Identifying Record Fraud

TASA ID: 383

Introduction

A considerable portion of the work of auditors, inspectors, investigators and consultants may require the review of records.  Records provide the ability for individuals in those various disciplines to look at the basic functioning of a company.  Through records review, one can also look at historical activities without the necessity of being present or on-site at any particular moment in time.  The concerns with a specific activity are usually after the fact, and records provide the ability to look back.     

Problem Statement

When we look at records, we are evaluating a historic activity and, therefore, need to ensure that those records are:

• Relevant
• Accurate
• Complete
• Valid
• Timely

If the records are not a true reflection of the activity of concern, we end up with an invalid review which will then result in an erroneous conclusion. 

Many records are generated by company employees who are typically responsible for many other activities besides recordkeeping.  By this, I mean making a record of the preceding activity.    Records are typically not deemed very important by the individual charged with their generation.  The employee may deem recordkeeping a necessary evil. 

The primary purpose of a record system is to allow a company to operate and maintain its business.  A company needs a process to track its business, to identify problems or trends, to assist in decision making, etc.

However, many individuals feel that the purpose of records is to comply with a legal or regulatory requirement.  That may be correct, but I consider that reason to be secondary to managing and running the company. 

The following brief questions are intended to enlist thought on each area of concern I have identified: 

Relevant

Do the records address the activity of concern?  Are the records specific to that activity, or are they general in nature? 

Accurate

Do the records reflect the critical aspect of the activity?  Is there enough information contained within the record to allow one to judge the accuracy? 

Complete

Were any entries left blank on a record asking, "Are all the boxes checked"?  Does the basic structure actually reflect the critical elements of the activity?  Is there sufficient information contained in the record to be of value?  If the date of the record is an element of the information to be documented, are any records missing?

Valid

Does the structure of the record relate to the activity and provide sufficient detail to enable one to make a judgment as to its validity?

Timely

Were the records generated at the time of the activity?  The purpose and structure of the record may require that an individual fill in specific sections of the record as certain elements of the activity are completed.  Or the record may be a summary of the activity and require it to be completed at the conclusion of the activity.

For example, an employee performs an activity over the course of several hours.  There are specific elements performed at various times during this activity, and each element has a level of importance.  Was the record generated contemporaneously for each element or at the conclusion of the activity as a summary?  Depending how critical and complex each element is, how important is it to record each element as it occurs versus a summary at the conclusion?

What To Look For

You must be skeptical about the validity of any record under review and never take it at face value. A key consideration is the number of records on a specific activity.  Are the records generated once a day, once a week, once a month or some other frequency?  If the record of concern is generated only once over a long period of time, the ability to identify improper records may be greatly reduced.  As important as the frequency is, it is also critical to look at the original record.  The original record is the hard copy (paper record) and not a photocopy, faxed copy, or electronic version.  I have found it necessary to actually feel the paper document to detect the indentation that would have been caused by the pen or pencil when the original was made, to ensure I had the original and not a copy.

Check marks - Records that contain a number of check boxes may enable you to quickly identify possible record fraud.  A single record may exhibit a variation of check marks made at one time by an individual.  Take a minute to consider how you complete forms or records.  You would normally have a marking type or style and affix that mark on a continuous basis.  One would not use a different type of check mark on a single record and generally not change styles daily or weekly.  In your review of records, you would expect the type of marking to be consistent over numerous records made by a particular individual.  This would require you to compare a number of records over some time period for a specific individual.   This might even require that you review records outside of the time period of interest. 

Fill-in-the-blank style of record - Look at the language used.  Does it seem to be duplicated as opposed to off-the-cuff?  Does the language used on the record reflect the language that the individual would be expected to use?  If the record is compiled by technicians or maintenance personnel, does the language appear to be more scientific or technical than expected? 

Instrument used to fill in record - Instrument means the type of pen, pencil, or marker used to complete the record.  A record that contains a number of entry points could raise questions if different pens or pencils were used to complete a single record.  If the same individual has completed the entire record, has there been a change in the color of the instrument used to mark the boxes and fill in the blanks?  Does it seem logical that a person would lay down a pen and then pick up another pen or pencil to fill in other boxes or blanks? 

Number of records - You should look at the length of a record and how many individual records would typically be generated at a time.  I have analyzed a record system that was used to conduct an evaluation of an activity.  The record was to be filled in at each step as the activity progressed.  The individual completing the record was to be present during the entire process.  It would normally require about a half hour to complete a single record which consisted of multiple pages.  A review of the date entered on the records for this activity found that an individual had generated 50 - 60 records during a one day work period.  That fact alone should raise questions and could indicate a number of issues:

1. The date on each record was not accurate.  It is possible that the records were generated over a period of time and a single date was entered on the entire group of records.  Therefore, the accuracy and validity of any individual record is incorrect.
2. The person generating the records was fabricating them if the purpose of the records was to reflect an activity that happened at a specific time period.
3. More troubling might be that someone else generated each record, and an individual signed each after the fact and had not been present during the activity being documented.

Summary

What is sometimes felt to be a minor function in the investigation or evaluation of a subject may turn out to have a considerable bearing on the final product of your work.  Do not overlook the value that records play in both allowing a company to function properly and allowing you, the investigator, to get that view back into the inner workings of that same company. 

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

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