investigative techniques for the general practitioner? erik h. lindquist, cfe presenter national...

Investigative Techniques for the general Practitioner?

Erik H. Lindquist, CFEPresenter

National Society of AccountantsFall Webinar Series

September 17, 2009

What are you looking at?

• Before looking for data, know your case• Two approaches

– Finding the fraud– Looking for the conversion/cash

• Systems and Processes in Place• Personnel• Defined time frames

Know the Case

• What is the predication?• Cash/Inventory/Intellectual Property• Available Data is Clean? Missing? • Internal Controls and Weaknesses• What is missing—how could it be ‘converted’• Background checks on targets and inner circle.

Establish a preliminary assessment

• Personnel File• CV and Co-worker interviews• Workspace observations and lifestyle ($$)

reviews

Conversion Searches

Performed for two reasons: (1)to determine the extent of embezzlement (2)to gather evidence that can be used in

interrogations to obtain a confession

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Conversion Searches

Information can be gleaned from:(1)federal, state, and local agencies and other

organizations (2)private sources of information(3)online sources of information(4)using the net worth method of analyzing

spending information

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Conversion Searches

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Public Records

Internet SearchesOnline DatabasesPrivate SourcesGovernment

FederalStateLocal

Utility RecordsPrevious AcquaintancesTrash CoverCredit AgenciesFinancial Institutions

SubscriptionPer-search FeeFree

GoogleAltaVistaEtc.

Government Sources of Information

Federal ServicesDepartment of Defense

– maintains records on all military personnel, both active and inactive

Department of Justice– enforcing federal criminal and civil laws

Bureau of Prisons– operates the system of federal prisons, correctional

institutions, and community treatment facilities

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Government Sources of Information

Federal ServicesInternal Revenue Service

enforces all internal revenue laws (except those dealing with alcohol, firearms, tobacco, and explosives)

Secret Serviceresponsible for protecting the president of the

United States and other federal dignitariesCentral Intelligence Agency

investigates security matters outside the United States

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Government Sources of Information

Federal ServicesPostal Service

– responsibility for U.S. mail and for protecting citizens from loss through theft that involves the mail system

– Postal inspectors can be very helpful in investigations of employee fraud, investment scams, or management frauds

Social Security Administration– has information about individuals’ Social Security

numbers

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Government Sources of Information

State ServicesState Attorney General

– enforces all state civil and criminal laws, in cooperation with local law enforcement agencies

Bureau of Prisons– maintains the network of state prisons and

administers state corrections departments for each state

– OTIS

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Government Sources of Information

State ServicesSecretary of State

– maintains all types of records relating to businesses and Uniform Commercial Code (UCC) filings

Department of Motor Vehicles – Maintains driver’s license records

Department of Vital Statistics– maintains birth records

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Government Sources of Information

State ServicesDepartment of Business Regulation

– maintains licensing information about various professionals

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Government Sources of Information

Local ServicesCounty Clerk

– maintains numerous records on local citizens, including voter registration records and marriage licenses

County Land Office and Tax Assessor’s Office– contain real estate records for land located in the

countyCounty Sheriff and Other Officers

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Government Sources of Information

Local ServicesLocal Courts

– maintain records on past law violators, including pretrial information like personal history, employment history, personal and physical information, prior charges, divorces and property settlement agreements, personal injury lawsuits, financial claims and litigation, fraud claims and co-conspirators, bankruptcies, wills, and probates

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Government Sources of Information

Local ServicesPermit Departments

– supply information on fire permits (hazardous chemicals), health permits (pollutants), elevator permits, and building permits

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Private Sources of Information

• Utility records (gas, electric, water, garbage, and sewer

• Private Acquaintances • “Trashing”• Shredded documents • Original files on computers

**Be sure you have the legal rights to gather and use the information

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Private Sources of Information

Credit reporting companies maintain:• Consumer information, such as addresses,

ages, family members, and incomes• Account information, such as payment

schedules, items purchased, and buying habits• Marketing information, such as customer

breakdowns by age, sex, and income levels• Information on current and former employees

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Online DatabasesExamples: Accurint AutoTrackXP Black Book Online ChoicePoint EBSCO Publishing PublicData Public Record Finder SEC’s EDGAR Database Web Detective

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Internet Search

Examples:Google, Altavista, Zabasearch and Yahoo!

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Internet Search

Searching Methods• Search by phrase• Minus search terms• Domain restrictions

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Internet Search

Google Search Tools:• Google Groups• Cached results • Google News• Google Images• Google Earth• Google Public Records – new as of April 28,

2009

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Data Bases-Where Do You Start?

• Janitorial Purchases example…

• Simple sorts lead to complex analysis– Benfords Law – Matasos Matrix

Data Analysis – Matasos Matrix

One way to view the results of multiple indicators is to use a chart called a Matasos matrix:

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Contract WinningVendor

Number of Red Flags

Lost Bids Brand Names

Last Bidder Winner

Sequential Bid

Security Number

100221 Direct Corp. 1 0% 70% 0% 0%

523332 Satyoo 2 0% 68% 0% 100%

351223 Danicorp 1 0% 72% 0% 0%

387543 Under Inc. 3 0% 70% 100% 100%

Benford’s Law

What do these do for us?

• What data would be best suited to Benford?

• What data would work best with Matasos?

What Now…

• No one approach will be the silver bullet• Be creative – where could the breadcrumbs

be?• If you are tempted to go after data without

proper authority – DON’T• Build the case with the detail available and

use deposition and interrogatories to drill further

For More InformationErik H. Lindquist, CFE

Lindquist & Associates, LLC lindquist@fraudmedic.com517-281-6551

Resources:Association of Certified Fraud Examiners www.acfe.comFraud Examination W. Steve Albrecht et alThird EditionFraud Casebook – Lessons from the Bad Side of Business edited by Joseph T. Wells, CFE, CPA

About ConnectEd:Sally Brassé

NSA Director of Education Programs

800-966-6679 Ext 1307

sbrasse@NSACCT.org

Genet SesseNational Society of

Accountants800-966-6679 Ext 1312gsesse@NSACCT.org