Episode 82: Best Evidence: Non-Financial Evidence 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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Transcription:
Leah Wietholter:
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 analysis in your cases, you are in the right place.
Bethany Pigott:
Welcome to The Data Sleuth Podcast. I'm your host, Bethany Pigott, joined again by Leah to talk about best evidence in cases. So today we're going to talk about non-financial evidence. So Leah, the topic is best evidence in the form of non-financial evidence today. So what falls into this category?
Leah Wietholter:
Well, a lot of times we're looking at emails, text messages, voicemails, voice memos, voice recordings, videos, documents from the subject's office like receipts or notes, et cetera. One day I hope I do find a notepad where we have to shade over it in pencil to see what they wrote beforehand to get the impressions, that would be a dream. I still have never found evidence like that, but that would be awesome. And then of course, social media.
Bethany Pigott:
So why is this not your number one go-to when you're looking at a fraud investigation?
Leah Wietholter:
Because it's not complete. These things, I might just find one receipt, but if I look at the bank statement, maybe I'll find an ATM deposit to a personal bank account. But then I go look at this personal bank account, and I see that that pattern of behavior happened every Friday for six years. So if I was only relying on that one receipt, I would've missed out on all these other things. So when I'm hired to quantify how much did this business lose in money, quantify that amount, I need it to be complete.
I want to use the most complete dataset, which most of the time, our bank statements. Right now, we have a case where our most complete dataset of what happened is actually a list of invoices that were paid to a vendor. That might be my most complete dataset, and then I'm going to start matching everything against that. By doing this, I can then see what do I have supporting evidence for and what do I not. If I don't have that baseline best data set, then I don't even know if I've captured it all or not. I don't know what I'm missing. So let's create almost like a rubric for our case based on that complete dataset.
Bethany Pigott:
That makes sense. So can you give an example of this from a previous case?
Leah Wietholter:
So I'm going to give an example of this idea of having a complete dataset and then using non-financial evidence to support it. So there's a lady, she was in her mid to late nineties. She was very wealthy and she had taken a friend's son kind of under her wing after he went through a divorce and let him move into her garage apartment. Obviously if he's there and she lives by herself, you're just going to talk about stuff, right? They start talking about life and dreams and ideas. And he says that he wants to own his own business and it was going to be this electrical contracting business. And so she gives him the money to do this and the startup money to do this. He ends up with a beautiful, huge block facility. I mean, it had this massive fence all the way around it, all this type of stuff.
I mean, it ended up being a massive operation. She was in her mid to late nineties and she started feeling like there was some tax issues going on, and she had never dealt with the IRS in her 95 years, and she didn't plan on starting now. And so after she talked to him about it and didn't really get the best answer. She said, "You know what? You can just have the business. Let's just take this out of my name." And so all of her investment, all of that, she just gave to him. Well, a couple of years later, this happens over several years, she ends up with a slip in the mail that tells her that she's so far past due on her credit cards that she's going to be turned over to collections. And she didn't even know what this piece of paper was.
Because she had never experienced this in her life. So she calls her attorney and says, "What is this?" So they start looking into it and she says... I think she might've had one credit card. So with her permission and her attorney had to help her, they pulled her credit report and we also looked at credit card statements that she knew about because he had also hijacked some of her personal... She had credit cards for emergencies, but he had started just using them. So we started with these complete data sets. So a complete data set of everything from the credit report. These are all of the notes that she allegedly owes on. These are all the credit card transactions. And you and I talked about credit card transactions in previous episodes.
So we would've started with that to start looking at what benefited her, what benefited him, and quantifying that. And so we did that on those accounts. So we ended up using this credit report to then say, "Okay, do you have a car? This type of car?" "No, I don't own that car." Well then that belonged to him, right? "Do you have a loan on a rock crawler?" "And no, 95 years old, sit at my house. No." So we started going through that. My baseline evidence was this credit report for our example. And then I wanted some context because you and I could talk about this and we might know. I mean, I think our grandma could go rock crawling.
I mean, she's really awesome. She's been digging up mesquites with our dad lately. So I feel like she could probably hang. So in our minds, maybe my client could have gone rock crawling with him. So what we need is some sort of evidence that this was not her rock crawler. And so we got on social media and looked to see what he was doing over the years, and we were able to see that he would go to Moab, Utah to rock crawl with his buddies. And we could even find one from a timeline perspective, he'd gotten the loan and went to enjoy it. So that's how I like to use non-financial evidence to just help build that story.
Bethany Pigott:
Now, is there ever a time where you have had only non-financial evidence to work with?
Leah Wietholter:
There have been a few cases, but I still always try to find a data source. Like in my example, my underlying data source, other than the credit card. I have this baseline data source that's the credit report. I still have something that says this is everything that's out there. So I'm always trying to find what is the most complete data source. And I will add in my example, the credit report also identified a bunch of credit cards she didn't know about. We were able to get some of the accounts by reaching out, but some of the accounts they wouldn't give us because maybe her name was on the account. There were just some accounts that the way he had set it up, it was using her credit, but it was under his name, and so he was going to be alerted. I can't remember all the details of that.
So there were still plenty of gaps in this case, which is why we wanted, "Okay, we don't have all the credit card statements. Let's look at the credit report. That's more complete. All right, now let's piece this together With the rock crawler." We have to do that a lot, and we've actually had quite a few cases this year where the underlying data sources weren't necessarily complete, but we had to piece them all together to make a complete data set. And the way we do this is that we're going to take the most complete dataset and then just start matching things to it. But then we may also find that there's things in the second dataset that weren't in the first one that help us build this more complete dataset. Without getting too much in the weeds on that, that seems to be something we've been having to do lately.
Sometimes where it's a little difficult and I'm thinking of a couple cases specifically, is when there's... Let's say that a company orders phones for a business. I just finished a case like this. Or maybe the IT department orders phones, or the one we have ordering computers, things like that. So there's normal purchases that are happening, but then somebody's taking advantage of that and they're ordering too many computers and then they go and they sell them. So we have this list of everything we purchased from this vendor, but then we may have to use this non-financial evidence to help us determine which of these actually made it to an employee and which of these were taken and sold elsewhere, like Facebook or eBay. So that's when using emails or if we have text messages, that's when that's really important.
Bethany Pigott:
We're going to take a short break. And then on the other side of the break we'll talk about another case involving non-financial evidence.
Speaker 3:
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Bethany Pigott:
Welcome back. So Leah, is there a favorite case that you've worked that contains this non-financial evidence?
Leah Wietholter:
Yes. I mean I have a lot of favorite cases at this point for sure, but one of them is one of our investigation interactive case studies and games, and it's the case of the cashflow fiasco. So I don't want give any spoilers really, if somebody's played the game or they haven't yet. I'm just going to kind of talk about some of the details that I don't mention in the case itself or in the game itself. So the overall scheme was that the owner was instructing his employees to advance funds for a car lot. And he was asking them to submit fake ads from the internet to say, "Hey, we're buying this car so that the bank would advance funds and then they could pay their bills."
The bank was our client, so we knew that it could be the owner. Was the owner directing all of this? Was the office manager the one who was actually committing the fraud? Was it the sales manager? Because all of these people were involved and they were touching different parts of the transaction and requesting these loans. So it was discovered because the bank sent an auditor out to count the number of cars on the lot. And they discovered, "Oh my goodness, we have a bunch of cars on our list that they said they purchased that aren't on the lot. So what's going on?" I looked at the bank's evidence first, so I knew what they had advanced on, what vehicles weren't there, the day of the audit, so forth. I just asked if we could go do some interviews and see what evidence we could collect from onsite.
So I'm interviewing the sales manager and he showed me text messages as I'm talking to him. One of the things I'm trying to do, yes, I've got to quantify this for the bank and understand what was happening, but also how many people are involved. And during this interview, he just ends up telling me, I did not ask. I didn't say, are you part of this scheme? Come on, we got to be more clever than that. But he showed me text messages where the owner was directing him to find cars on an auction website, and then he was supposed to send that to an office manager to request the funds. So that told me what everyone's role was supposed to be with these text messages between the two. The day we showed up was completely unannounced. He wouldn't have had time to go and create these text messages.
The bank had given the owner notice like, "Hey, our auditor's going to be out this week to audit your inventory." And this employee said, "Oh yeah, I remember when this happened. Well, let me play this audio recording of my boss saying... I asked my boss, how are we going to cover this?" We know that there's not all these cars. I mean, it was a little bit more, it wasn't that... I just remember in the phone call, the owner says, "So the bank's going to come audit all these cars." And the guy I'm interviewing in the recording says, "Uh oh." That's all I remember from that recording. Again, I was still starting with those advances the bank made to the dealership and then compared it to documentation at the dealership, which if you play the game, you get to learn about what those pieces of evidence were. It's not every case I end up with text messages and audio recordings. And so that was really great.
Bethany Pigott:
So what is the risk when you start with non-financial evidence, and can you also explain why that matters?
Leah Wietholter:
So I kind of mentioned this earlier, that you're likely going to miss something if you're starting with the non-financial evidence. The non-financial evidence might be a clue to get you started, but you've really got to go find that complete or almost complete or create a complete dataset. Because when you're in the world of forensic accounting, fraud investigation, financial investigations, the whole point is to calculate the loss. You can tell somebody, "Oh, this is how the scheme worked." But at the end of the day, they want to know, "Well, how much money did I lose?" And if you're taking this down a criminal path, you're going to ask law enforcement to file criminal charges. They're going to decide whether they're going to work the case based on that loss amount.
Now, as investigators, we have to get it right, but on the flip side, if you only have a couple of examples from some non-financial evidence, what good is that? Let's match it up. Let's make this a really convincing case with the evidence that we have. And also, if you only calculate part of your loss, then that's really all you're going to be able to collect. So if somebody stole $3 million but you only calculated $300,000, there's some room there. We should have calculated that whole loss. I will add, there is a point of diminishing returns and calculating losses like case of the man cave.
When we hit $3 million, it was like, is he ever going to pay this back? Do we keep paying me? Do we keep paying the attorneys to go after that? But if we're looking at $300,000... I mean, let's use best evidence and quite frankly, use the data sleuth process so that we can get the actual loss amount, at least to that point of diminishing returns.
Bethany Pigott:
I feel like with TV shows and movies and stuff, we get into the story of things, I mean, I'm not an expert in this area. It's cool to hear what you're explaining because I can see how the first podcast we did are those data sets you're talking about. And now we're just saying supporting evidence and being responsible with it and useful with it. So are there risks associated with only using non-financial evidence? We talked about starting with non-financial evidence, but just only using it, and you kind of talked about that. So anything else you want to add to why that matters?
Leah Wietholter:
I've been talking about how you're going to miss out on some of the loss. The other risk is that you could double count something. You maybe don't realize that these two pieces of non-financial evidence or this less standardized evidence, you may think it represents two different transactions. But if you were looking at the bank statement or the credit card statement, you'd actually find that this actually supports only one transaction. So you end up double counting. And the reason that matters is, one, I just think you should want to get it right. If I'm just being honest, I'm kind of at that point this week. But second of all, it negatively impacts the credibility of your case and of you, the expert.
The goal is that we put together a case that meets the standard as much as we can with the information given to us outside of law enforcement. That it needs to support that burden of proof beyond a reasonable doubt. And so if you're double counting, you're creating doubt, and I'm going to give a real world situation that's not in a investigation right now. Our personal home is on the market, and we got this inspector's report and it had multiple items in it that were wrong. He couldn't find a return air vent, but we actually have two. That's probably the most egregious one, and it really impacted the credibility of his entire 140-page report.
So then whenever we see this, we're going, "Okay, well, what else did he miss?" And he actually missed quite a few other things. So that's what we don't want in our cases. We don't want somebody to say, "Oh, they doubled counted over here and then they just throw out the entire section of the loss." Let's start with that complete data set to make sure that we're not duplicating and then add in the non-financial evidence.
Bethany Pigott:
And you've said multiple times too, these things impact real people, so considering that. Thanks so much Leah, and thank you listeners for joining us. We hope you'll join us next time as we continue the conversation about uses for best evidence.
Leah Wietholter:
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.