Winning the Case with a Strong Written Report

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

The written case report, often the only evidence of investigative work, forces the fraud examiner to consider his or her actions.

Documenting results is a particularly important function in fraud examinations. In many instances, the written report is the only evidence that the work was performed. Cases can be won or lost on the strength of the written report. It conveys to the litigator all the evidence and provides credence to the fraud examination and to the examiner's work. The report will force you to consider your actions during an investigation because they'll be documented. It omits irrelevant information, thereby allowing pertinent facts to stand out. A first-rate written report is based upon a first-rate examination.

Preparation 

You must adequately prepare prior to any interview or information-gathering process. Proper preparation entails analyzing what's to be expected as an end product. It also should involve having a good idea of what is to be learned from each witness.

Active listening is an essential function of effective report writing. The fraud examiner must have good listening skills so that information is properly assimilated, evaluated, and communicated to others. Listening skills are learned. Listening involves perceiving the ideas the respondent is actually communicating. To do so properly, one must set aside any preconceived notions and listen objectively - not only to what is being said - but how it's said and why. The fraud examiner should withhold judgment until the entire message has been heard.

Active listening often involves participating with the respondent during the information-gathering process. Participation conveys interest in the subject and promotes rapport. Participation may require reacting openly to information by verbal and nonverbal responses.

Accuracy of Reports 

Each contact an examiner makes during the course of a fraud examination should be recorded that day in a memorandum of interview. Although there's no need to recapitulate testimony word for word, the fraud examiner should include all relevant facts.

The fraud examiner should reconfirm dates and supporting information with the respondent. It's important to reconfirm the facts before the report is written, not after. Completely describe all attachments to the report. Inaccuracies and careless errors are inexcusable and can make a report useless.

Clarity  

Fraud examination reports should convey pertinent information in the clearest possible language. If necessary, quote the respondent directly if the quotation doesn't distort the context. Convey only the facts; don't editorialize or give judgments. Use complex or technical terms in their proper contexts and explain their meanings. Don't use jargon because those who aren't familiar with esoteric or technical terminology might read the report.

Impartiality and Relevance 

Report all facts without bias. Include everything relevant regardless of which side it favors or what it proves or disproves. At the beginning of a fraud examination the examiner should carefully determine the information that will be needed to prove the case and attempt to include only this information. However, it's better to include too much than too little because you may not know what's relevant until long after you write the report.

Timeliness 

Timeliness of reports is extremely important because it tends to enhance the accuracy of witness testimony. Another aim of timeliness is to preserve the examiner's memory of the interviews. Transcribe all interviews as soon as possible after the questioning. After completing the examination, prepare a final or interim report as soon as possible.

Reporting Mistakes 

Conclusions and Opinions 

When writing a report, conclusions and opinions are similar but not identical. Conclusions are based upon observations of the evidence but opinions call for an interpretation of the facts. You must be circumspect about drawing conclusions. In most situations, the examination's conclusions should be evident and you shouldn't have to point them out in the report. If the conclusions aren't obvious, you'll need to clarify the report.

Avoid stating opinions regarding the guilt or innocence of any person or party. The Certified Fraud Examiner Code of Professional Ethics specifically prohibits statements of opinions as to guilt or innocence because that is the job of the judge or jury. Opinions regarding technical matters are permitted if the fraud examiner is qualified as an expert in the matter being considered. For example, a permissible expert opinion might be in regard to the relative adequacy of an entity's internal controls.

Evidence 

Strict legal guidelines determine how evidence is handled and its chain of custody. You can avoid evidence maintenance problems by simply documenting - in memorandum form - the receipt of release of all evidence.

Copy Documents 

Most fraud case evidence will be in document form. When operating under a lawful court order that compels a custodian to furnish original documents, you should copy those documents, preferably in the presence of the custodian. Then you should furnish the custodian with a receipt describing the documents copied or taken.

Safeguarding and Maintaining Documents 

After you obtain documents, secure them for evidence. Be sure that only those people with an absolute need for the documents can gain access to them. Copy all documents. (Originals normally aren't included in the report.) Avoid defacing originals.

When documents are voluntarily furnished, leave the originals in place and work with the copies. If the originals are lost, stolen, or misplaced, the copies normally can be introduced in court under the "best evidence" rule. Don't take shortcuts with evidence and certainly don't lose or misplace crucial documents. It's inexcusable for a fraud examiner to mishandle evidence because it will compromise the case.

Organization of Information 

Because of the large amount of information and documents that might be collected during a fraud examination, the examiner should plan early and well. If circumstances permit, an information database should be established in the early phases of the case. Report information can be presented either in chronological order or by transaction.

Chronological 

This method presents facts in the order in which they were uncovered. For example, if an anonymous tip predicated the fraud examination, the information received would be presented first in the report. Thereafter, the reader would follow the development of each step as the case progressed.

Present information from each witness in a chronological manner. For instance, if you're interviewing an associate of the target, relay the information in a way that begins at the point the associate first met the target and then proceed through the course of pertinent events that lead to the present.

Transaction 

If a multitude of documents support several instances of fraud, present this information by separating individual transactions. For example, in a case of internal fraud involving six different instances of embezzlement, the documents and the related interviews might be best understood if presented as a group. Thereafter, detail the remaining transactions chronologically.

Analyzing the Reader 

Keep in mind that the fraud examination report will be read by the general public and the opposition. Write the report with this caveat in mind: Under no circumstances should you prepare a communication with the idea that information won't be disclosed to adverse third parties. A fraud examination should answer the classic questions of who, what, where, why, when, how, and how much. If you prepare the report properly, the reader shouldn't have to refer to any other document to understand the issues. The following individuals will most likely read the fraud examination report:

Company Insiders

Managers and executives probably will review a case report involving internal fraud and misdeeds. Because people outside the company probably will review this document, it shouldn't address internal control deficiencies, management issues, or other sensitive company considerations. Instead, deal with these matters in a separate letter or other form of communication.

Attorneys 

Internal and external attorneys will read the reports. In reports prepared at the request of counsel, mark each page "privileged and confidential." This procedure will document any privilege claim. However, marking the report in this way won't necessarily ensure that the privilege will be sustained.

The defendants' attorneys likely will gain access to a report during the discovery phase of civil litigation. These lawyers will scrutinize the report for errors, omissions, and misstatements. Be certain the report is accurate down to the smallest detail. Defense attorneys will cite the smallest error as evidence that the entire document is inaccurate. In criminal cases, prosecuting attorneys and law enforcement personnel also will review a report. They will look primarily at evidence and witness statement that will best sustain a criminal prosecution.

Defendants and Witnesses 

In either civil or criminal litigation, the defendants eventually will see most, if not all, of a report. If the case reaches court, the witnesses whom you identified and interviewed will be provided copies of their own statements, if not the entire report.

Media

In some instances, the media might gain access to a report. Reporters might obtain data from information disclosed during litigation or, in some instances, from confidential sources. The media is adept at uncovering mistakes and incorrect conclusions.

Juries 

When the case reaches trial, the jury usually will receive the entire report for review and analysis. Because juries normally don't have a background in business and accounting matters, make the report simple and easy to understand. The members of the jury are the most important individuals to review the report.

Report Structure 

Reporting formats vary widely. Some organizations, especially governmental investigative bodies, use report forms so that case information is provided in a consistent manner.

The basic reporting documents are memoranda; exhibits, documents, or enclosures; indexes; a cover page; and a transmittal letter.

If the report is distributed outside the organization, it's often necessary to prepare an additional transmittal letter. You can attach original exhibits and evidence separately.

The heart of the report is the memorandum of interview. Prepare a memorandum for each official contact. Assemble the memoranda of interviews in chronological order and index them.

Memoranda 

Use memoranda to document all interviews and other pertinent information discovered during the examination. Each memorandum should contain the following information:

Heading 

• File number or control number
• Name of person reporting
• Case name or subject
• Subject of memorandum
• Date
  In the details of facts show:
• the interviews were voluntary;
• the witnesses provided their own identities;
• the witnesses were informed of the nature of the inquiry;
• the dates of the inquiry;
• how you conducted the interview (in person, by telephone, etc.);
• if the interview was electronically recorded; and
• the facts learned during the inquiry.

Cover Page or Letter

A cover page summarizes the examination's salient points. The cover page should be direct and succinct but it might or might not include an opinion. Include a cover letter in a report to an outside agency (such as law enforcement or outside counsel). In the cover letter, recapitulate information in the report and summarize the principal weaknesses. You only have to list the most valuable witnesses.

Exhibits 

Unless the exhibits are bulky, don't attach them but include copies of them in the report. The chain of custody should be maintained over original documents.

Forms 

A complete fraud examination report must document every step of the information-gathering process. Use forms to present an orderly and legal presentation of evidence. These forms are kept in the file and shouldn't be kept in the report. The forms should include the following:

Consent to Search 

This form documents that a person was informed of his Constitutional rights, stating that:

• The premises couldn't be searched without a search warrant; and
• The person could have refused to consent to such a search.

The signatures at the bottom of the form (subject and witness) indicate that the person is voluntarily giving the fraud examiner written permission to search the premises and to remove whatever papers, documents, or other property he might desire.

Receipt for Property 

A Receipt for Property form is a multipurpose document used to list items of evidence that have been received, returned, or released. This form includes:

• date of transfer;
• property owner's name;
• owner's address;
• description of item; and
• signature lines ("received by" and "received from").

Telephone Recording Consent 

This form stipulates where, when, and with whom telephone conversations can be tape-recorded. It states that the subject had granted permission without threats or promises of any kind, and the subject and witness must sign it. Be cautioned that the form alone doesn't make the conduct illegal or legal. (See the Law Section in the Fraud Examiners Manual for information on the interception of communications.)

Advice or Rights 

An Advice of Rights form "Mirandizes" an individual; that is, it informs a person that:

• he might remain silent in the face of questioning;
• whatever the person says can be used against him in a court of law;
• if requested, an attorney will be appointed for him before questioning; and
• he might stop answering questions at any time, whether an attorney is present or not.

If Mirandizing is applicable, this form should be signed and witnessed.

Consent to Record 

This form documents the fact that an individual has given the examiner permission to record specific conservations. It must be signed and witnessed. The form details the:

• name of the individual;
• his address;
• location of the conversation(s);
• who might record the conversation(s);
• name of the subject(s) with whom the individual might converse; and
• date(s) of the conversations(s).

Customer Consent and Authorization for Access to Financial Records

This form authorizes a financial institution to disclose a customer's own records to the fraud examiner or other specifically listed individuals. The account holder must sign it.

Evidence Control Log 

In the case of significant items of evidence, it might be advisable to prepare this log that documents:

• evidence control center location;
• bank safe-deposit box location;
• other evidence location;
• signatures of persons placing in or removing evidence from evidence repository;
• reasons why evidence was moved;
• file case number; and
• times and dates authorized individuals entered and departed the evidence repository.

Next issue: signed statements, visual aids, summaries of witnesses' statements, and elements of the engagement contract