Special Investigation Units, in the private and public sectors, can fight fraud more effectively by developing professional relationships with prosecutors, marketing capabilities, and keeping current on fraud examination issues and techniques. 

In February of 2000, the Texas State Auditor Office's Special Investigations Unit (SIU) received a phone call alleging that the state had been defrauded of several hundred thousand dollars. The person making the allegations provided a heavily redacted copy of a state check to the SIU. However, the caller refused to provide any other details.

Using the amount and date of the check - the only information that was not redacted - the SIU investigators quickly identified the contractor to whom the check was made payable. Through interviews and review of documents, the investigators also found that the contractor had falsified at least one invoice, inflating the matching costs required by the contract.

The SIU (of which I am an investigator) presented its findings to the Travis County District Attorney's Office Public Integrity Unit (PIU), which agreed that the case had merit. The unit issued a subpoena to the contractor for information related to the contract. The contractor sent a rental truck filled with about 2,000 pounds of documents, six file cabinets, and three dilapidated computers. PIU and SIU investigators reviewed these documents and found that every invoice the contractor provided to the state contained false information, inflated labor costs, and non-existent rental costs. The altered invoices inflated labor costs by more than $114,000. The total amount of the fraud was $400,000.

Patty Robertson, an assistant district attorney with the PIU, presented the case to a grand jury. The grand jury returned indictments for 19 counts of securing execution of a document by deception against the contractor (each a third-degree felony), 27 counts of securing execution of a document by deception against the contractor's controller, and 25 counts of securing execution of a document by deception against the contractor's president.

After plea negotiations between the indicted individuals and the prosecutor, the contractor and the controller were each convicted of one count of securing execution of a document by deception. The president was not convicted.

The SIU obtained 42 indictments from September 2000 to August 2002 and eight convictions. Numerous indictments are awaiting trial. Prosecutors have also accepted numerous other investigations to be presented to grand juries.

In 2002, the SIU identified losses of more than $3.4 million and obtained restitution of more than $3.5 million.

The Texas Special Investigations Unit is one of at least 14 criminal investigative units attached to state's auditors offices in the United States. These units are typically authorized by state legislatures to investigate acts or allegations of impropriety associated with various government entities. (This information is based on a 2001 survey of such investigative units. Of the 50 states, 25 responded; 14 of the 25 have units dedicated to fraud investigations.)

These units investigate various economic crimes in their states and receive allegations from citizens, employees, staff, other government agencies as well as anonymous tips. Authority to conduct investigations is usually limited to state employees and/or entities receiving state funds. Some of these units have a relatively long history, dating back to 1978. Others have been created as recently as 2000.

Many of the principles, which the Texas SIU is learning, are applicable to other fraud units in the public and private sectors.

A Little History

The Texas State Auditor's Office can audit or investigate any entity receiving funds from the state of Texas. In the late 1980s, the state auditor started an Investigative Audit Group (IAG) to gather information about allegations of fraud and abuse. The IAG was composed of auditors from various state agencies who were temporarily assigned to review potential criminal activity.

In 1997, this group became the White Collar Crime Unit (WCCU). Its job was to:

• review complaints of waste, fraud, and abuse against the state of Texas and investigate possible criminal activity against the state.
• prepare and refer criminal cases for prosecution; and
• assist the state auditor in the overall mission of the agency.

The WCCU retained several of the auditors assigned to the IAG and made them full-time investigators. It also hired other full-time personnel. In 1997, the WCCU became the SIU.

The Texas SIU is staffed by eight senior investigators, an investigative researcher, a supervising investigator, and a manager. The investigators are former police officers or auditors with more than 140 years of combined experience in fraud cases. The manager, John Weber, CFE, CPP, and Regent Emeritus of the Association, has 23 years of investigative experience including serving as divisional vice president of loss prevention for Builder's Square, and as check-fraud division manager with the Bexar County District Attorney's Office.

What We Have Learned

The members of the Texas SIU realize that to maintain a successful unit they must:

• partner with the prosecution;
• demonstrate effectiveness;
• market the SIU; and
• pursue continuing education.

Partner with the Prosecution

If an SIU is effective it is primarily because it is able to develop cases and have them accepted for prosecution by a district attorney. The Texas SIU has close working relationships with the attorneys and investigators of the Travis County District Attorney's Public Integrity Unit (PIU) as well as several other DAs throughout the state. (Travis County contains the city of Austin, which is the state capital and the home of many state employees.)

An SIU has to work closely with prosecutors. The Texas SIU notifies the PIU or another district attorney as soon as it appears that a criminal act has occurred. The prosecutor can then determine if the case has merit and to advise how the SIU should approach it. The input can change the type and amount of evidence the SIU gathers.

If the initial prosecutor is unable to prosecute, the SIU can present the case to a different prosecutor's office that would also have jurisdiction. If all prosecutors decline the case then the unit would halt the investigation. This pre-screening saves valuable time and resources.

The Texas SIU's partnering with prosecutors has increased the number of cases the SIU receives. Trust develops between investigators and prosecutors when an SIU provides solid, fully developed cases.

The SIU also has a good relationship with the Texas Rangers (the division of the Texas Department of Public Safety [DPS], not the baseball team). The Rangers, among other duties, assists local law enforcement and prosecutors in rural areas of Texas. The Texas Rangers, as well as the DPS Special Crimes Unit, have requested assistance from the SIU in their white-collar crime investigations.

Demonstrate Effectiveness

An SIU must demonstrate its effectiveness to get support (and more importantly, funding) from its organization.

Effectiveness can be measured in many different ways. Our SIU has used the "Balanced Scorecard" method since 2000. The Balanced Scorecard is a strategic management tool that identifies and reports performance trends and outcomes. It allows an entity to track both financial and strategic measurements and gives a fair balance to the measures. The biggest challenge of the Balanced Scorecard is to identity and establish measureable outcomes that would be meaningful for an investigative unit within an audit-based entity and not just a "box to feed." When using the scorecard, another challenge is to not create a quota system, either real or perceived.

As with any performance measurement system, the scorecard initially seemed complex and perplexing. However, once the new measures and goals were in place, the process for reporting and using the information greatly improved. The Texas SIU's measures include:

• number of complaints received;
• percentage of investigations accepted for prosecution;
• average time to complete an investigation;
• customer feedback rating;
• average time to act on initial complaints;
• number of training hours received by investigators;
• new technology used;
• employee feedback ratings;
• number of external presentations made annually; and
• fiscal impact identified.

With the scorecard measures, it is easier for the SIU to track investigations, administrative duties, and assignments such as legislative communications and public reports. Specifically noted in an SIU scorecard review, the addition of proactive measures resulted in a 25 percent increase in mandated government-code reporting of fraud issues for the first quarter of the 2002 fiscal year. The scorecard alerts the SIU team members when assignments require realignment and allows the SIU flexibility to adjust targets and measures.

The Texas SIU reports these measures to management monthly and quarterly. Management uses this information to monitor the SIU and determine if it should make any adjustments.

The SIU also measures other items for monthly reporting to the Texas Legislature and other parties such as the number of indictments returned, cases presented to grand juries, convictions based on the SIU's work, assistance provided to other law enforcement agencies and special requests by other parties.

Market the SIU

State employees and the public may suspect fraud but may not report it unless they know the SIU exists. To market itself, the Texas SIU:

• provides reports to the media on indictments returned from SIU investigations;
• makes frequent presentations to outside parties, including the Texas District and County Attorney's Association and ACFE symposiums and conferences;
• sponsors fraud-training workshops to prosecutors, investigators, auditors, government managers, and university students;
• produces brochures publicizing SIU services and Rolodex cards giving the hotline number;
• reports fraud, waste, and abuse through the State Auditor's Office Web site (sao.state.tx.us/SIU/);
• testifies before the Texas Legislature; and
• network with local and national peers at organization conferences. (Last year the Texas SIU hosted a national conference of state auditors' investigative units and participated in a similar conference in 2001.)

The Texas SIU has raised its profile by offering its Forensic Recovery of Evidence Device (F.R.E.D.) to prosecutors and law enforcement who need to search suspects' computers. The SIU investigators are professionally trained in the latest digital evidence recovery applications including EnCase, MaresWare, and DriveSpy.

Pursue Continuing Education

Investigators must stay current on types of schemes, how they are perpetrated, and how to detect and prevent them. The Texas SIU members have received quality training from the ACFE, John E. Reid and Associates, Texas State Auditor Office's External Education Services, and Anacapa Sciences Inc.

The Texas State Auditor's Office presents an annual fraud conference in Austin, and other fraud classes throughout the state such as "Financial Investigations Using Data Analysis Techniques," "Fundamentals of Fraud," "Fraud College for Auditors," and "Procurement and Contracting Fraud."

Most public and private sector entities could catch many more fraudsters by establishing special investigative units or improving existing SIUs. By showing effectiveness, developing relationships with prosecutors, marketing fraud-fighting capabilities, and keeping current on fraud issues, SIUs can identify more fraud, ensure it is prosecuted, and deter future fraud.

Matthew J. Samuelson, CFE, CPA, is a senior investigator with the Texas State Auditor's Special Investigations Unit.