Forensic Accounting: 10 Fraud Identification Tips for CPAs
CPAs, auditors, forensic accountants, fraud examiners, and other financial professionals are trained to assess risk, analyze records, and identify red flags. But technical expertise alone does not guarantee strong deception detection.
In fraud investigations, forensic accounting, and audit interviews, even experienced professionals can be misled by confident clients, polished explanations, and well-constructed lies. Learning how to detect deception, ask better questions, and recognize behavioral red flags is becoming essential for CPA and NASBA aligned professionals.
Deception detection skills are not just practical in the field. They can also support continuing education goals through Pamela Meyer’s NASBA approved CPE courses.
Key Takeaways About Fraud Identification for CPAs
It turns out, well trained financial professionals are highly susceptible to being duped by the next Sam Bankman-Fried. In fact, a classic study revealed a 25-50% failure rate on detecting fraud by Big 4 audit partners in a controlled lab setting. Another study of investment professionals found that their ability to distinguish between truthful and deceptive statements was no better than chance, at 49.4%. Worse yet, the study found that participants “displayed poor metacognitive realism when assessing their own performance”. In other words, they didn’t know what they didn’t know.
So… What’s going on? Read on, to learn 5 mistakes you don’t want to make, and 5 tips that will transform how you conduct interviews, audits, and fraud identification sessions.
5 Mistakes Accountants and Auditors Make During Fraud Investigations
Here are five common “thinking errors” that any member of NASBA or AICPA could make when in the presence of a savvy fraudster, fabricator, or liar.
1. Confusing anxiety for deception. It turns out that entry level accountants misinterpret anxious behavior far more frequently than senior level professionals. A recent study found that junior staff tend to mistake anxiety-related twitches, foot taps and body movement for deceptive behavior. It’s true an anxious behavior can be associated with deception, but only when it is expressed in a cluster of two to three other indicators of deceit such as avoiding direct answers to questions and overuse of qualifying language. Sometimes a foot tapper is just a nervous foot tapper, not a liar.
2. You tell yourself it’s not worth the effort to open an investigation. Whether it’s a concern about doing additional work no one has time or budget for, or simply a concern about tension with management, research shows that over time, auditors learn through experience that there are few rewards and lots of costs to investigating suspicious behavior. It’s not uncommon to subconsciously disregard red flags of deception when the barriers to successfully uncovering it are high.
3. You think “I’ve known them for years. I’d know if they were lying.” Trust can be tricky since talented fraudsters often prey on trust when misrepresenting the facts. Are you a low truster or a high truster? High trusters tend to have a very hard time asking challenging questions of those they have worked with for years. It’s psychologically uncomfortable to ask a long-term client if there might be an offshore account they “forgot” to disclose. It turns out that the longer one has had a client and the more familiar one is with them, the worse they are at spotting their lies. Accounting professionals often stop asking hard questions of dishonest clients because they tend toward overconfidence in their observational skills, and they don’t want to believe they’ve been in business with someone who might have been duping them for years.
4. You think the absence of signs of deceit is proof of truth telling. And you’re busy. And you’re tired. And you didn’t prepare for an interview. In fact, you thought, “I’ll just wing it.” This is a perfect storm for being duped. Even the most polished professional can fall into the trap where they have limited time, energy, and bandwidth and proceed to unconsciously clear someone of wrongdoing simply because they didn’t detect signs of deceit. Had they been trained in asking expert questions, in raising the cognitive load on their subject, and in preparing carefully for a hard conversation, they surely would have surfaced material facts. More often than not, however, we make a common thinking error of looking the other way when deceptive signals are not apparent, especially during forensic accounting.
5. You pursue people instead of facts. It’s easy to succumb to the desire to “nail that liar.” But that’s not the job of a professional investigator. In fact, the fervent passion for the truth you might feel can lead you astray. Put your biases aside and stay 100% focused on getting facts. While your hunches might be correct, knowing that someone is lying doesn’t necessarily mean you will get to the truth unless you remain objective and signal to others that you are a fair player. Interview subjects are much more likely to open up to you if they sense a fair playing field.
5 Foolproof Tips for Every Forensic Accountant, CPA, and Auditor
1. Send two auditors to the next hard conversation instead of just one. While it might require a budget stretch, having multiple auditors conduct interviews has been proven to provide the added benefits of making fraud more obvious while also increasing the likelihood that it will be reported. One study found that subjects are more likely to leak deceptive indicators when more than one auditor is present in an in-person interview. The study also found that multiple auditors are more likely to recommend higher asset write-downs for more-deceptive clients than a single auditor.
2. Working with someone new? Communicate face-to-face. Studies show that in-person communication allows your interview partner to convey clear deceptive cues that can be easily observed, while online email communication is subject to multiple forms of misinterpretation. Cues such as pausing before answering can be detected on camera or in person, but would be impossible to detect if you simply emailed your subject and waited for them to respond. Subtle facial micro-expressions of fear and general non-verbal cues such as postural shifts would be missed via lean asynchronous exchanges such as texting and email, but could be observed effectively via Zoom or in-person meetings.
Research has found that heavy in-person communication during the early phases of the client development life cycle increases deception detection accuracy. So, if you are an auditor, CPA, certified financial planner, or forensic accountant, go the extra mile and meet in person early on.
3. In an interview, be wary if your client dodges or protests your questions or provides overly simplified responses. You should always think about your interviewee’s answers relative to their usual baseline behaviors. But if you are finding it abnormally hard to get answers to begin with, then take note if you see these telltale verbal signs of intentional omission:
- “Did I…?” Repeating the question, or using parrot statements, can be a way for a liar to stall for time.
- “To be honest,” “to tell you the truth,” “as far as I can tell,” “well, it seems…” Deceptive subjects often respond to hard questions with overuse of qualifying language.
- “That’s a ridiculous question to ask.” Protesting the question itself is a red flag for deception.
4. Ask unexpected questions. The more novel your questions are, the greater insight you will be able to glean from a response. This is especially true if your conversation partner is well versed in typical questions asked by financial professionals. When you ask an unexpected question, you raise the cognitive load on your subject significantly. When cognitive load is high, indicators of deceit leak more frequently. Do not wing it. Plan your interview strategy carefully. I teach a course just on planning your questioning strategy and timing. There are seven different types of questions that get to the truth when employed strategically.
5. Post-interview relief. Most guilty subjects will exhibit enormous post-interview relief: a change in posture, a big exhale or new breathing pattern, or a nervous joke or laugh when they think the hard questions are over. Savvy interviewers save the hardest questions for last and check to see if their subject stiffens up again once they exhibit post-interview relief and think the interview is over.
Learn Interviewing and Deception Detection While Earning NASBA CPE Credits
Want to learn more about spotting lies and deception and also earn up to 16 NASBA CPE credits, including 4 Behavioral Ethics credits?
Sign up for Pamela Meyer’s pre-recorded self-paced Masterclass for Financial Professionals, Deception Detection: Interviewing and Getting to the Truth, or any of my courses on expert questions, interviewing, and spotting lies. All of them are NASBA compliant, hugely entertaining, and fun.
Glossary of Key Terms About Fraud
Deception detection
The process of identifying verbal, behavioral, and contextual signs that a person may be lying, omitting key facts, or misleading others.
Cognitive load
The mental effort required to think, remember, and respond. Because lying is often more mentally demanding than telling the truth, a higher cognitive load can increase signs of deception.
Baseline behaviors
A person’s normal patterns of speech, movement, and response style. Investigators compare current behavior against this baseline to spot unusual changes that may matter.
Qualifying language
Extra phrases such as “to be honest” or “as far as I can tell” that can soften a statement and, in some cases, signal discomfort, distancing, or possible deception.
Post-interview relief
A visible release of tension after difficult questioning appears to be over, such as a big exhale, posture change, or nervous laugh, which can reveal stress during an interview.
Frequently Asked Questions About Fraud Identification
What questions should you ask in a fraud investigation interview?
In a fraud investigation interview, you should ask carefully planned, unexpected questions that raise cognitive load and surface omissions, inconsistencies, and deceptive leakage. The goal is not to “catch” someone, but to gather facts while observing how answers compare to the subject’s normal baseline behavior.
Ask open ended questions that require explanation rather than yes or no responses. Be attentive if the interviewee repeats your question to stall, overuses qualifying phrases such as “to be honest” or “as far as I can tell,” protests the question itself, or gives overly simplified answers. These verbal indicators, especially when clustered together, may signal intentional omission.
Follow ups are critical. Savvy investigators save the hardest questions for last and watch for post interview relief such as a visible exhale, posture change, or nervous laugh. If the subject relaxes and then stiffens when a final question is introduced, that shift may reveal where deeper inquiry is needed.
How can you tell if someone is lying in an interview?
You can tell if someone is lying in an interview by looking for clusters of verbal and behavioral indicators, not isolated “tells.” Normal anxiety such as foot tapping or posture shifts does not automatically signal deception. Deceptive behavior is more likely when anxious movements appear alongside avoidance of direct answers, overuse of qualifying language, or difficulty responding clearly.
Watch for dodging, protesting, and parroting. Repeating your question to stall, saying “to be honest” or “as far as I can tell,” or claiming “that’s a ridiculous question” can signal intentional omission. Overly simplified responses to complex financial issues also warrant closer examination, especially when they deviate from the subject’s usual baseline behavior.
What skills are essential for forensic accountants?
Essential skills for forensic accountants include disciplined interview preparation, objective fact gathering, and the ability to detect clusters of deceptive indicators without relying on intuition. Strong analytical ability alone is not enough. Research shows even experienced audit partners perform poorly at distinguishing truthful from deceptive statements when they rely on instinct.
A skilled forensic accountant compares responses against baseline behavior and resists overconfidence, especially with long term clients. They understand that the absence of obvious signs of deceit is not proof of honesty. Preparation is critical. Asking well timed, strategic questions and raising cognitive load increases the likelihood that material facts will surface.
Equally important is maintaining objectivity. Professionals must pursue facts rather than people and create a fair playing field so interview subjects are more likely to open up. Follow up questions, careful observation, and structured interviewing strengthen fraud identification and reporting decisions.
What are the best ways to earn NASBA CPEs?
One of the best ways to earn NASBA CPE credits is to enroll in structured interviewing and deception detection training designed specifically for financial professionals. Courses that focus on fraud identification, expert questioning strategy, and behavioral analysis not only satisfy CPE requirements but also strengthen your effectiveness in audits and forensic accounting engagements.
For example, self paced Masterclass training for Financial Professionals offers up to 16 NASBA CPE credits, including Behavioral Ethics credits. These programs teach you how to plan questioning strategy, recognize clusters of deceptive indicators, avoid common thinking errors, and improve fraud detection accuracy during interviews and investigations.
