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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.

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Sources of Information for Conducting Fraud Investigations


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    1. Sources of Information for Conducting Fraud Investigations

    2. Part 1

    3. Source Considered Thus Far Documentary Information Internal Sources

    4. Consider Now Non Documentary Evidence External Sources

    5. Information vs. Evidence What is the Difference?

    6. Information vs. Evidence Information stays information until a judge says it is Evidence.

    7. 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.

    8. Types of External Documentary Information Public Records Public Information Information from restricted sources What’s the difference between public records and public information?

    9. Public Records are from Official or Governmental Sources Public Information is from Other Sources Frequently it is a self report Public Records vs. Public Information

    10. Public Record • Governmental Source Example of Public Record

    11. Example of Public Information

    12. 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

    13. 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

    14. 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

    15. 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

    16. What is Non documentary Information? Weapons Blood Fingerprints

    17. Real Information Is Documentary Information Objects

    18. Question Are documents always documents? Are objects always objects?

    19. Real vs. “Unreal” Information What is it?

    20. ANSWER The accounts of potential witnesses

    21. 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.

    22. 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.

    23. 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.

    24. Props Documentary Evidence generally becomes a prop for testimony

    25. 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.

    26. 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.

    27. Identifying Credible Witnesses One important job you have when conducting a fraud examination is identifying credible witnesses. Do the witnesses have to be human?

    28. How? How are credible witnesses identified?

    29. 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

    30. 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.

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

    32. 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.

    33. 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.

    34. 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

    35. A Courting We Will Go

    36. Definition of a Credible Witness Credible witnesses Relevant or Expert Observant Truthful Good Background Three traits are needed in both lay and expert witnesses

    37. Definition of Observant Definition from Sherlock Holmes, “A Scandal in Bohemia”

    38. Truthfulness Expertise/relevance and observant are easy to gauge Detecting deception is a different story

    39. 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

    40. 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.

    41. 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.

    42. 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.

    43. 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

    44. 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.

    45. 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.

    46. 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.

    47. 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.

    48. 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”

    49. 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

    50. 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.