Sherlock Holmes, CPA, Part 2

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:

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.)

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.

Conducting Interviews

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.

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.

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.

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.

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 .