Episode 78: Best Evidence: Bank Statements with Leah Wietholter
At the heart of all successful forensic accounting engagements or fraud investigations is the reliance and analysis of evidence. Best circumstantial evidence in a financial investigation are sources of information or data that are furthest removed from the influence of a subject. If you want to ensure that you uncover facts resulting in defensible investigative analyses in your cases, you are in the right place. In this six-part series, Leah Wietholter reviews the most common best evidence data sources in order of reliability by exchanging seats from host to guest to thoroughly discuss this topic with guest host, Bethany Pigott.
Leah Wietholter, MBA, CFE, PI, CPA is the CEO and founder of Workman Forensics headquartered in Tulsa, Oklahoma. With career aspirations at 12 years old of becoming an investigator, Leah worked for the FBI while completing her accounting undergraduate degree and masters in business administration. After working in public accounting for over two years as a staff tax accountant and forensic accountant, Leah opened Workman Forensics - a firm dedicated to forensic accounting and fraud investigations. Since starting the firm in 2010, Leah has worked over 150 cases providing data-focused solutions resulting in settlements and testifying in both state and federal courts. Read her full bio on the Workman Forensics team page.
The information in today's podcast is just a glimpse of what's inside Leah's book—Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations. Available on Amazon!
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TRANSCRIPT
Leah Wietholter (00:00):
Hi, I'm Leah Wietholter, your CEO and founder of Workman Forensics in Tulsa, Oklahoma. And this is the Data Sleuth podcast. At the heart of all successful forensic accounting engagements or fraud investigations, is the analysis of evidence. Best circumstantial evidence in a financial investigation are those sources of information or data that are furthest removed from the influence of a subject. In this six part series, I'm going to review the most common, best evidence data sources in order of reliability by exchanging seats. I'm going to go from host to guest, so we can thoroughly discuss this topic with our guest host, Bethany Pigott. If you want to ensure that you uncover facts resulting in defensible investigative analyses in your cases, you are in the right place.
Bethany Pigott (00:45):
Welcome to the Data Sleuth podcast. I'm your host, Bethany Pigott, and I'm joined today by Leah Wietholter. As we dive into topics surrounding best evidence use in cases. Today, our topic is bank statements.
(00:57):
Hi, and welcome to the Workman Forensics podcast. Today we've switched seats, and Leah is the guest, and I'm your host, Bethany Pigott. Welcome to your show, Leah.
Leah Wietholter (01:06):
Well, thank you Bethany. And just for all of our listeners, it's been a little bit, but I wanted to get back recording. And so, Bethany is actually my sister, so if you want to see how much we look alike, because apparently we sound alike, make sure to check out our snippets on our YouTube channel. But I'm excited. Thanks for hosting today.
Bethany Pigott (01:25):
Yeah, of course. So we're going to talk about best evidence for a case. And so the first question is going to be about bank statements. Using bank statements, I know that's one of your favorite ways to gather evidence for a case. So what type of engagements or investigations benefit most from using bank statements as evidence?
Leah Wietholter (01:45):
I would say all of them, but to be a little bit more specific, embezzlements, partnership disputes or shareholder disputes, trust in estates and even divorce. And really the common denominator between all of these, is that you have someone who has access to your funds, which are being held in your bank account, and someone else suspects, the owner suspects or someone with a vested interest suspects that there's money missing. So the best place to go find that information is in the bank statements.
Bethany Pigott (02:15):
So why are bank statements so critical to you as the investigator for these investigations?
Leah Wietholter (02:21):
They are the best evidence. If you want to know exactly where money went, look at the bank statements, because all of these transactions, unless we're dealing in cash, and that's not what we're talking about today, but even when we're dealing in cash, bank statements can be helpful. But as an investigator, I want to use best evidence. I care so much about best evidence and here's why. My work as an investigator, even as if I'm an internal auditor, anyone who's investigating to uncover what happened to money or to detect fraud, our findings impact real people's lives. And in working that in the reverse, I have been on the side of a defendant in a criminal defense case where they've been accused of stealing money and it's going to dramatically impact their lives. They're going to lose certain rights and freedoms as an American if they're charged with these crimes.
(03:09):
And so, I want to make sure as the investigator, that I am using absolute best evidence circumstantially to begin with, but best circumstantial evidence to put this case together, because it's going to dramatically change my client's lives. Can't tell you how many clients have been accused of certain crimes and best evidence was not used or there was a strategy of just, oh, if we see this type of activity than this other activity must have happened and the must have happened doesn't have any evidence behind it. Or they'll take the strategy of, I'm going to take all this evidence, or all these things I think happened and I'm going to throw it up against the wall and see what sticks. That could send someone to prison that shouldn't have gone to prison. That's something that's going to change the way children look at their parents. I mean, it just impacts the way the community views this individual. And so, I want to be sure that my findings are as accurate as possible and are supported by the absolute best evidence. And that's the evidence that's the furthest removed from the subject.
Bethany Pigott (04:11):
That makes so much sense. And when you use the bank statements, what do you utilize from the bank statements as you're looking over them?
Leah Wietholter (04:20):
I'm looking for the individual transactions. So if you've ever looked at a bank statement, there is just a list of all these transactions, and they're usually grouped by deposits and credits. First, that's at the top, and then it's going to be followed by debits, withdrawals checks, and then if there's checks in the account, there's going to be check images and deposit slip images. So I want to look at all of those line items.
(04:44):
And what I'm going to do with that information is I'm going to take all those transactions and I'm going to digitize them and put them into a spreadsheet, because I can't filter, sort some from a PDF or from a printed statement. And as an investigator and analyst, I need to create my own database. And in order to have that underlying database to then do the analytics and track down the money, I've got to take those PDF statements and I've got to import those. We use a software called MoneyThumb, but we're going to take those statements and we're going to take each transaction line, and we're going to put that into an Excel spreadsheet.
Bethany Pigott (05:24):
Yeah, that's super helpful and practical for people to understand your process. I know you've written a lot about that in Data Sleuth, so they can look there for more information on what you just described as well. What would you consider bank statements? How would you consider them more reliable than accounting system data?
Leah Wietholter (05:40):
So bank statement transactions are automated. Their third party, there's a banking system that's tracking those transactions and providing those statements. So it's further removed from people that could have different intent, and then just even errors. So in an accounting system though, this is what accounting is, we're taking transactions that occurred on the bank statement, and we're categorizing them to create something called financial statements. So even the accounting system is based on bank statement information. For the accountants out there, they're like, "Oh, no, it's more complicated than that." But that's like fundamentally what this is about. So that's one of the things you're going to have in a financial statement. Because of this, it has to be translated, these bank statement transactions and different loans, things like that, they're all being taken from third party documents categorized in an accounting system to then create these financial statements.
(06:36):
So the categorization of all of this is done by a human, so it's becoming more automatic. We can import from our banks and stuff like that now, but there's still a human component. So if my subject, the person who's controlling all of these transactions is the one responsible for putting it into the categorization in the accounting system, then if they're good at committing a crime, which is wrong, but if they're good at their scheme, they're going to hide it somehow. So they're going to change the payee. So if it's written to Leah Wietholter, they're going to change it where it looks like it was written to, I don't know, the IRS. So they're going to change it to something that looks like it has a business purpose. So if I'm relying on what's in the system and that's their scheme, it's going to look like they didn't steal any money. So that's why we want to use where all of this originated from originally, which are the bank statements.
Bethany Pigott (07:28):
So is there a situation where you actually might prefer to use the accounting system rather than the bank statements, or is that even a thing?
Leah Wietholter (07:37):
So sometimes we do rely on the accounting systems, and I'm going to deep dive into this on another one of these little episodes further into the season. But sometimes we're going to use accounting system data when we're talking about a larger company, when it's part of a much larger accounting and finance infrastructure, and specifically as it relates to purchases and the purchasing process. So sometimes if the internal controls are set up where the subject could not have changed something in the accounting data, then we might use it, but because that may not be what we're actually looking for. So I'll go into more detail, but there are instances when we're going to do that. But my first request for most cases is going to be the bank statement data.
Bethany Pigott (08:20):
And the bank statement data, it probably can be overwhelming at times because I'm sure there's tons of things that you could look at. So are there certain transactions that you keep your eye out for to make sure that you review as you're looking at that bank statement information?
Leah Wietholter (08:34):
Yes. I want to make sure that I am first understanding what my client needs, what are their concerns, and when someone, and I'm going to use embezzlement because that's kind of the most common case. So embezzlement, partnership dispute. So I'm going to think about and ask the client, "What are your concerns? What did this person control?" And I go into this in the book and we've got a whole episode on case planning, so make sure to check that out. But I want to understand, did the subject have access to money as it came into the business or as it left the business? So did they control deposits? Did they control any part of that process that might have some sort of fraud risk? Did they control or was there access as it left? They controlled writing checks or they paid payroll or whatever. And that's where I'm going to focus.
(09:23):
So with that in mind, I'm really going to focus on this conversation on the money out piece is what we refer to it as, because the deposit side is not as common. The easiest way for somebody to steal money is for them to write a check to themselves. Any way that they can write a check to themselves, to a fake entity, maybe through payroll and expense reimbursement, that's going to be the easiest thing to do, because the coverup is so much easier. Now, I'm going to kind of take a side trail here for a second, I thought about this earlier in the conversation. For someone to steal money, they have to be able to steal the money and then go undetected. And so, a lot of times what happens is they'll test it, and then if they go undetected, they're like, "Nobody even noticed that." So then they do it again and again and again.
(10:04):
So a lot of times people will think, "Oh my gosh, they could have stolen in all these different ways." And it feels very overwhelming. But if you remember that the risk to the thief or to the fraudster or to this in individual in a crisis, the risk to them is being discovered, then that kind of helps make that feel less overwhelming. So now have I had cases where they stole in multiple different ways? Yes, that absolutely happens, but it's not as common. That's also why conspiracies aren't as common in this field either or in these types of cases. Because, if you add more people, that's more people that could talk. Going back to your question though, I want to focus on the money outside of things and for this conversation, and I'm going to look at all the transfers that happened in our bank.
(10:50):
I want to look at anything that's a wire, anything that's an ACH payment. Now an ACH payment, they're going to look kind of like a debit card transaction, but it'll say EFT, I might even say ACH, but I'm going to definitely look at those. And then I want to make sure I look at check images and I'm also going to look at the debit... If there is a debit card, I'm going to look at debit card usage just like I would a credit card.
Bethany Pigott (11:11):
Great. Thanks so much, Leah. We're going to take a short break, and on the other side of the break we'll talk more about these transactions, but on the other side of the transaction.
Leah Wietholter (11:21):
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Bethany Pigott (11:54):
All right, welcome back. We're going to wrap up with talking about the other side of the transaction, when you're looking at these bank statements. So on these bank statements, there's a lot of transaction ID numbers. So Leah, can you just tell us what is useful? How can you look at this and distinguish what's going on?
Leah Wietholter (12:13):
On your bank statement, you're only seeing one side of a transaction. So even if you're using a debit card at QuikTrip, QuikTrip is going to show that as a deposit on their end, yours is going to show that it withdrew money. It reduced your balance on your end. So there's always two sides of a transaction. So when I'm looking at the bank statement, if I feel like there's not enough information, and I'll get into specifics in a sec, but if I feel like there's not enough information for me to determine where did this money go, because that's what I'm looking for, what was the destination of this transaction? What did it purchase? And then I talk about this in the Data Sleuth book. I talk about how we're going to categorize these things by benefit. Who benefited? If I'm working in embezzlement or a partnership dispute, I'm looking at did this purchase benefit the company?
(12:59):
Did it benefit the subject or we don't know, there might be an unknown bucket. When I'm looking at the trying to decide those benefits, it's pretty easy if you see a check that's written to, let's say in case of the Man Cave, one of our investigation games, he wrote checks to car racing vendors, and this was an oil and gas company. So we knew just from the payee on the check that this was not a company expense. So we could put this in this category of probably benefited the subject. And then we did some more investigation. But there's other transactions on the bank statement that you can't determine in that way, and that would be your deposits. Anytime there's a deposit with the bank statement right before you get to the check images, there's images of your deposit slip. So some of that information can be helpful.
(13:44):
It can tell you how much money was deposited as cash versus how much was deposited as checks. But if they list the checks and even the cash, you don't necessarily know who wrote those checks, what they were for, so forth. So you're going to want to request what we call deposit items from the bank. And if you request those items, you'll have your deposit slip from your statement, but then you'll get copies of all the checks that accompanied that deposit slip. You'll also get a ticket that's a cash in ticket for the amount of currency that was listed on the slip. So sometimes that can be helpful. The deposit item could also include a cashier's check. Anything that was deposited with that deposit slip can be requested and obtained from the bank. Another type are on transfers. So if I see a transfer, and whenever I'm talking about transfers, I'm talking about inner bank transfers.
(14:32):
So this is money at the same bank, let's say Bank of America. So I've got several accounts at Bank of America and I'm going to transfer money from one account, let's say checking to savings, that's an interbank transfer. There's lots of different ways to transfer money between banks these days. I'm not going to get into the details of that, but when I'm talking about transfers, we're talking about interbank and these are really high risk for fraud. So I definitely want to know where did every transfer go? And here's what we'll see, and I was just reviewing an analysis last night where this happened. On my bank statement, I'm going to see a transfer in or a transfer out. And a lot of times it'll list like the last four digits of the account number where it went. It might list the name of the account, so forth.
(15:13):
But then sometimes it doesn't include that information at all. And so, when I'm doing that, I see that that's unknown. It doesn't need to remain unknown. The bank knows where it went. It is not a mystery. We need to just ask the bank for the other side of that transaction. So if it's a transfer out in the account I'm looking at, is a transfer in somewhere else and the bank can give us that information. The other thing are withdrawal slips. And I have seen this dramatically impact cases, because an investigator didn't know this or didn't take it to this level of detail. So with your deposit slip images and your check images, sometimes there are withdrawal slip images, and these are the withdrawal slips, if I go to the bank and I'm going to fill it out and go talk to the teller and I'm going to get cash out, I can also obtain a cashier's check by using a withdrawal slip.
(16:00):
I can see the withdrawal slip on the statement, but that's all I know and I've got the signature of the person who requested it. That's about it. What I need from the bank is the other document, that other side of that transaction to see, okay, I withdrew money or somebody withdrew money out of this account. Did they get it out with a cashier's check or cash? And they're going to be able to provide you with a cash-out ticket or a copy of a cashier's check. So that's really, really helpful. And the reason this is important, and I make this distinction, is that I had a case recently where someone was accused of taking out cash, because they saw withdrawal slips in the bank statements, but they did not ask the bank for that other side. Well, through my analysis and I didn't even obtain additional information from the bank, I saw where a cashier's check was deposited.
(16:49):
It was very important to their theory on the case that these be cash withdrawals, but I found that it wasn't cash withdrawals, because they were trying to say that this person was withdrawing this cash and hiding it from whoever, the opposing party. That wasn't the case. They were withdrawing this money. They got it in form of a cashier's check, they paid taxes with it. It was all on the up and up. So that's really important to take that out to that next step. Like I said, these types of things impact real people's lives. When you're looking at a wire, you can actually ask the bank for a copy of the wire detail, and I love wire details because it gives me the name of the beneficiary. Sometimes it may lead me to another LLC I didn't know about. It's going to lead me to a bank account, because it'll tell me what bank account it was deposited to.
(17:33):
I may get an address that I didn't have before. I can do the same with ACH detail reports. These are a little trickier. They take a little longer in my experience for the bank to produce them. Again, we're going to see who received the money. The bank account, it was deposited to, the address, payment processors. So if I see PayPal or Square coming across on a bank statement, if it's pertinent to the case, I can ask the attorney to subpoena this information.
(17:57):
So we can actually subpoena or... Sometimes I've even just had the other party cooperate and I just say, "Hey, can we sit down and look at your PayPal account or your Amazon account?" But that's how you get to that. Square, provides really great reports with even GPS. So that's been really helpful in cases as well. Credit card payments we're going to talk about in episode 79 and debits, we're going to talk about those in episode 80. So I'll save the good stuff for those, but there's going to be additional detail for each of these transactions. The bank statement is just where we start.
Bethany Pigott (18:28):
Well, Leah, I think that you have covered bank statements in as much detail as we can in 15 minutes, but of course, listeners can go and look for your Data Sleuth book on Amazon and read more about all of this, and also reference the podcast for other information and things related to this, because you have tons of episodes to choose from. So make sure you go there if you want to learn more. And we will be diving more into some more of these topics like Leah mentioned in the upcoming short series, just with Leah in the hot seat as the guest. So thank you for joining us today, and we'll see you next time.
Leah Wietholter (19:02):
Thank you for listening to the Data Sleuth podcast. If you enjoyed this episode, please leave us a review wherever you listen. The Data Sleuth podcast is a production of Workman Forensics in Tulsa, Oklahoma. To learn more about our investigation services and resources, please visit workmanforensics.com. You can purchase your copy of Data Sleuth using data in forensic accounting engagements and fraud investigations on Amazon, Goodreads, or wherever you like to purchase books.