Sources of Information for Conducting Fraud Investigations

Part 1

Source Considered Thus Far

Documentary

Information

Internal Sources

Consider Now

Non Documentary

Evidence

External Sources

Information vs. Evidence

What is the Difference?

Information vs. Evidence

Information stays information until a judge

says it is Evidence.

Internal vs. External Sources

Information provided by or developed from the entity being investigated is internally provided information.

Information provided by entities outside the object of your study is called externally provided information.

Types of External Documentary Information

Public Records

Public Information

Information from restricted sources

What’s the difference between public records and public information?

Public Records vs. Public Information

Public Records

are from

Official or Governmental

Sources

Public Information

is from

Other Sources

Frequently it is a

self report

Public Record

• Governmental Source

Example of Public Record

Example of Public Information

Restricted Information

• Open only to certain populations on an ongoing basis

• Other populations sometimes in special circumstances with permission

• Example: NICB• Paying for is a type of

restricted information

Legal Issues and Professional Dangers

Can get into a lot of trouble with the law if you obtain information from outside sources improperly

Who can use what differs from state to state and locale to locale

DMV records, Vital Statistics Records

Legal Issues and Professional Dangers

Can suffer loss of professional reputation

It’s your responsibility to know. Don’t depend upon your client including lawyers to guide you on this

Issues with Internal Sources of Information

Can have privacy issues, also, if the client has not clearly outlined policies on privacy of desks, telephones, and computers

Doesn’t jeopardize professional reputation to the same extent

What is Non documentary Information?

Weapons

Blood

Fingerprints

Real Information Is

Documentary Information

Objects

Question

Are documents always documents?

Are objects always objects?

Real vs. “Unreal” Information

What is it?

ANSWER

The accounts of potential witnesses

Testimony

When your case gets to court, these accounts become testimony or testimonial evidence—the counterpoint to real evidence.

The accounts of potential witnesses thus becomes an important part of your investigation.

Testimony is King

It may be that the bulk of your time in any investigation will be spent on examining documents. However no attorney wants to base his case on documents.

The testimony of witnesses is far more than compelling; documents are a prop to testimony.

WHY?

The educational level of the jury pool

We all love to hear a story

Felt competence—we will all make a judgment on some ones character but will “tune out” when something beyond our expertise is being discussed.

Props

Documentary Evidence generally becomes a prop for testimony

Examples from Ken Lay/Jeff Skilling Trial

Ken Lay claimed that he consulted no one when he heard the government planned to prosecute him. The props were taped phone messages.

Ken Lay claimed that the reason he was selling stock while proclaiming what a great investment opportunity Enron was because he was meeting margin calls. The prop was a chart showing his margin calls represented only a small portion of what he sold and that he bought a lot of expensive art work at the same time.

Lay/Skilling Continued

A key witness for Lay/Skilling suddenly declared on the stand that he could no longer stand to be lying and have to look into the eyes of his children every night.

The partner in charge of the Enron business at Enron’s outside legal counsel said that when they heard about the Watkins’ memo, their investigation comprised of asking Jeff Skilling, who said everything was fine.

Identifying Credible Witnesses

One important job you have when conducting a fraud examination is identifying credible witnesses.

Do the witnesses have to be human?

How?

How are credible witnesses identified?

Interviewing

You talk to them through a process called “interviewing”

Interviews are questioning sessions.

Interviewing is a hideous way of finding out anything from someone

What’s Wrong With Interviews?

Interviews create a very formal and stilted atmosphere that creates distance or a performance.

Lots of questions tends to make people guarded and anxious especially in westernized, urbanized, and often depersonalized societies.

Questioning stiffens the innocent and unknowing as well as the guilty.

They Don’t Have to

• If you are a civilian investigator, you don’t have authority to detain your subject.

Passive Interviewing

Passive Interviewing gets far better results.

Passive Interviewing is the favored technique of spies and undercover agents.

Passive interviewing is creating a conversation where the person isn’t aware he is being interviewed.

What Should Learn From Exercise

People are more comfortable with a conversation than with questioning.

A conversation is created by sharing of yourself and not just questioning the other.

Although you will still often have to operate within the context of an interview, the more conversation it can be made, the more the interviewee is likely to open up or show you the difference between when he is speaking the truth or lying.

Your Job—To Identify Credible Witnesses

• Presuming from here on out that we are civilian investigators

• Law Enforcement can “collar” people more, but even law enforcement these days is discovering that intimidation doesn’t always work especially in an era when people work has become focused also on prevention

A Courting We Will Go

Definition of a Credible Witness

Credible witnesses

Relevant or ExpertObservant

TruthfulGood Background

Three traits are needed in both lay and expert witnesses

Definition of Observant

Definition from Sherlock Holmes, “A Scandal in Bohemia”

Truthfulness

Expertise/relevance and observant are easy to gauge

Detecting deception is a different story

Two Types of Witnesses

Witnesses who know the lay of the land as far as process and operation—how things work (Procedural witnesses).

Witnesses who know something about the financial fraud itself

Witnesses can sometimes be of both types

Procedural Witnesses

Interviews of this type of witness can usually be done in a more informal way

It can be made conversational—almost like passive interviewing

No expectation of being misled here—only misinformed

Try to make the person relaxed enough to share things they might otherwise share—like we never follow the official procedures.

Witnesses to Financial Fraud Including Perpetrator

From procedural interviews and other analyses, you should come down to a list of potential witnesses who might know something about the financial fraud being investigated or may even be the perpetrator.

Relevance has already been established, your task in this is to determine each ones observational powers and to identify and “smoke out” deception.

Format

You are going to have to use the formal interview format for these determinations.

Why? To avoid any later challenge about misleading the witness or entrapment.

Your challenge is to bring some semblance of a conversation into the interview for a better chance of getting the person to open up.

Guilty Behavior?

Put aside any prior conclusions you have about how people behave when people are lying—judgments about body language, mannerisms, or phraseology. These mean something but not for everyone.

Remember, questioning sessions are by their very nature, anxiety producing

Guilty Behavior

The person you are questioning may be in overload—they are worried about being fired and can this interview be the first step, their spouse is terminally ill, their son wrecked the car, they have a pile of undone work on their desk.

The last thing they want is to be taking the time to talk to you.

Benchmarking

Rather than prejudging how people act when they are lying, you need to “benchmark” the persons behavior when in a “safe” zone.

Try to strike a conversational note by sharing something of yourself or asking for their help. Pick some safe topic such as “what changes have you seen in this company in the last 4 years or how has the way you do your work changed since you have worked here.

Look for the Sensitive Areas

After assessing their “normal” behavior, start moving into the topics you wish to cover with them.

Don’t probe any of the topics in depth. Jump from one to another looking for the ones the person’s state alters from what you have assessed his “normal” style to be.

When you see behavior change, you have identified a sensitive area. These are the subjects about which the witness may start to employ deception.

Deception Doesn’t Mean Guilt

People deceive for other reasons than being the perpetrator.

They may be protecting a friend.They may have their own racket going on

besides the one being investigated and are afraid you will uncover this, also.

They may just not want to be involved and will act ignorant of subjects they should know something about.

Proceeding to the Truth or an Impasse

Once the sensitive areas are identified, finish off the nonsensitive areas and then bore in depth into the sensitive areas

By this time you should have established enough rapport that the witness will find it hard to “bolt”

Preferred Means of Deception or Concealment

Saying nothing—you don’t have to remember what was told whom

Answering around the topic in the hopes that you will forget exactly what you asked or will be too shy to pull them back to the subject

Objections: you are keeping me from my

important work

Keep Going

Keep pushing until the person addresses head on the question asked or an overt refusal to go on.

Addressing the question head on is the last thing the deceiver/concealer wants to do as he must not remember what he said to whom and how to fit it with future statements made.

The End Result

The person either comes out with the truth.

The person blatantly lies which can then be exposed by the statements of the other witnesses or analysis of the documentary information you’ve already done.

The person refuses to participate which tends to implicate the person in the financial fraud.

What Group Does This Best in Detecting Deception?

Students tend to be able to detect deception between 50% to 60% of the time

Law Enforcement tends to be able to detect deception between 50-60% of the time

Group that does the best are?

Who Does Interview Best

Very individual thing as to who makes the best interviewer; seems to be an inborn talent

Traits to cultivate to improve interviewing skills

Become a Good Listener

Suspend Judgment

No matter how despicable you believe the person to be, if you let this attitude show, you will limit your success in getting the person to talk

Even if you have a serial killer, you have to try to understand the world as he sees it.

• People who commit economic crimes more often than not aren’t bad people. They are people with human frailties.

They probably would never undertake deep water drilling operations without an adequate understanding of how to handle an emergency or help people buy houses they can’t afford or attack maids in hotels.

FOR THE GRACE OF GOD GO I.

They aren’t BAD

Don’t Rush

Examples of Deceptive Communications

• Youtube Clips from interviews with Bill Clinton, Sarah Palin, and John Edwards

http://www.youtube.com/watch?v=nP5FunbZvJ8

Last Trait of a Credible Witness

Good Background

Takes Us to Second Part of This Presentation

Questions

Break