Ep. 198: Leah Wietholter – Following the money with a forensic accountant

Our guest today is Leah Wietholter, a forensic accountant, private investigator, and the author of Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations. Leah provides a fascinating look inside the world of forensic accounting and the detective work required to tell clients and judges where the money went in fraud cases and other financial disputes. If you ever wanted to know how detectives “follow the money,” this is the episode for you.
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Full Episode Transcript
Adam:

Welcome to Count Me In, the podcast that explores the world of business from a management accountants perspective. My cohost Rouba Zeidan spoke with our special guest Leah Wietholter. Leah is a certified fraud examiner and the author of the new book Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations. Leah began her career supporting forensic accountants at the FBI and has since branched out to lead her own forensic accounting and private investigation firm. Forensic investigations are the center of so many great crime shows these days, and it was exciting to hear how accountants expose fraud and other problems lurking in bank accounts, credit card statements, and payroll reports. I hope you enjoy the conversation.
Rouba:

Good morning, Leah. And thank you so much for joining us.
Leah:

Thank you so much for having me.
Rouba:

I'm really looking forward to learning more about your very kind of interesting arena and industry, which is and you have a wonderful background in the FBI. So maybe you can drop in some examples on that part of it. So can you tell us a little bit about forensic accounting and forensic accounting engagement? What does it entail?
Leah:

Yeah, so I work forensic accounting engagements as a private consultant. So I'm not affiliated with law enforcement or anything like that. I own a forensic accounting practice in Oklahoma, and the majority of our engagements are solving some sort of financial problem that's either in litigation or could end up in litigation. So we work a lot of embezzlement investigations or fraud investigations. Then we also work to help sort through partnership dispute or a shareholder dispute, so if someone believes the general partner or whoever's managing the money, usually, has been taking more than their fair share, we get involved there and kind of our third other largest category of a forensic accounting engagement is in divorce matters when the two parties are looking to get divorced and they need to split their assets. Then usually one party is not familiar with how the marital funds were handled.
Leah:

And so they wanna make sure that when they go to divide those assets, that they're getting their fair share. So we help them either get comfortable with the known assets or try to find any other hidden assets within that situation. And we usually only work divorce cases. If there's a business involved, there's a lot of opportunities when people have closely held businesses where they can hide assets or just, they own things that maybe their spouse doesn't know about. So those are kind of the three types of engagements that fall under the three types of cases that are typically involved in a forensic accounting engagement for us.
Rouba:

Interesting. I mean, that, that kind of implies that there are numerous kind of legal consequences and circumstances you know, that might come into the equation and most well known would be maybe investigating alleged fraudulent activities like you, you know, in your experience, how prepared is the average finance and accounting professional to handle such circumstances?
Leah:

I would say that the accounting and financial professionals that I run into, they're familiar with what fraud looks like. They're familiar with, you know, the concept of, we talk about this a lot, cuz we use data analytics, but a lot in our investigations, but we talk about what should have happened, the framework what should have happened versus what happened. And so finance and accounting professionals know what should have happened. And then they also know what happened, but taking that information and then putting it in a format that could be explained to a judge or a jury or even to the client themselves is where our specialty usually shows up. As opposed to, you know, maybe someone working in corporate or even in audit connecting those dots. One of the things that I've been focusing on lately with my team is, okay, I understand that these journal entries, for example, these journal entries look strange and we can tell the client, Hey, these journal entries look strange, but we need to tell them why that matters.
Leah:

Why should they care about it? And what is the risk to them? What is the financial loss to them? And being able to connect what we know about accounting to losses, to the story of what happened, because that's what helps in, if it does result in litigation, that's what helps communicate the findings. So we've gotta be able to connect what we know as financial professionals with a group of individuals that this is not their specialty. And so connecting those dots, understanding a lot of times finance and accounting professionals are very good at understanding what all the financial statements say and what that means, but then to translate that into, okay, why should my client care, which is usually connected to what actual dollars are missing which would be found on bank statements and credit card statements and payroll reports. So just knowing where to go for that information to best communicate what happened. And the corresponding loss is kind of where this forensic accounting niche comes into play.
Rouba:

Did you find that the need for forensic accounting has grown over the past few years and more specifically, you know, post the COVID era? And if so, how and why?
Leah:

So when I first started in forensic, so my background, I worked for two years with the FBI under the direction of a forensic accountant. And that's how I got into this niche so early in life. But then when I joined I started doing this from the private sector. It wasn't as popular and that would've been like 2009. It, it was becoming more popular. The more that technology has advanced and the access that we have that keeps growing to different kinds of data and understanding what that data can tell us. And you know, how we can use that to understand what's happening and just to understand and put our arms around those facts. Then I think forensic accounting is becoming more popular in the private sector. And I haven't really noticed a huge increase in the need of forensic accounting.
Leah:

I think a lot of people after COVID, I tell my team, I think people are just mad at each other. So we have a whole lot more like the volume of partnership disputes is so much greater than it was before. We're starting to see an uptick in divorces as well. So I don't really know that COVID affected how much forensic accounting or, you know, increased that need. But I have seen an increase in over the course of the last 12 years or 15 years of my career in that, because there's so much more information readily available, that it is possible to find out what happened without relying on law enforcement to get involved and law enforcement, especially in the US, they already have too much work as it is. So if people want answers to their questions and they want it timely, then I think the best resource for them is a forensic accountant in financial investigations.
Leah:

So that's what I have kind of noticed in, you know, this basically has consumed my entire career, this field. And so just noticing the trends that way, you know, and like I said, COVID, I don't know that it increased the need for forensic accounting. It's just that there seem to be even more disputes since COVID. And so then that means that there's a lot more volume for not just forensic accountants, but I like to stay connected with the investigation community as a whole private investigators and other consultants. And even they have seen a huge increase in their caseloads as well since COVID.
Rouba:

And I mean, which kind of institutes or agencies make the most use of forensic accounting, your experience.
Leah:

From a law enforcement perspective, I typically work with the FBI and the IRS criminal division, but there are forensic accounting positions within all types of investigative agencies. I mean, kind of what we're seeing in the US as a whole is just that there's a shortage of individuals and the same is true in the forensic accounting field, especially within law enforcement agencies, I've recently learned, but I think other industries that aren't law enforcement we're definitely seeing in public accounting firms, public accounting firms are, have been adding and are adding forensic accounting divisions where they didn't necessarily have them before or they'll have a litigation support division that does business valuation. But then since they're already involved in these legal matters from a valuation standpoint, then they're often asked, you know, oh, Hey, could you also do this forensic accounting engagement or this fraud investigation? So that's definitely becoming more popular.
Rouba:

And are you seeing an increase in forensic accounting for compliance purposes?
Leah:

I think that there is an interest in using forensic accounting to - let me say it this way. So I don't deal with compliance specifically, but knowing how forensic accounting solves so many problems for our clients, you know, we're able to tell them, they'll say I'm worried someone's stealing money from me. So we're able to investigate and identify, okay, was this individual stealing money? And you know, what is the best evidence to base this on? And then what is the loss? So those same procedures that we use can be used in compliance as well. I don't know how many people are actually applying them, but I know based on attendance and interest in what I do, there are a lot of people in compliance or internal audit who are looking to implement, or at least understand these approaches, if and when they run across things that look strange. But I do think that when an investigation or forensic accounting engagement or process is based on data and understanding what that data tells us, then I think it can be applied as part of audit or compliance or investigation.
Rouba:

I mean, you say data and we're in a highly digitized era, what is the role of that data and technology within forensic accounting engagement, especially like you said, it's grown in kinds of it's grown the capacity and the capabilities of forensic accounting globally.
Leah:

Yeah. So from a forensic accounting or fraud specifically fraud investigation - well I guess both - standpoint, I use the word data because that's the simplest thing to kind of address, but really it boils down to the primary, just the best evidence. So there's two different kinds of data. And I actually talk about this in my book. So there's two different kinds of data. There's qualitative data and there's quantitative data in forensic accounting and fraud investigations. So our quantitative data is typically looking at, and I have kind of two categories for this as well. We have our most reliable evidence that would be when we're talking about, I'm always trying to find some sort of missing money. So I need to identify how did the subject increase their purchasing power. So a journal entry doesn't tell me, how did this person steal money? A journal entry doesn't tell me how much money was stolen, because that's not necessarily reflective of the cash leaving the bank account or overpayment of payroll, or even theft of inventory, a journal entry or accounting records that provides me with the context that gives me the story, but that doesn't necessarily quantify the loss.
Leah:

A loss is actually quantified by, and these are so simple because so to call it data, I think makes it sound a little scarier than it is. It's really just looking at bank statements, credit card statements, or payroll reports for most companies. In larger companies, it could look a little different because there are more internal controls. And so we can rely more on the company's accounting information, but most companies don't have the internal control setup to make their records reliable. So we just go to the source themselves, bank statements, credit card statements, payroll reports, everything else is used contextually that's part of our quantitative data. Our qualitative data also helps build that story and the most common, or I think the thing that's most expected in our field is trying to find any sort of emails or notes or files.
Leah:

I will tell you that in the majority of the cases that I've worked and I've worked close to 200 cases in my career emails, you know, people will say there has to be a spreadsheet somewhere emails or something where they confess to doing this or text messages. I wish. That's not really the case in my sample of cases that I've worked in my life. That is not, that is not proven true. But when I'm talking about data, I'm really talking about bank statements, credit card statements, and payroll reports.
Rouba:

And I mean, how can, because obviously data is so full of insights. How can that be used proactively to kind of inform you know, future kind of preventative measures. So, and then how can finance and accounting professionals actually harness the power of that data to kind of prevent fraud within companies and use that, you know, that data, as we said to inform.
Leah:

Yeah. So on a kind of broader, bigger picture, when I'm talking about fraud prevention, I like to talk about fraud prevention from the perspective of, I need to understand how does money come into my organization and how does money leave my organization then within both of those categories, I then start looking at who handles actual cash or assets that could be stolen. So we're just gonna focus on cash for the purpose of this example. So I need to look at what types of payments does my company or organization actually receive. And that could be cash, check, credit card, wire, ACH, whatever, but I need to identify all of those. Then I need to identify who are all the people that touch it when it comes in, who reconciles it. And then I need to look at if someone was to steal money, as it's coming into the organization, where would they do this?
Leah:

And then I need to identify if they were to do these things, then what data do I have at my disposal that would tell me that this is happening. So, and then I do the same thing, looking at how the money leaves the organization, what are all the different things that we pay? How do we pay those things? Check, credit card, ACH, wire. I mean, it's the same thing. How do I do that? And identify who touches that? Who actually initiates it, sends it. I mean, you know, things that probably a lot of finance and accounting professionals are used to, but then ask ourselves in relation to who authorizes it and all of that, and I'm not looking at it from an internal control standpoint, trying to evaluate controls. I'm trying to evaluate the opportunity at each of these types of payments.
Leah:

So then if I've identified, these are the people, and then these are the opportunities they would have to steal. Then I go a step further and say, so what data do I have available that if I looked at this data, it would tell me that money was missing. And a really simple example of this is if I am looking at payroll and I go through all those steps, we just talked about for payroll. And at the end, I've identified that someone could be overpaying themselves, like maybe they're inflating their hours or something, or maybe they're paying themselves salary greater than what was agreed upon. Then the data at the end is as simple as how much did they get paid? So I would need a payroll report. I would need maybe several payroll reports, and then I would need an employment agreement or contract or whatever it is that would tell me how much this individual's being paid.
Leah:

And in working through this process, if money is missing those two things, aren't going to match up, you know, if somebody's stealing money, but what this process does. And I realize it's pretty detailed, the larger the organization is, but by doing this, it identifies where do I have gaps in data? Do I even have employment agreements for everyone? If someone suspected someone was stealing out of payroll, do I have enough documentation to even see, to even answer that question? And that's what we've actually found with large and small organizations alike, but it's more surprising in large organizations when we go in to work a fraud investigation and we start saying, okay, well, in order to address all of these concerns that you have, we're going to need access to this, this, and this. Well, when they take that list back to their team, we will find out from them later, oh, we actually don't have reports that will tell us this information.
Leah:

And so from a preventative standpoint, if you know that you have these data gaps, then, and you might think I'm a pessimist by my next statement, but it's just the nature of my work, but I don't think that we can prevent a hundred percent of fraud, especially occupational fraud. I think the goal is to detect it quickly. So because the longer a scheme goes on the greater the loss and absolutely potentially more damaging to an organization. So if we can identify those data gaps and we're using that data on an ongoing basis to say, okay, it's payroll, what we expect, or, you know, expenditures is what we expect is inventory what we expect. Then as we do, if we run into issues, at least we know that we have this data we can use to quantify any losses, or if there's discrepancies kind of find out, is it an error or is someone actually stealing money and start making that determination. But if the data isn't being collected or the data isn't readily accessible, because sometimes it's just a conversation with IT. Sometimes it's, oh yeah, we should have audit logs. That's something that our accounting software does, but nobody's ever turned them on. And so that will even be in large organizations and even small organizations. So identifying that on the front end will always set up any type of investigation into any type of discrepancy and, you know, set up that investigation to win.
Rouba:

Brilliant. I mean I, I definitely wanna know more and I think one of the dives I'm going to do is into your book, Data Sleuth. I mean, if you can tell us more about your book, which talks about using data in forensic accounting, engagements and fraud investigations.
Leah:

Yeah. So I had the opportunity, so I started this practice. My practice, it'll be 12 years in November, and I started as a sole proprietor. I just was gonna work a few little cases. I was tired of public accounting. And then I ended up getting really busy really quickly. And that was something I didn't plan. And so several years into my business, I was kind of facing either burnout or I had to figure out how to scale what I was doing so that we, so that I could help more people. And you know, trying to give a team information that I had gathered from years of experience was just very, very complicated and for lots of reasons. And I talk about it in the book. And so several years ago, I thought I have to create a process that I can trust.
Leah:

I can trust the process and my team can learn along the way, but at least the process will help make things reliable and will help me as the future testifying expert be able to depend on their work. And as I started creating this process, and then, you know, we were able to work more cases more efficiently. We were able to use data so that we were using best evidence and really just solving problems for clients. And then I started networking with other professionals like myself, and realized, oh, there's actually a need to, to understand and an interest, you know, like this whole area of forensic accounting just sounds interesting. So there's this whole interest in forensic accounting. So if I can present and share with everyone, what I have learned over my career about following a process, that makes sense, that's scalable, that you can work with a team.
Leah:

Then I think this would be really helpful. And so I had the opportunity to work with Wiley publishers last year to write this book, Data Sleuth, and it's based on our data sleuth process. And so in the book, I share a lot of case stories cause I've worked close to 200 cases in my career. So I share a lot of case stories and then talk about our data sleuth approach and framework to how we tackle cases, how we prepare planning, you know, because there's not some guideline out there like an audit might have for these are the things that you test, we're really driven by the concerns and the problems that the client is facing. And while walking a fine line that we can't just be a hired gun and give them information that would help them win. We have to be able to tell them, I mean, it's an investigation and we're a third party and we have a code of ethics.
Leah:

And so we're going to tell them, this is what actually happened and then work, you know, be able to address those concerns that they have while telling them what happened and helping them solve their problem that way. And so I talk about the process. I provide the case examples. I provide a couple case studies at the back and there's also we created a website. That's referenced in the book where you can actually download like our case planning templates and what I was talking about earlier about the fraud prevention approach from money in money out, we have a template for that process. And so I mean, obviously I'm biased because I spent time writing it last year, but I think it's a really helpful book. And the whole time I was writing it, I thought, you know, what do I wish? What was I looking for when I started on my own? What was I looking for to, to learn from other professionals and to hopefully share what I've learned over my career.
Rouba:

That's amazing. And we'll definitely post a link to your book and where people can get it online and great work. I mean, I'm really, this is very interesting and thank you so much for sharing so much insight about this. And I think there's much more to learn. So yes, I will be reading your book very soon.
Leah:

Oh, well, thank you.
Outro:

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