Fraud Considerations 2

Question 1

What is the “Financial Fraud Detection and Disclosure Act (FFDDA)”?

Answer 1

• Applies to issuers
• FFDDA was passed (in 1986 ) bc at the time, auditors had no obligation to report illegal acts of fraud to anyone other than mgmt.
• FFDDA requires auditors include specific and substantive procedures for detecting financial fraud as part of audit plan, and eval IC
• Auditors req’d to provide public disclosure of known or suspected fraud discovered during financial audit and gives auditors responsibility for assuring such disclosure
• FFDDA requires auditors report known or suspected illegal activities to appropriate gov’t, regulatory or enforcement authorities
• Provides complete legal protection for auditors who perform duties under the Act in good faith

Question 2

What is the “Foreign Corrupt Practices Act (FCPA) of 1977”?

Answer 2

• FCPA was passed to address U.S. corps guilty of corruption fraud, prohibit bribery
• FCPA required SEC registrants to establish and maintain financial records, accounts and books.
• FCPA req’d establishment of internal accounting controls

Question 3

What is the E-discovery Rule 34(a)?

Answer 3

• Rule 34(a) provides litigants in Fed courts may request computerized data during legal discovery
• Recognize electronically stored info (ESI) is a type of discoverable info
• Requestor has ability to test or sample materials under rule, specifically:
  “…to produce and permit party making request to inspect, and copy, test or sample, any designated documents
  or ESI…”

Question 4

What is the Federal law for digital evidence?

Answer 4

• “Federal Rules of Evidence” document governs admissibility of evidence in Fed courts
• Topics covered include:
  • Relevancy and its Limits, Privileges
  • Witnesses, Hearsay, Opinions and Expert Testimony
  • Authentication and Identification
  • Contents in Writings, Recordings, and Photographs

Question 5

How are State Laws considered for digital evidence?

Answer 5

• State Laws sometimes take precedence of de facto Fed laws and rules
• Ex: Validating qualifications of expert witness
• De facto rule allows judge to challenge and validate qualifications of expert
• But state laws sometimes allow opposing counsel to challenge qualifications of expert witness

Question 6

When is Hearsay evidence admissible in Court?

Answer 6

• Hearsay evidence is not admissible w/ a few exceptions.

- One exception is “business entries made in the normal course of business”, which include digital entries.

Question 7

What are the 2 kinds of witnesses allowed in court?

Answer 7

(1) Fact witness
- Testifies facts personally observed (limited to 5 senses),
- Excludes second hand info (hearsay) or opinions
(2) Expert witness
- Special technical knowledge to assist judge or jury to understand technical evidence
- In order to testify as an expert, person must be qualified expert in applicable field
- An expert witness can express opinion in court but opinion must be based on evidence (digital evidence) already presented to court

Question 8

What are the 3 strength of evidence in order?

Answer 8

(1) Primary evidence
(2) Secondary evidence
(3) (Acceptable) Hearsay evidence

Question 9

What are “Secondary evidence” and examples?

Answer 9

Court will not accept secondary evidence unless attorney satisfactorily explains why original is not avail
Examples:
- Photocopy of business document
- Testimony of witnesses or
- Transcripts of evidential contents

Question 10

What is “Primary evidence”?

Answer 10

• Original business documents
• If digital evidence, original computer or hard drive containing the original digital business documents
• Court rule is reason digital sources must be captured and immediately maintained in exact same condition as when captured
• Courts use “primary evidence” as best evidence

Question 11

How to capture digital evidence (drives, computers) w/out disturbing digital data?

Answer 11

• To ensure digital evidence collected admissible in court if necessary, must capture digital evidence (esp drives, computers) w/out disturbing digital data
• All digital evidence need to be “bagged and tagged”, as-is
• Maintained in condition at point of acquisition, capture
• Ex: If personal computer is on, turn it off, pull plug, or shut it down naturally? Turning on computer can taint digital data on hard drive of computer, so if off it should not turn on

Question 12

What are 3 considerations to ensure that digital evidence collected will be admissible in court if necessary?

Answer 12

(1) Courts use “primary evidence” as best evidence
- Primary is not only material, relevant, and competent, but must be in same exact state as when initially captured “at scene of crime”
- Ex: Digital evidence MUST be presented in court in exact condition as when initially captured
(2) Chain of custody must be established to ensure no one can tamper w/ the digital evidence
(3) Investigation team needs to make working copy of original to conduct tests and procedures to gather evidence