Forensic Friday: The Sherlock Holmes Factor

Anyone who knows me will know that I am an avid reader of Sir Arthur Conan Doyle’s series of Sherlock Holmes novels.  I read them, conservatively, three or four times a year from cover to cover.

I have had cause to read the complete collection of Holmes novels again over the last couple of weeks and was struck by how some of the underlying tenets of Holmes’ approach to investigating apply to those undertaking a forensic exercise or investigation.  You will recall that in my first “Forensic Friday” post that I defined the task of a forensic accountant to be the answering of how, where, what, why and who questions (https://shumpty77.com/2014/08/15/forensic-friday-what-is-forensic-accounting/).

An examination of those questions will involve, necessarily the probing of the factual matrix surrounding the matter in question.  It is here that Sherlock Holmes provides a significant guide to budding forensic accountants in the following quotes:

‘There is nothing like first-hand evidence.’

(from “A Study in Scarlett”)

‘It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.’

(from “A Scandal in Bohemia”)

“Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay.”

(from “The Adventure of the Copper Beeches”)

These quotes combine to form what I call the “Sherlock Holmes Factor” that should pervade all forensic inquiries.  It is simply that one should never draw conclusions before one has received and reviewed all of the data relevant to the investigation.  It is a very easy trap to fall into, in my experience, to commence an investigation with a prejudged position in mind because of what one has been briefed with at the start of the investigation.

Going in with a theory in mind as to what the outcome of the investigation might be will necessary direct your mind to what you are looking for and the questions that you ask.  The danger, obviously, is that you might miss something because you already have your “blinkers” on.  Applying the Sherlock Holmes Factor to forensic enquiries reduces this danger.

Forensic Friday: The Warning Signs of Employee Misfeasance

One of the most common areas in which forensic accountants are engaged by their corporate clients is to investigate misfeasance by one of the corporations employees.  Such misfeasance can be deceptively simple and can also be ridiculously complicated. Not all cases of employee fraud end up on the pages of the newspapers (like the recent O’Carrigan case in Queensland for example) but all present serious issues for the corporation effected.

What follows are some commonly identified signs of employee fraud found by forensic accountants when they investigate matters such as this:

  1. Working excessive hours for no clear reason.
  2. Avoiding taking holidays.
  3. Expensive lifestyles or living beyond their means.
  4. Very close relationships with clients and/or suppliers.
  5. Unexpected resignations or leaving without good reason.
  6. Character changes in employees.
  7. Unusual protectiveness/reluctance to delegate.

Now it goes without saying that just because an employee is displaying these traits, either alone or together, that they are certain to be undertaking some form of misfeasance.  Equally, these are also matters that an employer should consider, both in creating a risk management plan for reducing the risk of employee misfeasance and in the actual identification of such misfeasance.

I have had cause over the years to be involved in interviews and litigation involving employees who have conducted themselves in a less than exemplary fashion and, without fail, the bulk of these indicia were present.  The other thing that was oft present was a sense of relief at ultimate capture.

Employers must be vigilant, particularly in moderately tight financial times, and ensure that they have a plan in place for reducing the risk of employee misfeasance and, when they suspect such conduct, employers must be ready to act decisively to investigate and confirm whether such conduct has taken place.  To not act in this way will only, inevitably in my view, lead to the employer losing money and, potentially, reputation as a result.

Forensic Friday: The Art of Questioning

One of the keys to my job and, indeed to most aspects of life, is asking questions.  People ask questions every day, indeed, probably, every hour of their life.  Some people are good at asking questions of others whilst others are resoundingly poor at it.  Obviously, question asking is a key part of the tool kit of anyone working in forensic accounting and, it would be fair to say, that sometimes the difference between a good investigation and a bad investigation can come down to the person in the chair asking the questions in that investigation.

I, it feels like at least, have spent a career asking questions.  First as a litigator, then working in insolvency and investigating the conduct of company directors and now in my current role.  Over those 15 years I have come up with a process that I go through when I am preparing for an interview that I thought I would share as my contribution to the art of questioning.

1. Plan, plan and then plan some more

I have met some barristers, particularly, who have done so much questioning in their time that they can pick up a brief and know exactly what questions they are going to ask just by the type of case it is.  I am not a subscriber to this approach.  I do subscribe to, in fact, the reverse approach.  My process before an interview is to spend as much time as is available to me to prepare for the interview to come.  That preparation can take the form of pre-reading the available documentation to researching the person I am going to talk to.

Taking the time to plan means that when I walk into the interview I know the path that I want to the interview to take and the subject matter that I want to make sure I cover.

2. Despite all of the planning, avoid the temptation to write out every question

When I started out in the law I had the approach of writing out everything that I intended to say: whether by way of court submissions, in a speech or in an interview.  As time has gone on I have gone away from this approach to the point that I know avoid this practice as much as I can.  I find that if I write out all of the questions I want to ask that has a deleterious effect on the flow of the interview because I become slavish in my focus on getting through my list of questions.  Without a list of questions BUT with a clear idea of the subject matter I want to make sure is covered I find that I have more flexibility and that suits how I like to interview.

3. Don’t interrupt: ever

I prefer interviews to take the form of a conversation rather than an inquisition and I am adamant that the best course in any interviewing scenario is just to let the interviewee speak.  It is a funny but true fact that people tend to reveal more in a conversation that they are comfortable having then when they are being harangued by constant questioning.  By the same token that means that at times you have to avoid the temptation to interrupt the person that is speaking which is a more difficult skill to master than I, certainly, ever realized.

4. Avoid questions that can be answered “yes” or “no”

The problem with these types of questions ought be obvious: the ability to answer yes or no, in isolation, affects the flow of the conversation and means that the interviewer has to spend more time speaking.

5. Always recap and reconfirm

In most interviews you will have received a lot of information and, unless you have recorded the interview your notes will never be as good as you think they are.  That being the case, before the end of every interview I do I put to the interviewee a summary of what my understanding of the key points of the interview have been and ask the interviewee to confirm that I have not missed anything.  This approach leads to either confirmation that my understanding is correct OR leads to the interviewee reiterating the factual matters that they believe to be important.  This is an easy and effective note to finish the interview on.

Asking question is one of the best parts of my job and it is an art that people develop over time.  The forgoing works for me: what works for you?

Forensic Friday: What is Forensic Accounting?

The most regularly asked question that has been posed to me since I moved into forensic accounting, from those who are not in professional services is, simply, what is forensic accounting?

There are a plethora of definitions but I think this quote (from David Malamed, a forensic accountant from Canada) is a great summary:

“While Forensic Accountants (“FAs”) usually do not provide opinions, the work performed and reports issued will often provide answers to the how, where, what, why and who. The FAs have and are continuing to evolve in terms of utilizing technology to assist in engagements to identify anomalies and inconsistencies. It is important to remember that it is not the Forensic Accountants that determine fraud, but instead the court.”

It is important to realise that a forensic accountant’s role is not to provide an opinion, as noted in the quote above, but to provide, most regularly in report form, a factual statement.  Forensic accountants state facts in report form, to a standard acceptable to the court, often to assist corporate organisations or government agencies investigate a particular allegation that has been made or as part of the litigation process.

There are a number of specific areas in which forensic accountants often work.  Ultimately, however, the work of a forensic accountant can be distilled into two types:

  • litigation support; and
  • investigative accounting.

Forensic accountants are also regularly called upon to provide pre-dispute advice to clients in the context of risk minimization and the deterrence of conduct.

Obviously, this type of work is fast paced and often intricate and that is why I so, already, enjoy it.  In coming posts I will expand on some of the areas in which forensic accountants specialise as well as to explain the techniques used by forensic accountants to undertake the work that they do.

Postscript: If you have any questions or specific topics you would like me to cover as part of this series please do not hesitate to comment as part of this post or drop me an email at the address noted on the About page of this blog. 

Forensic Friday

As some of you will be aware, from my twitter feed (@shumpty77) I have recently transitioned into a new role working in forensic accounting.  Having previously trained as a lawyer and specialised in litigation as well as risk management and insolvency this move presents a natural fit for my long experience in professional services.

One thing that has struck me since I have been “in the chair” is that almost everyone I talk to, in a non work context, are intrigued by what I do however they do not really understand what working in forensic accounting actually means.

That realization got me thinking about presenting a series of blogs on all things forensic (accounting) and thus Forensic Friday is born.

Every Friday I will be posting a blog about an aspect of forensic accounting from topics as diverse as “how to ask questions?” through the dark arts of computer forensics.  I hope these posts are of interest to anyone who want to know a little bit more about what forensic accounts do.

To get things off to a start: I thought I would answer my nephew’s (Tom aged 10) questions about my job.  No I am not a police officer now and I don’t get a set of handcuffs.  No I do not get to interview witnesses in a “special room” (the old one way glass type room).

I look forward to sharing a bit of my job with you in this forum. Now, in the words of Mick Molloy in the excellent “Crackerjack” … “get that sh*t down to Forensic!”.

Postscript: Just for the avoidance of doubt and get the legal stuff out-of-the-way, these blogs are my own work and are not published with any oversight or approval of my employer.  All thoughts, comments and opinions are solely my own.