ETHICS FOR FRAUD EXAMINERS Flashcards
In A Critical Introduction to Ethics, Philip Wheelwright defined ethics as:
[the] branch of philosophy which is the systematic study of reflective choice, of the standards of right and wrong by which it is to be guided, and of the goods toward which it may ultimately be directed.
fraud examiners also are
spectators (observing the decisions of colleagues), advisors (counselling with co-workers), instructors (teaching students or new employees on the job), judges (serving on disciplinary committees), and critics (commenting on the ethical decisions of others)
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 1
A Certified Fraud Examiner shall at all times demonstrate a commitment professionalism and diligence in the performance of his or her duties.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 2
A Certified Fraud Examiner shall not engage in any illegal or unethical conduct, or any activity which would constitute a conflict of interest.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 3
A Certified Fraud Examiner shall, at all times, exhibit the highest level of integrity in the performance of all professional assignments, and will accept only assignments for which there is reasonable expectation that the
assignment will be completed with professional competence.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 4
A Certified Fraud Examiner will comply with lawful orders of the courts, and will testify to matters truthfully and without bias or prejudice.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 5
A Certified Fraud Examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered. No opinion shall be expressed regarding the guilt or innocence of
any person or party.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 6
A Certified Fraud Examiner shall not reveal any confidential information obtained during a professional engagement without proper authorisation
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 7
A Certified Fraud Examiner shall reveal all material matters discovered durin the course of an examination, which, if omitted, could cause a distortion of the facts.
ASSOCIATION OF CERTIFIED FRAUD EXAMINERS CODE OF PROFESSIONAL ETHICS 8
A Certified Fraud Examiner shall continually strive to increase the competence and effectiveness of professional services performed under his or her direction.
Professionalism exists on two basic levels
(1) for the professional group as a whole and (2) for the individual Certified Fraud Examiner.
The five principal characteristics that help differentiate professional fields of endeavour from other vocations are:
- A body of specialised knowledge acquired by formal education.
- Admission to the profession governed by standards of professional qualifications.
- Recognition and acceptance by society of professional status, and concurrent recognition and acceptance of social responsibility by the professional.
- Standards of conduct governing relationships of the professional with clients, colleagues, and the public.
- An organisation devoted to the advancement of the obligations of the professional group.
The “diligence in performing his or her duties” phrase in the rule refers to
planning assignments and supervising assistants and colleagues,
avoiding conflicts of interest,
performing with competence,
obtaining sufficient evidence to establish a basis for opinions,
maintaining confidential relations,
and avoiding distortion of facts
Consider the following legal-related problems
Libel and Slander
False Imprisonment
Unethical Conduct
Conflict of Interest and “Independence” Considerations
Libel and Slander
- Contain words that injure another person’s character or reputation or hold him up to ridicule;
- Be communicated orally or in writing to other people; and
- Cause an actual damage to the person who is the subject of the communication.
A Certified Fraud Examiner employed full-time by a company should not
engage in other jobs that create a hardship or loss to the employer
be a “double agent” employed by one
company, but retained by another company or person to infiltrate the employer and transmit inside information
accept engagements from both sides to a controversy
Integrity
Integrity requires honesty, truthfulness, trustworthiness, and confidentiality. It requires subordination of desires for personal gain to the interests of clients, employers, and the public. It requires independence of mental attitude and avoidance of conflicts of interest. Integrity is all these things wrapped up into one word.
In addition, integrity means that a Certified Fraud Examiner ought to have a well-developed sense of moral philosophy—an ability to analyse situations where no rules of the Certified Fraud Examiner Code are specifically applicable and to be able to distinguish right from wrong. It does not mean, however, that a Certified Fraud Examiner must be perfect in all.
Professional Competence demands attention to three kinds of interference that can damage the independence and quality of a Certified Fraud Examiner’s work.
The three types of interference are
programming, investigation, and reporting.
A prudent practitioner
is assumed to have a knowledge of the philosophy and practice of fraud examinations, to have the degree of training, experience, and skill common to the average fraud examiner, to have the ability to recognise indications of frauds, and to keep abreast of developments in the perpetration and detection of fraud. Competence requires the CFE to be acquainted with the company, activity, function, or program under investigation;
to review the methods of control in operation; to obtain sufficient evidence pertinent to the suspected fraud or illegal activity; to be responsive to unusual events and unfamiliar circumstances; to persist until any reasonable doubts about the evidence have been eliminated; and to exercise caution in instructing assistants and reviewing their work
Programming
Fraud examiners must remain free from interference by managers who try to restrict, specify, or modify the procedures they need to perform, including any attempts to assign personnel or otherwise to control the examination work.
Investigation
When appropriate, Certified Fraud Examiners must have free access to books, records, correspondence, and other evidence. They must have the cooperation of managers or other employees without any attempt to interpret or screen evidence.
Reporting
Certified Fraud Examiners must not let any feelings of misguided loyalty to the client, employer, or other sources of conflicts of interest interfere with their obligation to report fully and fairly
Professional Scepticism
Fraud examiners must always perform their work with an attitude of scepticism, and begin with the belief that something is wrong or someone is committing a fraud
Confidential information,
is any and all information a Certified Fraud
Examiner might obtain in the course of work, whether it be from the company or client for whom an investigation is performed or from any other source consulted during the work
Evidence and conclusions are material if
knowledge of them would affect clients’ decisions based on a Certified Fraud Examiner’s report
General Standards. Independence and Objectivity
Certified Fraud Examiners are responsible for maintaining independence in attitude and appearance, approaching and conducting fraud examinations in an objective and unbiased manner, and ensuring that examining organisations they direct are free from impairments to independence.
General Standards. Qualifications
Certified Fraud Examiners must possess the skills, knowledge, abilities, and appearance needed to perform examinations proficiently and effectively. Certified Fraud Examiners who are responsible for directing fraud examinations must ensure they are performed by
personnel who collectively possess the skills and knowledge necessary to complete examinations in accordance with these Standards. Certified Fraud Examiners must maintain their qualifications by fulfilling continuing education requirements and adhering to the Code of Ethics of the Association of Certified Fraud Examiners.
General Standards.Fraud Examinations
Certified Fraud Examiners must conduct fraud examinations using due professional care, with adequate planning and supervision to provide assurance that the objectives are achieved
within the framework of these standards. Evidence is to be obtained in an efficient,
thorough, and legal manner. Reports of the results of fraud examinations must be accurate, objective, and thorough
General Standards.Confidentiality
Certified Fraud Examiners are responsible for ensuring that they, and examining
organisations they direct, exercise due care to prevent improper disclosure of confidential or privileged information.
Specific Standards
Independence and Objectivity
ATTITUDE AND APPEARANCE
Independence of attitude requires impartiality and fairness in conducting examinations an in reaching resulting conclusions and judgements. Certified Fraud Examiners must also be sensitive to the appearance of independence so that conclusions and judgements will be accepted as impartial by knowledgeable third parties. Certified Fraud Examiners who
become aware of a situation or relationship that could be perceived to impair independence, whether or not actual impairments exist, should inform management immediately and take steps to eliminate the perceived impairment, including withdrawing from the examination if necessary.
Specific Standards
Independence and Objectivity OBJECTIVITY
To ensure objectivity in performing examinations, Certified Fraud Examiners must maintain an independent mental attitude, reach judgements on examination matters without undue influence from others, and avoid being placed in positions where they would be unable to work in an objective professional manner. All possible conflicts of interest should be disclosed.
Specific Standards
Independence and Objectivity ORGANISATIONAL RELATIONSHIP
The Certified Fraud Examiner’s reporting relationship should be such that the attitude and appearance of independence and objectivity are not jeopardised. Organisational independence is achieved when the Certified Fraud Examiner’s function has a mandate to conduct independent examinations throughout the organisation, or by a reporting relationship high enough in the organisation to ensure independence of action.
Specific Standards
Qualifications
SKILLS, KNOWLEDGE, ABILITIES, AND EXPERIENCE
Certified Fraud Examiners cannot be expected to have an expert level of skill and knowledge for every circumstance that might be encountered in a fraud examination. Nevertheless, Certified Fraud Examiners must have sufficient skill and knowledge to recognise when additional training or expert guidance is required. It is the responsibility of a Certified Fraud Examiner to ensure that necessary skills, knowledge, ability, and experience are acquired or available before going forward with a fraud examination.
Certified Fraud Examiners must be skilled in obtaining information from records,
documents, and people; in analysing and evaluating information and drawing sound
conclusions; in communicating the results of fraud examinations, both orally and in writing;
and in serving as an expert witness when appropriate.
Certified Fraud Examiners must be knowledgeable in investigative techniques, applicable laws and rules of evidence, fraud auditing, criminology, and ethics.
Specific Standards Qualifications CONTINUING EDUCATION
Certified Fraud Examiners are required to fulfil continuing education requirements
established by the Association of Certified Fraud Examiners. Additionally, Certified Fraud Examiners are responsible for securing other education necessary for specific fraud examination and related fields in which they are individually involved.
Specific Standards Qualifications CODE OF ETHICS
Certified Fraud Examiners are to adhere to the Code of Professional Ethics of the
Association of Certified Fraud Examiners.
Specific Standards Fraud Examination
DUE PROFESSIONAL CARE
Due professional care is defined as exercising the care and skill expected of a prudent professional in similar circumstances. Certified Fraud Examiners are responsible for ensuring that there is sufficient predication for beginning a fraud examination; that said examinations
are conducted with diligence and thoroughness; that all applicable laws and regulations are observed; that appropriate methods and techniques are used; and that said examinations are conducted in accordance with these standards.
Specific Standards Fraud Examination PLANNING AND SUPERVISION
Certified Fraud Examiners must plan and supervise fraud examinations in a manner to ensure that objectives are achieved within the framework of these standards.
Specific Standards Fraud Examination EVIDENCE
Certified Fraud Examiners must collect evidence, whether exculpatory or incriminating, that supports fraud examination results and will be admissible in subsequent proceedings, by obtaining and documenting evidence in a manner to ensure that all necessary evidence is obtained, and the chain of custody is preserved.
Specific Standards Fraud Examination REPORTING
Reports of the results of a fraud examination, whether written or verbal, must address all relevant aspects of the examination and be accurate, objective, and understandable.
In rendering reports to management, clients, or others, Certified Fraud Examiners shall not express judgements on the guilt or innocence of any person or persons, regardless of the Certified Fraud Examiner’s opinion of the preponderance of evidence. Certified Fraud Examiners must exercise due professional care when expressing other opinions related to an examination, such as the likelihood that a fraud has or has not occurred, and whether or not internal controls are adequate.
Specific Standards Fraud Examination Confidentiality
Certified Fraud Examiners, during fraud examinations, are often privy to highly sensitive and confidential information about organisations and individuals. Certified Fraud Examiners must exercise due care so as not to purposefully or inadvertently disclose such information except as necessary to conduct the examination as required by law.
Predication Standards Bribery
Bribery is the offering, giving, receiving, or soliciting of something of value for the purpose of influencing the action of an individual in the discharge of his duties. It can also include the securing of advantage over competitors by secret and corrupt dealing with employees or agents of prospective purchasers. Any indication (through audit, tip, complaint, or accidental discovery) that such action (bribery) has occurred, may have occurred, or could occur should be investigated until the
Certified Fraud Examiner has established that it has occurred, or, within reasonable
certainty, that it did not occur.
In the example given, the fact that there is a major control weakness is the only predication needed to investigate the situation further to determine whether there was fraud.
Predication Standards Conflicts of Interest
This generally refers to a clash between public or corporate interest and the private pecuniary interest of an individual or individuals. It arises when an officer’s or employee’s personal or financial interest conflicts or appears to conflict with his official duties.
Any indication that there may be a conflict of interest or that there appears to be a conflict of interest should be reviewed/investigated. This is particularly important if the agency/company does not require employees to sign conflict of interest statements annually, and there is no active prevention program such as a computer cross-check of employee
phone numbers and addresses with those of contractors and vendors.
Predication Standards Embezzlement
Embezzlement is generally the fraudulent appropriation of property by one lawfully
entrusted with its possession. It is the wilful taking or conversion to one’s own use, another’s money or property of which the wrongdoer acquired possession lawfully by reason of some office, employment, or position of trust.
Any indication that embezzlement has occurred or could be occurring should be
investigated. If financial statements, inventory, or other documents appear out of order, no matter how innocuous or nonmaterial, a preliminary review should be made to determine if it is accidental or if a full-scale investigation should be conducted. Again, the Certified Fraud Examiner should follow the situation until he is reasonably assured that there is no active fraud taking place
Predication Standards False Financial Statements
This includes any false statement with regard to a corporation’s financial condition. It means something more than merely untrue or erroneous information. It also implies that the statement is decidedly untrue and deceitful, and made with the intention to deceive a person
to whom the false statement is made or exhibited.
Any indication that financial statements are not accurate requires further review to determine the reasons for their inaccuracy. While there may be legitimate reasons for the apparent inaccuracies, it is incumbent on the Certified Fraud Examiner to review the situation enough to determine those reasons and document his inquiry.
Predication Standards False Pretences
Fraud by false pretences is a representation of a matter of fact something that is known by the person making the representation to be false and it is made with the purpose to mislead or deceive.
Any apparent inaccurate statements should be reviewed and the reasons for the inaccuracies
documented, including the individuals responsible for the statements and the rationale behind them. If the inaccuracies seem more than minor discrepancies, or the reasons for the discrepancies appear unjustifiable, a full review may be necessary.
Predication Standards Theft
Theft is the taking of personal property belonging to another from his possession, or from the possession of some person holding the same for him without his consent, with the intent to deprive the owner of the value of the same, and appropriating it to the use and benefit of
the person taking it.
For theft, if there is any indication or pattern that property is missing, it is important that the Certified Fraud Examiner review the situation to determine if a full-scale investigation is warranted.
III. Standards of Professional Conduct
A. Integrity and Objectivity
- Members shall conduct themselves with integrity, knowing that public trust is
founded on integrity. Members shall not sacrifice integrity to serve the client, their
employer, or the public interest.
2 Prior to accepting the fraud examination, members shall investigate for potential
conflicts of interest. Members shall disclose any potential conflicts of interest to prospective clients who retain them or their employer.
- Members shall maintain objectivity in discharging their professional responsibilities within the scope of the engagement.
- Members shall not commit discreditable acts, and shall always conduct themselves in the best interests of the reputation of the profession.
- Members shall not knowingly make a false statement when testifying in a court of
law or other dispute resolution forum. Members shall comply with lawful orders of
the courts or other dispute resolution bodies. Members shall not commit criminal
acts or knowingly induce others to do so.
III. Standards of Professional Conduct
B. Professional Competence
- Members shall be competent and shall not accept assignments where this
competence is lacking. In some circumstances, it may be possible to meet the requirement for professional competence by use of consultation or referral. - Members shall maintain the minimum program of continuing professional education required by the Association of Certified Fraud Examiners. A commitment to professionalism combining education and experience shall continue throughout the
member’s professional career. Members shall continually strive to increase the
competence and effectiveness of their professional services.
III. Standards of Professional Conduct
C. Due Professional Care
- Members shall exercise due professional care in the performance of their services.
Due professional care requires diligence, critical analysis, and professional scepticism in discharging professional responsibilities. - Conclusions shall be supported with evidence that is relevant, competent, and
sufficient. - Members’ professional services shall be adequately planned. Planning controls the
performance of a fraud examination from inception through completion and
involves developing strategies and objectives for performing the services. - Work performed by assistants on a fraud examination shall be adequately supervised. The extent of supervision required varies depending on the complexities of the work and the qualifications of the assistants.
III. Standards of Professional Conduct
D. Understanding with Client or Employer
- At the beginning of a fraud examination, members shall reach an understanding with
those retaining them (client or employer) about the scope and limitations of the
fraud examination and the responsibilities of all parties involved. - Whenever the scope or limitations of a fraud examination or the responsibilities of
the parties change significantly, a new understanding shall be reached with the client or employer.
III. Standards of Professional Conduct
E. Communication with Client or Employer
- Members shall communicate to those who retained them (client or employer)
significant findings made during the normal course of the fraud examination.
III. Standards of Professional Conduct
F. Confidentiality
- Members shall not disclose confidential or privileged information obtained during the course of the fraud examination without the express permission of proper authority or order of a court. This requirement does not preclude professional practice or investigative body reviews as long as the reviewing organisation agrees to abide by the confidentiality restrictions.
IV. Standards of Examination
A. Fraud Examinations
- Fraud examinations shall be conducted in a legal, professional, and thorough
manner. The fraud examiner’s objective shall be to obtain evidence and information
that is complete, reliable, and relevant. - Members shall establish predication and scope priorities at the outset of a fraud
examination and continuously reevaluate them as the examination proceeds.
Members shall strive for efficiency in their examination. - Members shall be alert to the possibility of conjecture, unsubstantiated opinion, and bias of witnesses and others. Members shall consider both exculpatory and inculpatory evidence.
IV. Standards of Examination
B. Evidence
- Members shall endeavour to establish effective control and management procedures for documents. Members shall be cognizant of the chain of custody including origin, possession, and disposition of relevant evidence and material. Members shall strive to preserve the integrity of relevant evidence and material.
- Members’ work product may vary with the circumstances of each fraud examination. The extent of documentation shall be subject to the needs and objectives of the client or employer.
V. Standards of Reporting
A. General
- Members’ reports may be oral or written, including fact witness and/or expert
witness testimony, and may take many different forms. There is no single structure or format that is prescribed for a member’s report; however, the report should not
be misleading.
V. Standards of Reporting
B. Report Content
- Members’ reports shall contain only information based on data that are sufficient and relevant to support the facts, conclusions, opinions, and/or recommendations related to the fraud examination. The report shall be confined to subject matter, principles, and methodologies within the member’s area of knowledge, skill, experience, training, or education.
- No opinion shall be expressed regarding the legal guilt or innocence of any person or party.
