Rules for the Written Record: Fraud Reports Are Quite Different from Audit Reports
Wells, Joseph T., Journal of Accountancy
While some may consider report writing one of the more mundane aspects of conducting a fraud examination, documenting the case is every bit as important as investigating it. This article looks at how to record the results so end users receive the information they need and, equally essential the report stands up in court if the case gets that far. Cases are frequently won or lost on the strength of the written record.
STANDARDS FOR REPORT WRITING
As with any written communication, the process of documenting the details of a fraud investigation begins with an understanding of who is going to read it. Unlike an audit report that is typically read by a company's board of directors, its shareholders and/or lenders, a fraud report may be shared with company insiders, attorneys, defendants and witnesses, judges, juries and the media.
Therefore a report concerning a fraud examination is an entirely different matter from one for an audit, as it provides details of an alleged crime or tort. The fraud examiner presumes from the outset that many in the legal community will scrutinize whatever he or she writes. Thus, CPAs need to understand there is no such thing as a "confidential" investigative report, no matter how it is titled. Some people learn the hard way that if you put something in writing, you might as well carve it on Mount Rushmore--both are permanent.
Jim, a CPA and colleague of mine when I was with the FBI, was one of the most competent fraud investigators I'd ever met. It seemed that, no matter what the case was about, he could solve it. He was an investigator's investigator. Personable, thorough, thoughtful, relentless--he had it all. Well, not quite: When it came to writing it all down on paper, Jim frequently was a failure. He never seemed to grasp that the primary purpose of a fraud report was to communicate the results of a fraud investigation and to document the work actually performed.
Jim's reports tended to be after-thoughts of his investigation because he didn't plan from the outset to record what he had done. His communications were full of small mistakes. And rather than relying solely on the facts to document the circumstances, Jim couldn't resist putting in his two cents worth.
He often would conduct an entire investigation before writing up the results. By that time his fading memory of the events coupled with his poor report-writing skills took their toll. Jim got chewed up on the witness stand more than once for what he wrote and what he didn't write. In one instance he didn't write up his report at all until it became clear that the case was headed for court. Then he backdated the interviews he'd conducted to make it appear that he had typed them up in a timely manner. When he was forced to admit on the witness stand what he had done, this seasoned investigator's credibility was totally destroyed and he lost the case. Jim could have avoided this problem and others by adhering to the five standards of reporting on fraud set forth in the Fraud Examiners Manual (see "Standards for Writing Fraud Reports," below).
THE MEMORANDUM OF INTERVIEW
From notes taken at the time of the interview, the investigator should prepare a memorandum setting forth the key information furnished by a witness. By doing so, he or she fulfills the reporting standard of timeliness. (The FBI requires agents to write the memorandum within five days of the interview. That way, opposing counsel can't claim the interview was unreliable because it was not recorded at the time of the event.)
The memorandum of interview is the heart of the investigative report. A separate memorandum should be prepared for each potential witness. By doing so, the writer safeguards confidentiality and does not subject the entire report to discovery by opposing counsel. If the fraud examiner writes the report as a single narrative consisting of multiple interviews, an attorney likely will be furnished the full document. …