What can CFEs learn from private investigators?

There’s a good possibility you’re a Certified Fraud Examiner. But you’re probably not a licensed private investigator. Are you missing out? Not necessarily, but some CFEs believe their hard-won PI skills burnish their fraud examiner careers and make them better professionals.

Leah Wietholter, a licensed PI, is one of those CFEs. In a case she worked, an engineering business came to her firm, Workman Forensics, after its managers suspected a subcontractor was stealing from them via overbilling. The subcontractor had burned through the budget granted by the engineering firm, then requested more money from the engineers, spent that and requested even more. And he wasn’t delivering adequate work.

The engineers invoked the audit clause in the subcontractor’s contract. Wietholter sent him a letter asking for explanations and records, but the subcontractor never responded. “Some fraud examiners at this point might have thought, ‘I can’t get much further because I have no financial records,’” Wietholter says. “But my PI instincts kicked in, and I began an open-source intelligence [OSINT] investigation. We found that the subcontractor in turn subcontracted to a guy in India who was charging only $30 an hour, but the original subcontractor was billing the engineering firm $150 an hour.”

Wietholter then discovered through OSINT that the original subcontractor wasn’t even a licensed engineer but had been using the stolen licensing number of an actual engineer. OSINT is the process of obtaining intelligence in an investigation through publicly available information. [See “Everything about Open Source Intelligence and OSINT Investigations (2021),” Maltego, tutorial, Oct. 31, 2021.]

“I never got to look at the original subcontractor’s invoices and time sheets like I would in a financial investigation, but through my PI work I was able to write a report for the client so they could end the subcontractor engagement and turn it over to law enforcement,” Wietholter says. “I was able to get the job done successfully without looking at one spreadsheet!”

What’s a private investigator?

As we all know, the CFE Exam tests prospective CFEs on four areas: financial transactions and fraud schemes, law, fraud prevention and deterrence, and investigation. The investigation section of the ACFE Fraud Examiners Manual (FEM) is exhaustive. But we thought it might be useful to get some input from CFEs who also wear PI hats. Fraud Magazine recently interviewed several CFEs/PIs who emphasized they’re better fraud examiners because they’ve attained PI skills that help them move FEM concepts off the page and into action. First, here are some of their thoughts on what a PI does and the different roles they can play.

“A private investigator conducts investigations on behalf of various clients, such as corporations, insurance agencies, law firms, private individuals or other entities. Depending on the jurisdiction and the situation, the PI may require licensure in their jurisdiction,” says Beth Mohr, CFE, PI, managing partner at The McHard Firm, which specializes in forensic accounting.

[See sidebar: “If you’re a CFE, do you need to become a licensed PI?”.]

Brian Willingham, CFE, PI, is founder and president of investigative firm Diligentia Group. “I believe in ethically sourced information to help clients make educated decisions, answer complex questions or ease concerns,” says Willingham. “I just happen to be a private investigator.”

Marcy Phelps, CFE, PI, is owner of Marcy Phelps & Associates Inc., a firm focused on due diligence, financial asset investigations and training services. She says, “I see private investigators as unbiased third parties — those with no stake in the outcomes of investigations.”

The PI-finder site PInow (pinow.com) says clients might hire PIs for investigating suspicions of infidelity, performing background checks on potential employees, investigating the validity of an insurance claim or finding a missing person. Most of the CFEs/PIs interviewed here also conduct in-depth due diligence for their clients.

PI areas that enhance fraud examiners’ capabilities

CFE and PI skills, of course, aren’t mutually exclusive; they overlap and sometimes merge as fraud examiners move through their careers. But here are some areas, among many others, that the CFEs/PIs interviewed say PI education and experience have enhanced:

• Skeptical and investigative mindset.
• Cognizance of personal risks and liabilities.
• Open-source intelligence (OSINT) proficiency.
• Evidence collection.
• Ethical challenges solidifying convictions.

Skeptical and investigative mindset

Phelps says that in her years of investigative research she’s learned that she must let the facts speak for themselves and not make any preconceived judgment per the ACFE Code of Professional Ethics: “No opinion shall be expressed regarding the guilt or innocence of any person or party.”

“I often receive calls from attorneys who want me to prove their cases,” Phelps says. “But I don’t do that. I find the facts and let them speak for themselves.” Willingham agrees with Phelps’ sentiment. “A lot of attorneys come to me and always have some theories about something that happened, and they want you to find information to support their theories,” Willingham says. “That’s just not how my brain works; I’m a fact-finder. I let the facts do the talking.”

Phelps says that her PI experience helped her develop a skeptical mind and avoid assumptions. “Sometimes fraud isn’t in the numbers or financial statements,” she says. “Sometimes when I’m doing due diligence, for example, on a hedge fund manager, I might find something subtle like they said they received an MBA from a prestigious university, but it was really from a state school. That was a deal breaker for one client.”

Jeffrey Dunhill, CFE, PI, is senior manager, colleague relations at CVS Health, where employee investigations are a major portion of his job. He says a PI who was his supervisor in a previous investigative job encouraged him to always inspect what you expect.

“Many times, we get into a case and we see what the outcomes are most likely going to be, so we might rush to judgment and stop investigating if we think we’ve reached a conclusion,” he says. “But if we’re ever deposed, attorneys will ask if we did enough thorough research. If they indicate that we didn’t, they can accuse us of bias.” (Dunhill’s comments in this article are his own and not necessarily those of CVS Health.)

Wietholter says most of her firm’s cases are from closely held companies that don’t have internal audit teams or just have one auditor each. (A closely held corporation, according to Investopedia, is a company with the majority of its shares owned by a few individuals. Shares aren’t traded publicly on an exchange and, therefore, can’t be purchased by the public. Those who control most of the shares have a significant influence on and control of the company. Therefore, these companies need assistance from a company, such as Workman Forensics, to conduct audits and investigations.

Wietholter says she wanted to be an investigator since she was 12. In her book, “Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations,” (Wiley, 2022) she writes that she was obsessed with an episode in a kid’s radio drama in which a young woman, Tasha, was introduced as a special agent for the U.S. National Security Agency. “This episode about Tasha’s career as an agent … made me realize that I, as a female, could be an investigator,” she says.

An accounting degree followed, then a coveted FBI internship and two years with the agency. After an MBA and a few years at a public accounting firm, “An accounting headhunter suggested, ‘What would happen if you started your own investigation and forensic accounting business?’” she writes in her book. She opened her firm in November 2010 and then earned her Oklahoma private investigator’s license.

Cognizance of personal risks and liabilities

PIs generally own their businesses, so, unlike CFEs who might work in the corporate world, they must protect themselves because clients’ and organizational structures won’t shield them. “PIs must review their jurisdictions’ laws and regulations to ensure they’re in compliance,” says Dunhill. “Companies normally have policies requiring employees to communicate with their internal investigators. PIs don’t have that. No one is required to talk with them. They’re on their own. So, PIs have to be overly cautious because their reputations are on the line. That cautious attitude has helped me as a fraud examiner.”

For the first 10 years or so of his career, Dunhill worked for a PI. “He taught me to make sure my documentation was clean, consistent and repeatable, and to pay attention to detail — principles that have assisted me in every investigative role I’ve ever had,” he says.

Other skills critical to success and avoiding liability, Dunhill says, are to conduct quality interviews, assess subjects’ credibility and leave no stone unturned. “As a private investigator, you don’t have any additional support. No one will go to bat for you. So, your work product should also include any exculpatory evidence and not indicate judgment. Again, just present the facts.”

When Dunhill managed his private investigations business, he says the personal risks gave him additional energy and momentum to ensure the integrity of evidence and findings he presented to his clientele. “That energy has crossed over into the corporate realm, where I now work,” he says.

OSINT proficiency

Investigators and researchers of all stripes and in all sectors — military and state intelligence, marketing, IT — search for information in published or otherwise publicly available sources. OSINT, and research through subscription software, is a major component of PIs’ workdays. “I work with law firms, private-equity firms, hedge funds and investors to conduct due diligence,” says Willingham.

“There’s a big difference between what I do and what Certified Fraud Examiners do. CFEs usually have a collection of documents they have access to — normally through their employers that they use to analyze situations. I typically don’t start with any access.”

Willingham is working on a case where his client sued a financial advisor for several hundreds of thousands of dollars. Willingham and his team believe the financial advisor is lying, but they aren’t analyzing all the financial statements to prove this. “Although the financial statements may provide some clues, I’m trying to find information that suggests that the financial advisor might be a serial liar, used his clients’ asset for personal use or has a history of toxic relationships,” says Willingham. “I’m also looking up lawsuits that the financial advisor has been involved with to determine whether others have accused him of fraud — finding fact witnesses that can speak to his character or can impeach his credibility in civil court.”

In a 2013 ACFE Insights article, Willingham encouraged fraud examiners to make use of public sources in their examinations. “What I have come to learn is that many people take public records for granted,” he wrote. “Because they are ‘public,’ people assume that they can’t be all that valuable. … Our vast system of public records in the U.S. is one of the most unique investigative assets we have.

“Most people don’t realize how public records can serve as resources to help connect the dots, develop a complete picture, fill in the blanks, and find supporting documentation, hidden clues or just plain old dirt,” Willingham writes. “As an investigator, your job is to collect information and facts. And if part of collecting information doesn’t include using the vast resources found in public records, you are definitely missing out.”

One advantage for private investigators, Willingham says, is that as professional practitioners of their craft they invest in some powerful and pricey resources, such as Maltego, TLO, IDI, IRB, Tracers and Delvepoint. “Maltego, for example, is a platform that helps you sort and analyze massive datasets,” Willingham says. “For example, it’s good for establishing some links or connections among dozens or hundreds of Twitter accounts.”

Phelps, who holds a master’s degree in library and information science, uses OSINT resources to help mitigate risk and to prevent and deter fraud for asset management firms, funds of funds and other investment organizations; private equity firms; mergers and acquisitions advisors; attorneys; senior executives and others. In addition to specialized investigative databases, she also uses other subscription services, such as LexisNexis, Dow Jones Factiva and ProQuest Dialog. Phelps teaches several online courses at Illumeo.com, such as “How to Search Online Records Like a Pro” and “Online Court Searching: A How-To for Non-Legal Professionals.”

Evidence collection

“Auditors who find evidence are trained to make copies and return the original documents to the client,” says Mohr. “But as an investigator, if you run across something that may have evidentiary value you’re obligated to collect the original as evidence, and you have to preserve it in a way that allows it to be admissible as evidence in court, which means having it in a secure spot with a chain-of-custody log that proves to the court who’s handled it and that it hasn’t been altered.” Mohr’s PI experience heavily influences her evidence collection and preservation plus her interviewing. She teaches on the subjects to auditor and accounting groups, and the ACFE. A former officer with the San Diego Police Department, Mohr is credentialed as a Nationally Certified Law Enforcement Instructor by the International Association of Directors of Law Enforcement Standards and Training.

Of course, CFEs are trained in evidence collection and preservation. But Mohr says her PI and law enforcement experience has accentuated the seriousness of protecting anything that could be considered evidence. “Fraud examiners might just have cursory experience of investigatory techniques and evidence collection. Some of the attendees at one recent workshop I taught had little knowledge in this area. I always tell any attendees, ‘When in doubt — bag and tag!’” she says.

PIs know that when they must collect digital evidence, they need to call in digital forensics experts so they don’t risk contaminating computers and devices, Mohr says. She provides these digital evidence collection guides from her PI experience:

• “Best Practices for Seizing Electronic Evidence: A pocket guide for First Responders v. 4.2,” U.S. Secret Service, Department of Homeland Security.
• “First Responder Guide to Mobile Forensics,” by Amber Schroader, Paraben Corporation.
• “Electronic Crime Scene Investigation: A Guide for First Responders,” National Institute of Justice, U.S. Department of Justice.
• “Seize First, Search Later: The Hunt for Digital Evidence,” by Paige Bartholomew, Touro Law Review, volume 30, No. 4.

PIs’ ethical challenges can solidify their convictions

The ACFE has a strict Code of Professional Ethics and a Code of Professional Standards for its members. Violations can result in ACFE discipline, such as suspension or permanent expulsion from the association. ACFE members know the ethics bar is high.

Private investigators might not always have the shiniest of reputations, says Willingham. In a 2013 Google consumer survey his firm, Diligentia, conducted, 95% of those surveyed thought that private investigators break the law at least some of the time, and 20% thought that PIs never abided by the law. “The public’s perception of PIs is one of the ultimate reasons I earned my CFE because it was one of the only credentials after my name that actually means something,” he says.

PIs (as well as any investigator) can be tempted to slide over the line into unethical practices, which ironically can help them maintain and fortify their honesty, Willingham says. He’s devised his own Private Code of Ethics:

1. Professional standards
   We will adhere to these ethical and moral standards, follow the laws of the jurisdictions in which we work and will cooperate with the appropriate legal and regulatory authorities. We expect our employees and subcontractors to follow these same ethical and legal guidelines.
2. Licensing and insurance
   We will maintain a license with the appropriate licensing body where we practice. We will maintain professional liability insurance to protect ourselves, our employees and our clients.
3. Scope of work
   We reserve the right to refuse work that could call into question our character, morals or professional license or cases that may have questionable motives. We will only accept cases in which we have the appropriate level of expertise required to conduct the investigation. We will not misrepresent ourselves in order to solicit private, intimate or confidential information.
4. Conflicts
   We will not knowingly accept any assignments that can be construed in any way as self-serving or a conflict of interest with our business or other assignments. We will not allow our personal beliefs, prejudices, friendships or feelings influence our professional decisions.
5. Confidentiality
   We will not disclose any confidential information without the consent of our clients, unless required by law or court order.
6. Fees and results
   We will bill at a reasonable fee, which is mutually agreed upon and can be adequately explained. We will not work on a contingency fee. We offer no guarantees regarding the result or outcome of our investigation.
7. Reporting
   Our reports will be based on unbiased, fact-based information. We will not provide any determination of guilt or innocence and we will not omit any material information.

Burnish your skills

By nature, CFEs are inquisitive and resourceful. It makes sense that you’d want to learn from the viewpoints of your private investigator colleagues. Allow these CFEs/PIs to emphasize time-honored principles that you can use to polish your professional skills.

Dick Carozza, CFE, is editor-in-chief emeritus at Fraud Magazine. Contact him at dcarozza@ACFE.com.

If you’re a CFE, do you need to become a licensed PI?

“The term fraud examination refers to a process of resolving allegations of fraud from inception to disposition, and it is the primary function of the anti-fraud professional,” according to the ACFE Fraud Examiners Manual. “The fraud examination process encompasses a variety of tasks that might include obtaining evidence, reporting, testifying to findings, and assisting in fraud detection and prevention.”

Beth Mohr, CFE, PI, says this definition includes many elements that are traditionally associated with investigations, including those specifically included in various U.S. state statutes that require investigators to be licensed.

In the “Career Connection” column in the July/August 2013 Fraud Magazine, Mohr wrote that each jurisdiction in the U.S. and around the world has varied regulations that govern what defines investigators or private detectives. The statutes can change at any time. Mohr wrote that CFEs and CPAs who say they conduct “forensic investigations” should be properly licensed if their jurisdictions require it.

Mohr tells Fraud Magazine that PI licensing qualifications vary — from testing and prior law enforcement or extensive investigative experience as a requirement — all the way to just being over a certain age, like 18 or 21. Some U.S. states require a bond, others require insurance and some have no additional requirements, she says.

“Each firm and CFE is responsible to ensure they’re in compliance with the law, so you need to consult your legal counsel,” Mohr wrote. “Don’t wait to be embarrassed on the stand or find yourself charged with a crime.”