Investigative Techniques for the general Practitioner? Erik H. Lindquist, CFE Presenter National Society of Accountants Fall 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 5

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 6

Conversion Searches 7 Public Records Internet Searches Online Databases Private Sources Government Federal State Local Utility Records Previous Acquaintances Trash Cover Credit Agencies Financial Institutions Subscription Per-search Fee Free Google AltaVista Etc.

Government Sources of Information Federal Services Department 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 8

Government Sources of Information Federal Services Internal Revenue Service  enforces all internal revenue laws (except those dealing with alcohol, firearms, tobacco, and explosives) Secret Service  responsible for protecting the president of the United States and other federal dignitaries Central Intelligence Agency  investigates security matters outside the United States 9

Government Sources of Information Federal Services Postal 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 10

Government Sources of Information State Services State 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 11

Government Sources of Information State Services Secretary 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 12

Government Sources of Information State Services Department of Business Regulation – maintains licensing information about various professionals 13

Government Sources of Information Local Services County 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 county County Sheriff and Other Officers 14

Government Sources of Information Local Services Local 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 15

Government Sources of Information Local Services Permit Departments – supply information on fire permits (hazardous chemicals), health permits (pollutants), elevator permits, and building permits 16

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 17

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 18

Online Databases Examples:  Accurint  AutoTrackXP  Black Book Online  ChoicePoint  EBSCO Publishing  PublicData  Public Record Finder  SEC’s EDGAR Database  Web Detective 19

Internet Search Examples: Google, Altavista, Zabasearch and Yahoo! 20

Internet Search Searching Methods Search by phrase Minus search terms Domain restrictions 21

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

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: 24 Contract Winning Vendor Number of Red Flags Lost Bids Brand Names Last Bidder Winner Sequential Bid Security Number Direct Corp.10%70%0% Satyoo20%68%0%100% Danicorp10%72%0% Under Inc.30%70%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 Information Erik H. Lindquist, CFE Lindquist & Associates, LLC Resources: Association of Certified Fraud Examiners Fraud Examination W. Steve Albrecht et al Third Edition Fraud Casebook – Lessons from the Bad Side of Business edited by Joseph T. Wells, CFE, CPA About ConnectEd: Sally Brassé NSA Director of Education Programs Ext 1307 Genet Sesse National Society of Accountants Ext 1312