exact dates of the offense are known, the word "approximately" must precede any dates of the offense. If the confessor is unsure about the dates, language to that effect should be included.

Approximate Amounts of Losses
Include the approximate losses, making sure they are labeled as such. It is satisfactory to state a range ("probably not less than $_____ or more than $ _____").

Approximate Number of Instances
Ranges also are satisfactory for the number of instances. The number is important because it helps establish intent by showing a repeated pattern of activity.

Willingness to Cooperate
It makes it easier for the confessor when he perceives that the statement includes language portraying him in a more favorable light. The confessor can convert that natural tendency by emphasizing cooperation and willingness to make amends. For example: "I am willing to cooperate in helping undo what I have done. I promise that I will try to repay whatever damages I caused by my actions."

Excuse Clause
The confessor's moral excuse should be mentioned. The interviewer should ensure the excuse clause wording does not diminish legal responsibility.

For example, here's a wrong clause: "I didn't mean to do this." This implies a lack of intent. Here's a correct clause: "I wouldn't have done this if it had not been for pressing financial problems. I didn't mean to hurt anyone."

Confessor Reads Statement
The confessor must acknowledge that he read the statement and he should initial all the pages of the statement. Insert intentional errors in the statement so that the confessor will notice them. The errors are crossed out, the correct information is inserted, and the confessor is asked to initial the changes. Include this step if you think the confessor might attempt to retract the statement or claim it was not read.

Truthfulness of Statement
The written statement should state specifically that it is true. However, the language also should allow for mistakes. For example: "This statement is true and complete to the best of my current recollection."

Key Points in Signed Statements
There is no legal requirement that a statement must be in the handwriting or wording of the declarant. Because the examiner usually knows how to draft a valid statement, to let a confessor draft the statement generally is not a good idea. A statement's wording should be precise.

Declarants should read and sign the statement without undue delay. Do not ask the confessor to sign the statement. Instead, say, "Please sign here." Although there is no legal requirement, it is a good idea to have two people witness the signing of a statement.

There should not be more than one written statement for each offense. If facts are inadvertently omitted, they can later be added to the original statement as an addendum. For legal purposes, prepare separate statements for unrelated offenses. This rule applies because the target might be tried more than once - once for each offense. Preserve all notes taken during an interview, especially those concerning a confession. Having access to pertinent notes can aid in a cross-examination regarding the validity of a signed statement. Stenographic notes, if any, also should be preserved. Once a confession is obtained, substantiate it through additional investigation, if necessary.

Visual Aids
Occasionally, the fraud examiner might include visual aids prepared as part of the report or to be used as exhibits at trial. Obviously, visual aids should be kept simple. Several types can be used.

Link Network Diagrams
Link networks show the relationships among people, organizations, and events. Different symbols are used to represent different entities: a square can symbolize an organization; a circle, a person; a triangle, an event; and so forth. Use them consistently. Confirmed connections between entities can be represented by a solid line or enclosure within another symbol. Speculative or presumed relationships can be indicated by broken lines.

Matrices
A matrix is a grid that shows the relationship (or points of contacts) among a number of entities. Known contacts can be differentiated from presumed contacts with a bullet or a circle.

Summaries of Witnesses' Statements
Reduce voluminous testimony and witness statements to summary form in order to identify inconsistent statements and to permit quick review. To identify pertinent passages, indicate briefly the topic being covered at a given point, and a synopsis of the statement. (See below.)

Keep the synopsis as succinct as possible. Too much detail will impair the summary's utility. The examiner or someone familiar with the facts and issues in the case should prepare the summary, not an assistant who does not know what might or might not be relevant. The summary also can be useful as a basis for a chronology.

Engagement Contracts
Certified Fraud Examiners are hired sometimes for specific engagements. Prepare an engagement letter so that you and the client have a clear understanding of the objectives of the assignment. If the terms of the engagement are defined in a contract, any later dispute becomes easier to resolve.

According to the Code of Professional Ethics, a Certified Fraud Examiner:

• will accept only assignments for which there is a reasonable expectation that the work will be completed with professional competence;
• will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered; and
• will disclose all material matters discovered during the course of an examination, which, if omitted, could cause a distortion of the facts.

The engagement letter should be written with these standards in mind. The first question you must answer in preparing a contract is: Who is my client? Have I been engaged by the plaintiff, the defendant, or the counsel? Often the engagement letter will be addressed to attorneys. This can be either corporate or outside counsel.

There are two primary forms of engagement contract letters: the long form and the short form. The long form spells out the details of what examination techniques one intends to follow while the short form does not.

Elements of the Engagement Contract Letters
Engagement letters have four basic parts: opening, body (long or short), terms, and close. In the opening paragraph state the purpose of the engagement. Be specific as to whether the letter is an engagement or a proposal letter. The body of the letter will follow either the long or short form.

The Long Form
The long form is similar to an engagement letter prepared for specific scope examinations performed by auditors. The examiner describes the procedures in detail and limits the scope of an examination to the procedures defined. It is not recommended for use in engagements requiring the investigation of fraud allegations and a concluding opinion on the existence of fraud.

At the onset, the examiner might not know what procedures will be necessary to resolve the allegation. Consequently, it is difficult to describe, with any precision, the anticipated procedures before the examination begins.

The Short Form
The short form engagement letter outlines the general scope of the engagement. For example, it might describe that the services will include an investigation of a fraud allegation received over the hotline, or by an anonymous tip, or an audit anomaly. The short form also might confirm that the examiner has access to any personnel or documentation deemed necessary to carry out the assignment. This type of engagement letter is best used for work that ultimately will require an opinion on a fraud allegation. Because the examiner will not know the nature of the alleged fraud at the onset, it is best to not limit the examination's scope.

Terms
The terms paragraph includes the fee, either flat rate or hourly, and the method of payment. This is an excellent time to ask for a retainer and to describe the billing procedures. Also address the issue of out-of-pocket expenses. If travel is required, discuss the anticipated cost of travel and the number of trips.

Close
In the closing section, thank the addressee for the opportunity of working with him. Provide a telephone number where you can be reached and any special instructions, such as a pager and fax numbers. Ask the addressee to sign one copy, and return it in the envelope. Don't forget to supply a signature plate for the returned letter and a self-addressed stamped envelope.

Opinions
The Certified Fraud Examiner is often asked for an opinion about the existence of fraud. He or she might be engaged to perform fraud deterrence services or to resolve a fraud allegation.

In the former instance, the opinion will address the strengths and weaknesses of the client's current fraud deterrence system, and include recommendations to strengthen that system. If specific instances of possible fraudulent conduct are uncovered, those also should be addressed.

In the latter situation, the examiner must know that the Certified Fraud Examiner Code of Professional Ethics reads that "no opinion shall be expressed regarding the guilt or innocence of any person or party."

In the cases in which a fraud examination has been conducted, the examiner has three outcomes: 1) evidence was obtained supporting the allegation of fraud, 2) evidence was gathered which does not support such an allegation, and 3) evidence was inconclusive. In the first instance, the opinions will vary depending on whether or not the perpetrator confessed to the alleged crime. In the second case, the examiner can state that the evidence does not support the fraud charge. The examiner is not able to declare that there was no fraud. In the final case, the examiner can state that the evidence is inconclusive; it neither supports nor refutes the allegation.

This article is excerpted from the Fraud Examiners Manual, 3.701-3.715, Third Edition Updated 2000-2001 ©2000 Association of Certified Fraud Examiners