he scenario: During a routine
audit of a client, you discovered the company was
paying twice the market price for widgets. By
looking further, you believe—but are not sure—the
purchasing agent is engaging in a pass-through
billing scheme, in which he buys the widgets from
the supplier, marks up the merchandise and resells
it to his employer at inflated prices through a
shell company he set up. You have gathered all of
the documentary evidence from the client’s files and
retained the services of an antifraud expert,
Sherlock Holmes, CPA, who has interviewed a number
of possible witnesses. It now is time to talk to the
purchasing agent. Tag along with Holmes, just as Dr.
Watson would, and learn more about the art of
admission-seeking interviews. Who knows? With
experience you might find the fraud examination
field is just your cup of tea. As discussed in
part one, to conduct a proper interview, Holmes
will be intimately familiar with the five types of
questions that legally can be asked (see exhibit ). To close the
circle of suspicion, Holmes will interview those
involved in the suspected fraud. For purposes of
illustration, assume the purchasing agent
conspired with a widget manufacturer in a
rebilling scheme where the purchasing agent got
90% of the illegal proceeds, the vendor the
remainder. Legally, all participants in a
conspiracy are equally culpable—regardless of the
split. But in the order of conducting interviews,
it would be better to have the statement of the
coconspirator (in this case, the vendor) before
confronting the perpetrator. Holmes will use the
same techniques, described below, to interview the
coconspirator. The more evidence amassed that
implicates the suspect, the more likely the
investigator can convince him or her to
voluntarily confess.
INITIAL QUESTIONING
Commencing an interview is often one of the
most difficult phases because it requires the
interviewer to accomplish several things
simultaneously (see “
Ten Steps to a Top-Notch Interview, ”
JofA , Nov.02, page 99). The interview
of the purchasing agent normally is conducted by
surprise to avoid providing advance notice that
will allow the employee ample time to think of an
alibi. Here are the four steps in the introductory
phase of questioning:
Provide
the introduction.
Assuming the purchasing
agent doesn’t know Holmes, the
introduction is straightforward: The
investigator will smile, make eye contact,
state his name and title and shake hands.
Smiles are comforting, and eye contact
conveys sincerity; shaking hands is
disarming.
Explain the purpose.
Holmes first will need to
explain why he’s there, but he won’t
jump right in and start asking important
questions. The explanation will be the
essence of simplicity; he has some
questions about the company’s accounting
procedures. He is purposely vague so as
not to be off-putting. Holmes won’t be
cagey because the suspect will sense it
and become suspicious. |
“The more formal we
make the visit the less
information we might
obtain.”
The Hound of the
Baskervilles—
Arthur Conan Doyle
| |
Establish rapport. At the
beginning of any interview, Holmes wants the
person to be comfortable. That’s because his
primary goal is to gather information. If the
person feels threatened or ill at ease, the
examiner will have much more difficulty gathering
facts. Holmes will begin with easy questions about
the employee’s favorite topic, himself, and about
his duties and ideas for improvements. As the
speaker talks, Holmes will lean toward him
slightly, as if what he says is important.
Observe reactions. At the
same time, Holmes carefully will watch how the
person reacts. His goal is to put people at ease
so he later can see how they handle stress. This
procedure (called “calibration” or “norming”) is
vital when an antifraud expert is interviewing
someone whose truthfulness is in question. (For
more information on detecting deception, see “
A Fish Story—Or Not? ” JofA ,
Nov.01, page 114.)
INFORMATIONAL QUESTIONS
Once Holmes
has gotten the preliminaries out of the
way, he will get down to business. Now he
will have the opportunity to ask the
purchasing agent just about anything
except “Did you do it?” That is because he
will assume he has only one opportunity to
develop the information he needs to
resolve whether to confront the suspect.
Any action taken at this point that
makes the suspect uncomfortable will
restrict the flow of facts. If—based on
what the agent says here—Holmes believes
the suspect has committed fraud, he’ll
ask about that later. Regardless of the
kind of interview, the interviewer uses
three types of questions that are
constructed to elicit different
responses.
Open questions call for an
extended response and are difficult to
answer “yes” or “no” to. Generally,
interviewers use them extensively during
the information-gathering phase. Holmes’
goal is to get the subject talking and
furnishing facts. Note that he phrases
the sample questions below as subtle
commands. This permits the detective to
psychologically control the interview:
Please explain the process
by which a new vendor is selected and
approved.
Please tell me about the
internal accounting controls over check
disbursements that originate in your
department. |
Facts About the
Fictional Sherlock Holmes
Holmes’s
adventures were chronicled in
four novelettes and 56 short
stories.
Holmes had no
friends, save his biographer
and protg, Dr. Watson, whom he
met when the two become
roommates.
Holmes never
married and had a strong
disdain for women.
The world’s
greatest detective smoked
tobacco like a chimney and
ingested copious quantities of
cocaine.
Holmes had a
brother, Mycroft. Nothing is
known about the rest of his
family.
Holmes failed to
solve many cases.
Holmes never
said, “Elementary, my dear
Watson.”
| |
Please help me understand the
functions of the employees you supervise.
Closed questions call for a “yes” or “no”
answer. Obviously, constructing closed questions
with limited responses is not the best way to
engage the subject in conversation. Holmes will
save this technique for later when he’s
reconfirming the facts.
Leading questions such as “Are you still
embezzling money?” contain the suggested answer in
the question. Interviewers use leading questions
to help get confessions. But during the
information-gathering phase of the interview, this
kind of questioning is inappropriate. Holmes will
want to obtain the facts as the suspect sees them.
WHEN THERE’S NO REASON TO SUSPECT FRAUD
If Holmes has
interviewed the purchasing agent and is convinced
nothing is amiss, it is time to close the
interview. Nonconfrontational interviews have
three phases: introduction, informational
questions and close. The purpose of the close is
multifold.
Reconfirm facts.
Once Holmes thinks he
understands the facts, it is time to
reconfirm them. He can accomplish this by
asking closed questions. Here is an
example of how he might proceed: “Mr.
Agent, I appreciate your time. Let me make
sure I understand what we’ve talked about.
Your duties include the approval of all
purchases for the company, is that right?
And you also approve all of the new
vendors, is that correct?”
Obtain additional information.
Another part of the
interview’s closing involves giving the
subject the opportunity to say whatever
he or she wants. Holmes may approach the
agent on this issue with a simple
statement as follows: “Mr. Agent, you
have been very helpful. Is there
anything you wish to say about what we
have discussed? Is there something I
forgot to ask you?”
Retain goodwill.
A final objective of the
closing is to retain goodwill with the
person. That’s important because the
fraud examiner may need to contact the
subject again. Here is one way to phrase
the last part of the conversation: “Mr.
Agent, I greatly appreciate the time you
have given me today. After I review my
notes, I may have additional questions.
Is it OK for me to contact you again?”
Unless the interview has been
unpleasant, the great majority of people
will answer “yes.” Once Holmes is ready
to leave, he again will smile, make eye
contact and shake hands. |
| |
BUT WHEN THERE’S DOUBT
Assume Holmes has
interviewed the purchasing agent and still doubts
his truthfulness. Rather than close the interview,
he will proceed to the next phase where he can ask
a series of innocuous-sounding questions that will
give him an idea of the agent’s attitude toward
honesty. Here are just a few examples of such
assessment questions that Holmes may ask. However,
he will not draw conclusions from any one
question; it is the pattern of answers that will
allow him to decide whether to confront the
purchasing agent.
Who could have committed
this offense? A guilty person does
not want the circle of suspicion to close
in on him or her. A dishonest response
could be: “It could have been anybody.” An
honest response would be: “It couldn’t
have been me, because I didn’t do it” or
“If the scheme involves purchasing
irregularities, I would think someone
there would be responsible.”
What should happen to the person who
did this? Honest people usually
have little tolerance for theft. They
therefore will say something such as:
“He or she should go to jail” or “The
person should be fired.” In contrast,
someone dishonest likely will be more
sympathetic, saying something like:
“Well, it depends on why he or she did
it” or “Maybe the person had a good
reason.” |
“Features are given to
a man as the means by which
he shall express his
emotions.”
The Resident Patient—
Arthur Conan Doyle
| |
What would you say if someone you worked with
said you did this? If the purchasing agent
is responsible, he will worry someone actually did
tell you about his involvement. Rather than
denying the charge directly, his response will
more likely try to convince you why he didn’t do
it—trying out various alibis in the process. He
also may try to find out who has been talking. The
honest individual typically will answer: “I don’t
care what anyone says. I didn’t do it.”
PREPARATION TO GET A CONFESSION
If Holmes still is
convinced the purchasing agent is culpable, it now
is time to confront him. Before commencing this
part of the interview, Holmes will make sure his
documents are in order. When he is ready to
confront the subject, he will lay out the evidence
one piece at a time—not all at once. This
technique will place even more stress on the
subject, as he will not know what is coming next.
The more stress the agent feels, the more likely
he will confess to alleviate it.
ADMISSION-SEEKING QUESTIONS
At this point, Holmes
will bring another investigator into the room.
This is important to counter any allegations by
the purchasing agent that he was mistreated or
forced to confess. Remember, all interviews are
voluntary. Holmes, a skilled interviewer, will ask
the admission-seeking questions. Dr. Watson, his
protg, will sit to the side and take notes.
The
investigator will conduct the
admission-seeking interview in private,
behind closed but unlocked doors. Holmes
won’t create any barrier—real or
perceived—that would prohibit the suspect
from leaving. To do so leaves him open to
an allegation of false imprisonment. He
won’t allow the subject’s supervisor or
coworker to sit in; he knows it is
difficult for any suspect to confess in
front of friends or colleagues. (If the
subject is a union employee, he may have
certain rights to representation during
the interview. See your attorney for
details.) Holmes prefers the purchasing
agent not sit behind a desk. He wants the
subject in the open, where he will not
have any “barriers” to hide behind. This
will further increase his stress level—a
major component in obtaining a confession.
Holmes knows not to read the purchasing
agent his rights; only sworn law
enforcement authorities are required to
provide Miranda warnings. Nonetheless, if
the subject demands to see an attorney
before answering questions, the interview
must be stopped. |
“I beg that you will
sit down and tell me what
you desire, but fear that I
cannot make any
unconditional promise.”
The Adventure of the
Second Stain—
Arthur Conan Doyle
| |
METHODOLOGY
Confronting a subject
for the purpose of obtaining a confession is not
for the timid or faint-of-heart. That’s because—up
until now—the questions were polite and
straightforward. But effectively getting someone
to confess (which is counter to anyone’s instinct
for survival) requires Holmes to be polite and
relentless—not mean or cruel, just relentless. To
begin, he will confront the person directly.
Right way: Mr. Agent, we are aware you
have been taking money from the company.
Wrong way: Mr. Agent, we think you might
have something to do with money missing from the
company. The direct, unequivocal
confrontation is necessary to set the tone of the
admission-seeking interview and to psychologically
“trap” the subject. At this point about a third of
culprits will confess without any additional
prompting; but the other two-thirds, if given a
way out, will take it.
HANDLING DENIALS
Once Holmes
has confronted the subject (assuming he
doesn’t immediately confess), he will
expect him to deny culpability—whether he
is innocent or guilty. The problem is the
more a guilty subject says, “I didn’t do
it,” the harder it becomes for him to
later admit that he did. So the
interviewer has to cut off the denials.
With a guilty individual, the denials will
become weaker; with someone who is
innocent, the denials will get stronger.
Holmes will not expect this phase of the
interview to be easy or quick. But he will
have patience and stick to his guns. Here
are a few ways he may handle denials.
Mr. Agent, we wouldn’t be
here unless you were responsible.
Mr. Agent, I understand
what you are saying, but the documents
say something else. |
|
PRACTICAL
TIPS TO REMEMBER
|
If the
investigator suspects there is
a coconspirator(s) working
with the employee who has
perpetrated the fraud, he
should interview that
person(s) first in order to
amass as much evidence as
possible before confronting
the perpetrator.
Among the
questions the investigator
will avoid when interviewing
the suspect is “Did you do
it?”
Before
confronting the suspect, the
investigator will already have
assembled and have ready all
the papers and documentation
related to the crime.
| |
Mr. Agent, I will give you an
opportunity to talk later. For now, please just
listen. If necessary at this stage, Holmes
will provide documents or other evidence to the
subject—again, one piece at a time.
THEME DEVELOPMENT
Once Holmes silences
the subject, he follows a plan to make a
confession more palatable to the purchasing agent.
Even though people who steal from their employers
are thieves, he knows that calling them that is
not a good way to get them to admit wrongdoing.
Instead, the purchasing agent more likely will
confess if he perceives he has a morally (not
legally) acceptable excuse for his behavior. Under
no circumstances will Holmes promise immunity from
criminal prosecution in exchange for a confession;
only the authorities can do that. Here are some
examples of morally acceptable themes he might use
in his approach. Holmes knows these themes might
not be the real reason for the purchasing agent’s
conduct. But when faced with the thought of being
labeled a thief, a guilty subject frequently
seizes on one of these excuses to save face.
It’s clear to me you wouldn’t have
done this if you hadn’t been in a big financial
bind.
It is obvious you were going to pay
this money back once you got ahead.
If the company had treated you right
in the first place, this never would have
happened.
OBTAIN AN ADMISSION
Assuming the
subject has adopted one or more of these
themes, Holmes next will attempt to obtain
a tacit admission of guilt. He will ask a
leading question that allows the subject
to choose one of two answers, both of
which constitute a benchmark admission,
but one of which portrays the subject in a
bad moral light: Mr. Agent, did you do
this because you are dishonest, or did you
do it because you were in a financial
bind?
CONFESSION AND WRITTEN
STATEMENT
Once the
suspect makes the benchmark admission,
the remainder of the confession should
be relatively easy. To begin, Holmes
will reinforce that admission with a
positive comment:
Right way: Mr. Agent, it takes
a lot of courage to admit you are wrong.
You’re doing the right thing. By
cooperating, you are making it easier on
everyone. |
The World’s Funniest
Holmes-Watson Joke
According to
Laugh Lab ( www.laughlab.co.uk
), the following was
judged to be the World’s
Funniest Holmes-Watson Joke.
Sherlock
Holmes and Dr. Watson
were on a camping
trip. After a good
dinner and a bottle of
wine, they retired for
the night. Several
hours later, Holmes
awoke and nudged his
faithful friend.
“Watson, wake up
and tell me what you
see.” “I see
millions of stars,
Holmes.”
“And what do you
deduce from that,
Watson?”
Watson pondered
the question and
finally said, “Well,
astronomically it
tells me that there
are billions of
galaxies and
planets.
Astrologically, I
observe that Saturn
is in Leo.
Horologically, I
deduce that the time
is approximately a
quarter past three.
Meteorologically, I
suspect that we will
have a beautiful day
tomorrow.
Theologically, I can
see that God is
all-powerful, and
that we are a small
and insignificant
part of the
universe. What does
it tell you,
Sherlock?”
Holmes rolled his
eyes. “Watson, you
idiot! It tells me
that someone has
stolen our tent!”
| | |
Wrong way: That’s better. I knew you were
lying to us all along. To obtain the
details in the oral confession, Holmes will start
in chronological order. He will take his time and
continue to provide encouragement for answers—but
he’ll make sure he doesn’t overdo it. Once he has
all the facts, he will put the important ones in a
written statement for the subject’s signature.
Confronting suspects and getting them to
confess is not easy. But the master detective
knows from experience the subject will feel an
enormous sense of relief once he has admitted his
guilt. How will Holmes know whether he’s done it
right? This may be hard to believe, but it has
happened countless times with fraud examiners: The
subject actually will thank him for allowing him
the privilege of confessing. Once he obtains
the confession, Holmes will prepare a
written report that sets forth the
documentary evidence and summaries of the
witness interviews. He then will furnish
the report to concerned parties: the
client, attorneys, law enforcement and
insurance companies. Holmes is aware the
purchasing agent also will, at some point,
get a copy of the report if the case ends
in litigation. The final document also
will be the basis of Holmes’s testimony in
court, should it be required. Holmes knows
that as a CPA, he must avoid expressing
opinions on the accused person’s guilt or
innocence as this is for the jury to
decide. (If Holmes also is a certified
fraud examiner, he is governed by Article
V of the CFE Code of Ethics, which, in
part, states, “A CFE shall not express an
opinion on the guilt or innocence of any
person or party.”) Finally, once he wraps
up the case, Holmes will suggest to the
auditor and client ways to avoid similar
problems in the future. |
“It is not what we
know, but what we can
prove.”
The Hound of the
Baskervilles—
Arthur Conan Doyle
| |
In this two-part series, we have learned that
the responsibilities of auditors and fraud
examiners are different. While the auditor is
responsible for the initial discovery of clues, it
is the fraud examiner’s job to investigate
allegations using the fraud theory approach. If
adequate predication exists, the investigator will
interview the target or suspect for the purpose of
obtaining a voluntary and legally binding
confession. Upon conclusion, the fraud examiner
will prepare a written report that can, among
other things, be used as a basis for courtroom
testimony. Finally, he will make recommendations
to the client or auditor for preventing fraud.
JOSEPH T. WELLS, CPA, CFE, is founder and
chairman of the Association of Certified Fraud
Examiners and a professor of fraud examination at
the University of Texas at Austin. Mr. Wells is a
member of the Journal of Accountancy Hall
of Fame for winning the Lawler Award for the best
JofA article in both 2000 and 2002. His
e-mail address is
joe@cfenet.com . Resources
Conferences
October 2–3, 2003
National Conference on Advanced
Litigation Services and National
Conference on Fraud Fontainebleau
Hilton, Miami, FL
www.cpa2biz.com/conferences
or call 1-888-777-7077.
Books
CPA’s Handbook of Fraud and
Commercial Crime Prevention (#
056504)
Financial Reporting Fraud: A
Practical Guide to Detection and
Internal Control (# 029879)
CPE
Introduction to Fraud Examination
and Criminal Behavior (# 730275)
Identifying Fraudulent Financial
Transactions (# 730244)
Finding the Truth: Effective
Techniques for Interview and
Communication (# 730164) To
order, go to
www.aicpa.org .
AICPA’s Antifraud Initiatives
Antifraud and Corporate
Responsibility Resource Center, http://antifraud.aicpa.org/
SAS no. 99 information.
Management Antifraud
Programs and Controls (SAS no. 99
exhibit).
Fraud Specialist Competency
Model.
Free corporate fraud
prevention training and CPE.
Academia outreach and
assistance.
Other antifraud activities. | |