Fail to Prepare - You are Preparing to Fail!

Some believe that the major preparation for trial by the expert witness is the expert report.  In addition, they believe that if the report is well structured, there is no other preparation required and you can simply arrive at court and answer questions.  I strongly disagree with these beliefs.

The role of an expert witness is to provide facts and an expert opinion of the case at hand.  As stated in Practice Note CM 7 (Federal Court of Australia, 2012), an expert witness first and foremost has an ‘overriding duty to assist the Court on matters relevant to the expert’s area of expertise’.  In addition, the expert witness must not be an advocate for a party when giving testimony and recognise that their paramount duty is to the Court, not to the person retaining the expert.  If the expert witness is not properly prepared, they may begin to show bias to the party retaining their services and provide opinion outside of their area of expertise, resulting in inadmissible evidence.

From the case of Makita (Aust) Pty Ltd v Sprowles (2001), we can identify the following criteria which must be met in order for evidence to be admissible:

• Demonstration of field of specialised knowledge;
• Demonstration of expertise in this field by reason of specified training, study or experience;
• Basing the opinion on witness’s expert knowledge;
• Identifying and providing in some way, the facts observed or assumed by the expert;
• Properly form a foundation for the opinion from the facts; and
• Explaining how the expert’s field applies to the facts to produce the opinion.

 In summary of the above points regarding an expert’s role, obligation to the Court and admissible evidence, we can draw the following conclusion:

EXPERTS MUST ADEQUATELY PREPARE FOR TRIAL

After recently participating in a mock trial to experience the life of an expert witness, I can confirm that preparation is crucial to succeed.  The mock trial consisted of providing evidence in chief and cross-examination.  It was quite a confronting, yet highly beneficial experience.  Based on the points that have already been discussed and my personal experience as an expert witness, for a whole of seven minutes, I can confirm that preparation is key.  Not only does preparation assist with your court appearance, it will in turn maintain professional credibility.

The main issues that I observed during the mock trial were largely in relation to lack of preparation.  I know that I personally could have prepared better by reviewing the case more in-depth to gain a better understanding of the facts.  There also seemed to be a vast amount of nerves from all participants, possibly due to the fact that we were not entirely sure of how to act during a trial.  It is one thing to study the theory behind a trial, but participating is completely different.  My advice to participants in future mock trials and expert witnesses alike is:

•  Review the case to gain an in-depth understanding of the facts;
• Understand which areas of the case are outside of our expertise when questioned; and
• Generally calm yourself and fulfil your duty to the Court.

  

References

Federal Court of Australia.  (2012).  Expert Witness in Proceedings of the Federal Court of Australia.  Practice Note CM 7.  Retrieved from: http://www.fedcourt.gov.au/law-and-practice/practice-documents/practice-notes/cm7

Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 (Austl).

Rules are not made to be Broken

The Federal Court Rules (2011) outline rules in relation to all aspects of court proceedings and includes rules with regards to experts.  Rule 23.15, Evidence of Experts, notes the orders available if two or more parties to a proceeding intend to call experts to provide an opinion on evidence about a comparable question.

Parties can apply for one or more of the orders listed in Rule 23.15.  The orders parties can apply for include (non exhaustive):

(a)  that the experts confer, either before or after writing their expert reports;

(b)  that the experts produce to the Court a document identifying where the expert opinion agree or differ;

(c)  that the expert’s evidence in chief be limited to the contents of the expert’s expert report;

(d)  that all factual evidence relevant to any expert’s opinions be adduced before the expert is called to give evidence (Federal Court Rules, 2011).

The general reason why these orders have been included in the Federal Court Rules (2011) is to avoid wasting time during court proceedings.

For forensic accounting expert witnesses presenting evidence in court for the first time, I would recommend adhering to all court orders to ensure the case is processed in a timely matter.  The evidence you provide should appeal extensively because of its logic, rather than because of your credibility (no prior experience as an expert witness) (Craig, Smieliauskas & Amernic, 2014).  Whilst providing evidence in court, state facts and give your expert opinion when requested, rather than overwhelming the Court with information.  Essentially, this will save time.  After all, that is why the orders of Rule 23.15 were included in the Federal Court Rules (2011). 

References

Craig, R., Smieliauskas, W. & Amernic, J.  (2014).  Assessing Conformity with Generally Accepted Accounting Principles Using Expert Accounting Witness Evidence and the Conceptual Framework.  Australian Accounting Review, 24, 200–206.  doi: 10.1111/auar.12039

Federal Court Rules 2011 (Clth).  Retrieved from: https://www.legislation.gov.au/Details/F2011L01551

Culture = Key

It is fair to state that the ‘culture’ of an organisation contributes to the incidences of fraud, bribery and corruption, yet internal controls are seen as of higher importance.

As a result of poor leadership, an organisation’s culture can become complacent with respect to fraud control (Australian National Audit Office, KPMG, 2011).  The Fraud Control Framework, displayed in Fraud Control in Australian Government Entities Better Practice Guide (2011), illustrates the essential conditions of effective fraud control.  The framework shows that effective fraud control measures begin with leadership and culture.  It also displays requirement to govern the recommended fraud control structure of AS8001-2008: monitoring, evaluation and reporting; prevention; detection; and response.

Fraud Control Framework (Australian National Audit Office, KPMG, 2011).

It is fundamental the organisation establishes a culture of honesty and integrity in order to minimise the risk of fraud, bribery and corruption.  There are three main elements to establishing an anti-fraud culture, consisting of:

1.    Preparing a statement of ethical behaviour which outlines what is/is not tolerated in the organisation;

2.    Recruiting honest staff by screening staff to identify past dishonest conduct; and

3.    Maintaining a good working morale (Button & Brooks, 2009, p. 232).

To assist in establishing an anti-fraud culture, organisations should avoid contributors to fraud, such as inadequate pay, poor promotion opportunities and lack of recognition (Van Akkeren, 2016).  My workplace performs remuneration reviews biannually and holds monthly meetings where team members who display the visions and values of the firm are recognised.  This maintains a good working morale and an anti-fraud workplace.

References

Australian National Audit Office.  (2011).  Fraud Control in Australian Government Entities Better Practice Guide.  Retrieved from: https://blackboard.qut.edu.au/bbcswebdav/pid-6300325-dt-content-rid-6139363_1/courses/AYB115_16se1/Fraud%20Controls%20in%20Australian%20Govt%20Entities%202011.pdf

Button, M., & Brooks, G. (2009). "Mind the gap", progress towards developing anti-fraud culture strategies in UK central government bodies. Journal of Financial Crime, 16(3), 229-244. doi: 10.1108/13590790910971784

Standards Australia.  (2008).  Fraud and Corruption Control (AS 8001-2008).  Retrieved from: https://www.saiglobal.com/PDFTemp/Previews/OSH/AS/AS8000/8000/8001-2008.pdf

Van Akkeren, J.  (2016).  AYB115 Governance, fraud and investigation: Lecture 9 [Slides].  Retrieved from: https://blackboard.qut.edu.au/webapps/blackboard/content/listContent.jsp?course_id=_123312_1&content_id=_6144812_1

Interview vs. Interrogation

The case of the prosecution can often rely heavily on a confession provided by the suspect.  It is therefore vital that the interview be conducted suitably, otherwise the confession may be classed as inadmissible, dismissed by the court, which may result in serious injustice (Davies, 2002).  Forensic accountants must be cautious of this whilst conducting interviews.

The three major interviewing techniques are:

•  REID – interrogation model relying on lie-detection and psychological persuasion;
•  PEACE – fact-based approach that challenges inconsistencies; and
• Motivational interviewing – psychotherapeutic model allowing the interviewer to effect change through the power of empathy. 

All three methods emphasise the importance of rapport-building and open-ended questioning, yet have strong philosophical differences.

Generally speaking, confessions are inadmissible if they result from fear of prejudice or hope of advantage.  It is important to maintain a distinction between interviewing and interrogating the suspect in order to avoid dismissal of evidence.  Interviewers should refrain from making comments such as “it would be better if you confessed” and take a more humanitarian approach by stating “it would be better if you told the truth”.  This encourages the suspect to confess, rather than making an indirect accusation which is seen as interrogating the suspect.

Years ago I procured some sweets from my mother’s jar.  When she realised, she did not immediately accuse anyone, rather encourage us to tell the truth.  The method of interviewing used was effective at the time, however it is important that all techniques be considered for use.  Evidence suggests that a humanitarian approach is more likely to result in a confession from the suspect and therefore should be used by forensic accountants conducting interviews (Van Akkeren, 2016).

References

Davies, G. L. (2002).  The Exclusion of Evidence Illegally or Improperly Obtained: An Unsatisfactory Answer to an Unstated Question.  Journal of Financial Crime, 9, 224 – 248.  doi: 10.1108/eb026023

Van Akkeren, J. (2016).  AYB115 Governance, fraud and investigation: Lecture 8 [Slides].  Retrieved from https://blackboard.qut.edu.au/webapps/blackboard/content/listContent.jsp?course_id=_123312_1&content_id=_6144810_1

Fraud Rationalisation

Many theories have been presented explaining the motivation of fraud, bribery and corruption.  Specifically, it has been suggested that:

• Differential Association Theory explains why fraud occurs by groups;
• General Strain Theory explain why fraud occurs by individuals; and
• Cressey’s Fraud Triangle address both.

I agree with the first two statements, however the suggestion that Cressey’s Fraud Triangle addresses the motivation of both individuals and sub-groups is not accurate.

Cressey’s Fraud Triangle, seen below, illustrates that the risk of fraud occurs when opportunity, pressure and rationalisation of the act is recognized.

Ernst & Young’s illustration of The Fraud Triangle (Cressey, 1953)

The pressure placed on employees can create the perception of justification of the fraud.  Categories of pressure include:

• Financial pressure; or
• Non-financial pressure, encompassing:
• Work-related pressure;
• Vices; and
• Pressure associated with individuals wish to live a luxurious lifestyle (Lokanan, 2015).

The pressure placed on an employee can drive the want to appear successful.  This is very prominent in my workplace.  High productivity targets are set and all employees wish to be recognised as diligent.  Temptation to forge a timesheet arises when charging client work to ensure productivity targets are achieved.  This demonstrates that strain on employees can lead to fraud in any sense.

The following video explores the rationalisation of fraud (Pope, 2015).

From an analysis of the theory, we understand the likelihood of fraud, bribery and corruption occurring rises when the opportunity to commit fraud increases, internal and external pressure increases, and internal controls decrease.  It is therefore crucial that organisations heed warning signs from employees.

References

 

Ernst & Young. Cressey’s Fraud Triangle [Image].  Retrieved from: https://blackboard.qut.edu.au/webapps/blackboard/content/listContent.jsp?course_id=_123312_1&content_id=_6144809_1

 

Lokanan, M. E. Challenges to the fraud triangle: Questions on its usefulness. Accounting Forum, 39, 201 – 224. doi:10.1016/j.accfor.2015.05.002

 

Pope, K. R. (writer), Anderson, A. (presenter). (2015). TED-Ed.  

Acting as an Expert Witness

A forensic accountant expert is a person who has specialized knowledge in the area based on the person’s training, study or experience.  An expert witness may be expected, or required, to give an opinion and draw conclusions based on the facts.

When acting as a forensic witness, high standards of performance are required.  It is imperative that an expert witness ensure they have collected and assessed all relevant facts and information from the lawyer and client.  Particularly when dealing with the lawyer and client, great care should be taken to avoid the possibility of being influenced to provide an opinion which is more favorable to the client than can be justified on the known facts.  The expert witness’ role is to serve the court and therefore must ensure the truth is unveiled.  If by some chance the expert witness is dishonest, it will undermine the experts’ credibility and diminish the value of their opinion (Hoffman, Finney, Cox & Cooper, 2013).

In order to avoid being discredited in court through showing partisan, the forensic accounting expert should ensure that all facts have been considered and analysed, and report the truth of the case.

References

Hoffman, R., Finney, W., Cox, P. & Cooper, K. (2013).  The Accountant as an Expert Witness: A basic guide to forensic accounting (2^nd ed.).  CCH Australia Limited.

Management of Vicarious Liability Risk

When considering the broad range of crimes that can be committed in the business world that fall under the banner of fraud, bribery and corruption, the list is quite lengthy.  We are able to categorise business crime into four major categories of business crime, as follows (Latimer, 2012, p. 96).

Category	Examples
White-collar crime	Embezzlement Insider trading Money laundering
Organised crime	Illegal drugs Illegal services
Computer crime	Unauthorised access Unauthorised impairment of data Internet fraud
Regulatory offences	Breaches of: The Corporations Act 2001 (Cth) Environmental lax; and Workplace laws

A company is deemed to be liable for the crime if the plaintiff’s actions are considered to be within the course of employment.  In Australia, a vicarious liability can arise under contract law, tort law, criminal law, and any other statutes.  The existence of vicarious liability is justified by the fact that it encourages good management practices.  In order to manager the risk of vicarious liability, managers and directors should take more care when recruiting.  Specifically, they need to consider whether a person is capable, qualified and of a suitable temperament for the post (Lockwood, 2011, p. 150).

References

Latimer, P.  (2012).  Australian Business Law (31^st ed.).  CCH Australia Limited.

Lockwood, G. (2011).  The widening of vicarious liability: Implications for employers. International Journal of Law and Management, 53(2), 149-164. DOI: 10.1108/17542431111119414

Regulatory Environment

Just as the risk of fraud increases, so does the necessity for forensic accountants.  The Queensland Health $16 million and ING $50 million fraud cases demonstrate the requirement for proactive and reactive forensic accounting services (Van Akkeren, Buckby & MacKenzie, 2013).

Forensic accountants are required to assist the courts, solicitors and clients to understand complex financial and accounting issues by presenting information in a manner that all users will understand (Shields, 2010, para. 1).  Accounting expert witnesses within Australia are bound by APES 215 and any applicable court practice notes.  Both the standard and practice notes convey the independence and objectivity of the expert is of utmost importance.

On 1 April 2014, a revised issue of the standard was released and implement.  Paragraph 1.2 of APES 215 (page 3) states that ‘APES 215 sets the standards for Members in the provision of quality and ethical Forensic Accounting Services’.  A concern regarding the challenge to accountants to keep up with the changes of the standard has been raised.  In my opinion, it is within the best interest of accountants to maintain awareness of any standard revisions in order to preserve credibility in court.

References

Accounting Professional and Ethical Standards Board. (2013). APES 215 Forensic Accounting Services.  Retrieved from http://www.apesb.org.au/

Shields, A. (2010).  The Role of Forensic Accountants.  Retrieved from http://www.dolmanbateman.com.au/1323/the-role-of-forensic-accountants/

  

Van Akkeren, J., Buckby, S., & MacKenzie, K. (2013). A metamorphosis of the traditional accountant. Pacific Accounting Review, 25(2), 188-216, DOI: 10.1108/PAR-06-2012-0023

Is the Importance of Information Security Over Exaggerated?

Many businesses fail to recognise fraud, bribery and corruption as a serious threat to the viability of the business mainly due to readily available security software.  Trust is placed in virus protection, security software and the like; however the necessity for information security is essentially ignored.

Information security ensures that information is protected against disclosure to unauthroised users, improper modification and non-access when required (ISACA, 2012, p. 14).  At my current place of employment, a mid-tier accounting firm, access is restricted to client files which relate to a directors entity.  This practice is to manage the risk of internal misappropriation of information.

Essentially, information security encompasses the protection against both internal and external fraud, corruption and bribery risks.  The number of respondents to the Computer Crime & Security Survey who reported a breach of security decreased from 90 per cent in 2003 to 45.6 per cent in 2011 (Silic & Back, 2014, p. 279).  Although this demonstrates businesses actively sought to target the risk of security breaches, technology is ever changing.  It is within the best interest of businesses to constantly evolve their information security in order to manage the risk of fraud, bribery and corruption.

References 

ISACA (2012).  Cobit 5 for Information Security.  Retrieved from http://www.isaca.org/COBIT/Documents/COBIT-5-for-Information-Security-Introduction.pdf

  

Silic, M., & Back, A.  Information security: Critical review and future directions for research. Information Management & Computer Security, 22(3), 279 – 308, DOI: 10.1108/IMCS-05-2013-0041

Importance of Management and Governance Separation

Since the rise of the digital era, it has become imperative to manage the risk of fraud, corruption and bribery in the workplace.  Many companies are oblivious to the risk and as a result their capacity to absorb the aftermath is substantially lower than ideal.

I recall Flexcoin, an online business serving bitcoin traders and investors, was hacked in March 2014 and was immediately forced to stop trading as a result (Bitcoin bank Flexcoin shuts after theft, 2014).  Although this was not internal corruption, the case demonstrates the vulnerability of companies who are not equipped to manage the risk of fraud, corruption and bribery.

Specifically, in relation to internal risk of fraud, corruption and bribery, the COBIT 5 framework’s fifth principle explicitly addresses the importance of separating governance from management (Oliver & Lainhart, 2012, p. 9).

The principle forms a line between setting objectives and measuring outcomes.  Should a company disregard the essential separation of governance and management, they are ultimately risking the continuity of the company by allowing the level of vulnerability to increase significantly.

Through the implementation of COBIT 5, I believe a company can manage the risks present in the digital era and, most importantly, build a strong governance/management distinction to manage the risk of fraud, corruption and bribery in the workplace.

References

Bitcoin bank Flexcoin shuts after theft (2014, March 4). AFP.  Retrieved from https://au.finance.yahoo.com

Oliver, D., & Lainhart, J. (2012). COBIT 5: Adding Value Through Effective Geit.  EDPACS, 46:3, 1-12, DOI: 10.1080/07366981.2012.706472