Forensic accountant Leah Wietholter reflects on a fraud case that helped her consider the subjects of her investigations in a new light.
This article was excerpted from Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations, by Leah Wietholter, with permission from the publisher.
When I worked with law enforcement, I never met fraud victims, and rarely met the subjects of an investigation. But when I started working private-sector forensic accounting engagements, those cases required constant communication with victims, or end-clients.
Those first interviews felt overwhelming. Previously, I’d only received the information I needed to analyze transactions. Suddenly information was coming firsthand, through a firehose. But listening to those victims’ stories changed my perspective. It’s easy to overlook the real people involved in an investigation when you’re poring over the books. To the business owner who’s been scammed, the emotional toll can be even greater than the financial one.
Interviewing a subject is not dissimilar. Looking in from the outside, it’s easy to believe that I would never do that. But given the same set of factors, who can really say what choices we would make?
The Interview
Jeff’s interview is one that I will never forget. I’d been analyzing the messiest data (I have never seen worse) and compiling what I could determine as the loss. Before the interview, I coached myself on being direct and fighting for the victim-client. But when Jeff arrived, he looked so human, humbled, relieved, and terrified.
We introduced ourselves and had barely finished establishing the purpose of the interview when Jeff blurted, “It’s been a long, long time since I’ve had any kind of peace in my life. I’ve laid down most nights worried about getting caught … I’m tired of stressing, having stomach cramps, and waking up in the middle of the night. I can’t keep covering things up, hiding things, and lying about things. So I’m just going to tell you the truth.”
All my self-coaching about maintaining a tough exterior melted. All I could see was a person who made a mistake. And then Jeff started telling his story.
The Scheme
Jeff was an outside salesperson in industrial sales for 25 years for Industrial Distribution, LLC. In his sales rounds, he met Trent, a manager for a company that bought discontinued industrial products for pennies on the dollar. Jeff ’s company would occasionally purchase these products for clients and earn a higher margin. When Trent lost his job with the supplier, he started his own discontinued industrial products company, Discount Supplies, LLC. Jeff began purchasing products from Trent through Discount Supplies instead of through Trent’s previous employer.
Several years later, Jeff found himself in financial hardship. He was paying tuition and living expenses for his three college-age kids. Jeff’s managers didn’t pay a lot of attention to his sales because he was a top producer for the company. Jeff told Trent he was going to start selling products on the side to make some extra money. He wanted Trent to run the checks from customers through Trent’s company, Discount Supplies, and then remit payment through the company to Jeff.
Jeff told Trent that he didn’t want Industrial Distribution to see the sales on the side to their customers, as it was a conflict of interest. Trent agreed to this.
Shortly after the scheme began, Industrial Distribution was acquired by a larger company, Acquiring Distribution. Jeff became nervous that his scheme might be discovered when the acquisition team started their due diligence and counted inventory. But the acquisition team apparently didn’t perform that due diligence. And because of Jeff ’s trusted position in the company and his past success, he was the only outside salesperson at Industrial Distribution who had total access to the computer program — he could initiate purchase orders, receive products from the purchase orders, deliver products to customers, and prepare customer invoices. When Acquiring Distribution purchased Industrial Distribution, even after the purchasing system was consolidated, Jeff retained his system access to the entire purchasing and sales processes.
Jeff recognized that his new employer was not paying any more attention to him than the previous employer did, and his scheme continued. The process involved the following steps:
- Initiating a purchase order to purchase products from Discount Supplies that did not actually exist
- Creating an invoice for the products that did not exist as if it was from Discount Supplies
- Acknowledging receipt of the nonexistent products
- Invoicing customers for the nonexistent products when asked about them; otherwise, they remained as unbilled in the employer’s system
- Trent receiving the check at Discount Supplies and paying Jeff either by check or cash
After awhile, Jeff figured the time was ripe for him to resign, find a new job, and start over, with the hope that his scheme would go unnoticed. This decision came a few weeks too late. His employer discovered the fake vendor invoices when looking through purchases that had not been billed to customers.
The Outcome
Jeff was cooperative throughout the entire engagement, interview, and my follow-up questions. The total loss exceeded $650,000. Jeff was fired, and in an effort to encourage the employer not to file criminal charges, Jeff offered to surrender his retirement account.
The employer didn’t promise not to file charges. But in the end, management decided not to pursue a criminal case against Jeff. With several acquisitions in progress, they didn’t want any potential negative publicity from the case.
The Takeaway
When I share stories like Jeff ’s at training events, audiences respond with outrage. They feel that Jeff unfairly escaped punishment for his actions. And maybe they’re right.
But then I also consider this: if I were faced with the same set of circumstances as Jeff — under intense financial pressure to provide for my children’s college education and short on funds — I might have made the same decisions. This is the truthful humility I realize every time I interview a fraud suspect, especially when the theft was a first-time occurrence. Acknowledging this human frailty reminds me to avoid the blame and accusation trap and to stay in the objective lane of evidence, data, and piecing together from such what actually happened.
The question of punishment isn’t my purview. I leave the judgements to the justice system and move on to the next investigation.
Reprinted by permission of the publisher from Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations, by Leah Wietholter.
Copyright © 2022 by John Wiley & Sons, Inc.
About the author:
Leah Wietholter, MBA, CFE, PI, CPA is the CEO and founder of Workman Forensics in Tulsa, Oklahoma. While working for the Federal Bureau of Investigation, Leah discovered an interest and talent for forensic accounting. After leaving the FBI, she served as a senior certified fraud examiner in a Tulsa public accounting firm before leaving to open Workman Forensics in 2010. With over 15 years of experience and more than 150 cases worked, Leah has honed her industry expertise to create the Data Sleuth® Process—a scalable, data-first approach to forensic accounting engagements and fraud investigations.
She hosts industry experts on The Investigation Game Podcast to discuss all things related to investigation.