The role of whistleblowing and digital forensics in exposing data manipulation fraud

In cases of occupational fraud, the perpetrators not only devise intricate schemes to deceive organizations but also employ various techniques to conceal their illicit activities. One such technique is data manipulation.

This technique is prevalent in major fraud cases such as Enron, Theranos, Olympus, and a recent case in Indonesia: the WIKA case. The state-owned construction company PT Wijaya Karya (WIKA) is under investigation for allegedly manipulating its financial reports.

The revelation of such cases occurs through various means, one of which is through reports by whistleblowers from various sources, including employees, former employees, investigative journalists, and even the general public. In addition to whistleblowing systems, the practice of digital forensics also brings a lot to the table in the realm of fraud. The effectiveness of whistleblowing and the role of digital forensics in uncovering fraud are key factors in the investigative process of fraud cases.

Report manipulation: Altering evidence

Manipulating reports by altering evidence and data is common practice in occupational fraud cases. According to data from the Association of Certified Fraud Examiners (ACFE), data manipulation can be accomplished through various methods, such as altering existing evidence (52%) and creating counterfeit supporting documents to manipulate data (57%).

In pursuit of their objectives, fraud perpetrators often create or manipulate false documents such as invoices, receipts, financial reports, and other records. This action aims to create an illusion of legitimacy and make fraud detection more challenging, thus making their illicit activities appear more legitimate and convincing.

These data manipulation tactics are frequently carried out by executives (48%) and key individuals with extensive access to the data. This complexity makes such cases difficult to detect, both by internal and external auditors.

Consequently, the role of digital forensics in uncovering data manipulation is as follows:

1. Identification of Digital Evidence: Digital forensics assists in identifying and collecting digital evidence from various sources, including computers, mobile phones, tablets, and other devices.
2. Analysis: Expert digital forensics teams conduct in-depth analyses of the discovered digital evidence to identify suspicious activities, event trails, and the involvement of relevant parties.
3. Data Recovery: When data is intentionally or accidentally lost or deleted, digital forensics aids in recovering crucial data for the investigation.
4. Validation of Evidence: Digital forensics ensures the integrity and validity of digital evidence. Digital forensics adheres to certain standards to ensure that the digital evidence discovered is reliable, unaltered, and admissible as evidence in a court of law or legal investigation.
5. Report Compilation: After analysis, a forensic report summarizing findings, methods, and relevant conclusions from the preceding investigation can serve as strong evidence during legal proceedings.

When someone blows the whistle

The crucial role of a robust whistleblowing system also significantly contributes to case disclosure.

No crime is foolproof. 

Auditors may face challenges in uncovering fraud resulting from manipulated data reports, but it is not impossible. With the aid of intel (such as allegations, trivial information, or indirect facts) provided by informants who are aware of the modus operandi, cases can be further unveiled.

The Wika case is an example of how allegations of fraud came to light due to a report from one of its creditors who identified anomalies in the 2021 and 2022 financial reports. This highlights the effectiveness of the organization’s whistleblowing system in detecting fraudulent activities.

A robust whistleblowing system provides a secure and confidential channel for whistleblowers to communicate their concerns and suspicions. Their knowledge enables them to disclose and provide detailed explanations of how concealed crimes were committed.

A strong whistleblowing system also enables reporters to furnish corroborative evidence to reinforce their reports. They might possess copies of concealment-related documents, emails, or other correspondence that reveal the intent of fraud or the processes of concealment.

This evidence serves as a crucial resource for investigators, enabling them to build a strong case against the alleged perpetrators and substantiate the charges.

Thus, the participation and effectiveness of whistleblowing and digital forensics form a solid foundation for maintaining organizational integrity and safeguarding stakeholders’ interests. Brave whistleblowers stepping forward with sensitive information, coupled with sophisticated analyses by expert digital forensics teams, expedite the discovery of fraud cases involving data manipulation with speed and accuracy.

By combining these efforts, companies can uncover fraud as early as possible and mitigate potential losses.

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