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Deceiving the Internal Control System

Deception is at work in physical systems (e.g., where the body fails to detect and annihilate cancerous growth) and financial systems (e.g., where the monetary values ascribed to items like assets are intentionally misrepresented). Though much time and effort may be devoted to examining what is disclosed and how it is presented, successful frauds often require omitting material facts (e.g., actual conflicts of interest), giving the fraud persistence and strength by omission. The examination for fraud involves observing and analyzing what is there and imagining and conceiving what is not there. For example, to discover what is happening in public finance concerning the country of Greece, reference to an article in a given periodical provides some information but often not all of the required information. Fraud examination requires (re)search.

Distinguishing between mystery (i.e., where the information at hand is materially incomplete and demands research) and puzzle (i.e., where the information at hand is materially complete but demands arrangement) is a necessary activity. Some perpetrators of fraud may present and disclose bodies of information (e.g., narratives) suggesting that material issues of fact have not been discovered (i.e., a mystery exists) where a successful fraud examination would demonstrate that the condition is not mysterious; it is a puzzle that others have failed to conceive and publish in the public domain (q.v. publication bias). Internal control systems are readily stalled by issues misleadingly presented in the public domain as mysteries in search of evidence and facts (cf. the long fraudulent success of the Madoff conspiracy characterized by too many expressions of wonder from the public domain at its fictitious returns on investment).

While some individuals and institutions may lampoon “conspiracy theorists,” big frauds demand an extensive conspiracy (e.g., Enron, Madoff). Lone wolves and unchecked rogues may make fine myths, but they are rarely accurate theories of fraud (e.g., CityTime payroll scandal).

Proving fraud requires testimonial evidence (e.g., whistleblower tip); this has become especially relevant in the present electronic information age as data, records, and reports may vanish from cyberspace and digital memory without the practical ability of the investigator (absent resources deep and wide) to recover these indications of deception (cf. communications available to the NSA). What is a mystery to a randomly selected individual may be a puzzle to a professional eavesdropper.

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