Dr. Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, offered suggestions for fraud examiners during the 25th Annual ACFE Global Fraud Conference, his last.
BE NICE AND SMILE OFTEN
Fighting fraud is an adversarial process. You are trying to prove that someone has done something wrong. No one is going to fight you harder than a person who may lose his or her liberty. If you don't have the stomach for it, find another job. This is not a profession for wimps.
But that doesn't mean you can't be nice. As a matter of fact, the best fraud examiners and investigators I've met are also the nicest. They smile a lot, even when staring down crooks. It completely disarms them.
DO YOUR HOMEWORK FIRST
If you have an allegation of fraud, don't go talk to the suspect before you've done your homework. Learn how to use the Internet and to locate public records. I'm often surprised when fraud examiners — who should know better — talk to the suspect first, when that's normally the last person you talk to. Or, as they say here in Texas, just hold your horses for a bit.
DEVELOP A FRAUD THEORY
I once worked with an FBI agent named Roy. He seemed like a hard-working guy. When he retired, I inherited all of his cases. But as I looked through one of his files after another, it became clear that he didn't even know what he was investigating. There was no method to his work — no rhyme or reason. So, in order to successfully investigate a fraud case, it's vital to have a theory of what occurred.
Every type of case, from bribery to embezzlement, has unique signs. You must learn what those are. Then it is your job to prove or disprove your own theory by examining these unique signs. In the end, it doesn't matter if you prove it or disprove it because in both situations, the truth will come out.
DON'T OVERCOMPLICATE A CASE
One of the surest signs of a rookie is to see vast criminal conspiracies behind every rock — to make a case complicated when it's not. That isn't to say that people don't conspire. But the majority of fraud cases are committed by one person, acting alone, trying to conceal the crime from everyone, including family members. If you investigate enough frauds, you will learn that the offender almost always finds the easiest way to commit the crime, and that is the method, which is consistently used.
IF YOU DON'T KNOW WHAT TO DO NEXT, STOP
Many inexperienced fraud examiners can be too aggressive and attempt to solve a fraud case too quickly. That's when they can make mistakes that are often fatal to the case and that also put the fraud examiner in legal jeopardy. If you get to the point where you don't know what to do next, stop. Take a breather. Discuss it with your colleagues or with legal counsel. Then start afresh.
DON'T OVERSTEP YOUR AUTHORITY
Remember, anyone can tell you anything voluntarily. They can give you any record that they want to. But you can't coerce people. You can't get records secretly that you aren't entitled to. You can't threaten.
There's a legal concept about evidence called "fruit of the poisonous tree." It means that if you do something illegal in furtherance of what you think is a good cause, every piece of evidence obtained that way is tainted and can't be used.
It isn't necessary to overstep your authority when conducting fraud examinations. If it is, simply let the case go. Look at the shameful experience of the United States when waterboarding was authorized as a technique in terrorist interrogations. Nearly all this information turned out to be unreliable. That isn't a surprise at all when you understand that human beings will say just about anything in response to threats. Those kinds of techniques are illegal; it's called torture, no matter what spin politicians put on it. And even though it is doubtful that you'll ever need to torture anyone in a fraud case, remember the principle: Don't overstep your authority. Nothing good can come from it.
ALWAYS LOOK FOR MORE LEADS
When I was a rookie FBI agent, an old salt asked me if I thought my job was to investigate cases. I thought it was a trick question. He said, "Your job is to develop leads — people to talk to, documents to examine, places to look. If you develop enough leads and cover them, the case will solve itself. If that doesn't work, the case is unsolvable." Truer words were never spoken.
BE VERY CAREFUL ABOUT EXPRESSING OPINIONS
In the world of accounting, opinions are the order of the day. Not so in the field of fraud examination. As a matter of fact, your goal should be to avoid giving opinions at all; they are a legal minefield. If you believe that someone committed an illegal act or acts, this should be apparent from the facts gained in your fraud examination. If not, perhaps you may need to shore up your work.
The CFE Code of Professional Ethics absolutely prohibits you giving opinions on the guilt or innocence of any person or party. That is for good reason. Guilt or innocence can only be determined in a court of law by the judge or jury and not by you. So, if you do give an opinion, avoid those two words at all costs.
BOOKS AND RECORDS DON'T COMMIT FRAUD; PEOPLE DO
It's very easy, especially if you have an accounting background, to get carried away with numbers. I've had more than a few people try to convince me fraud had occurred because the numbers don't make sense. For sure, this is one indicator of possible fraud. But it also could mean mistake or error. The difference is intent. You can rarely prove intent with numbers alone. Once you discover improper accounting, you must shore that up. Don't just take a bunch of numbers to a lawyer or a prosecutor. The numbers can't get up on the stand and testify. They can't tell a story of dishonesty or greed. You need witnesses for that. Remember always that books and records don't commit fraud; people do.
UNDERSTAND WHAT THE FRAMERS OF THE CONSTITUTION INTENDED
Fraud examiners often get frustrated when they can't solve every case. That is the nature of the game. But keep in mind what the framers of the constitution intended. Benjamin Franklin famously said, "It is better that 100 guilty persons should escape than one innocent person should suffer." We've all read stories of innocent people being released after decades in prison. Or even worse, finding out they didn't do it after they have been executed. Although it doesn't have as much impact when you read about someone else, what if it happened to you or your loved ones?
As faulty as our system is, it also has built-in safeguards to protect the accused. Those safeguards begin with you, the fraud examiner. Don't be out to "get" someone. If you are, it will be easier for you to fall victim to the temptation of overstepping your bounds. Do your job and do it well, but don't be a zealot. We've all seen macho detectives on television that do the wrong thing in the interest of so-called justice.
Nobody who knows me well, including many people I've helped put behind bars, thinks I'm soft on crime. But there is a right way and a wrong way. In short, if you can't play by the rules, you don't deserve to win.
It isn't easy to distill 44 years of experience in a few short minutes. But I hope you take to heart what I've said. It will serve you well.
Dr. Joseph T. Wells, CFE, CPA, is founder and Chairman of the ACFE.