The case of the gambling executive director

By Leah Wietholter, CPA, CFE

The exam questions and submission instructions for self-study CPE are located at the end of this article.

During the week following April 15, 2010, when we were given a bonus vacation day to celebrate the end of a busy tax season, I began investigating a $3.5 million embezzlement by a loan officer at a local bank. As that case ended, preparation for the fall tax deadline began. This was the first time in my career that I experienced a panic attack, although I did not know this was happening at this time. What I did know was I could not continue to prepare tax returns and work on forensic accounting engagements at the same time. After giving my manager ample notice, I started the job search process. I still remember the days following giving my notice as one of the lowest points of my life. Having left my dream job at age 21 felt as though my career life was all downhill, and I did not want to return to the FBI. Working with a headhunter, I explored several controller positions, but although the accounting job openings were a great step in an accountant’s career, I felt lost. I did not want to be a great accountant; I wanted to be an investigator. One day, the headhunter suggested that I start my own business as a fraud examiner. This was the first option that did not feel terrible. I called my mentor from the FBI and my mom to see what they thought about the option. My mentor was surprised but encouraging, and Mom said, “If it doesn’t work, what’s the worst that will happen?” I responded, “I go get a job as a controller.” A few weeks later, Workman Forensics officially opened – from my laptop on my dining room table.

My experience to this point was laser focused on tax strategy, forensic accounting engagements, and fraud investigations. I had never considered opening my own business, so I was facing an enormous learning curve – especially because I had no clients or even contacts in town. Starting in the fall of 2010, I worked odd jobs while I forced myself to meet with attorneys, bankers, and really anyone who would talk to me. Three months passed when the phone rang. On the other end was an attorney I had met a few months before. A local not-for-profit organization believed their executive director had stolen $1 million. He wanted to know if I wanted to work on it and if I would go meet with the interim executive director. I tried to sound as if I received these calls every day and made an appointment that was responsive but not too eager.

The interim executive director, Adam, was worked up to say the least and openly anxious of my arrival. Assuring him that I was just an accountant and not law enforcement, he began to tell me about his discovery. Before becoming the interim executive director, Adam had been the assistant executive director. Before the discovery, the former executive director, Ivan, was preparing for retirement and was training Adam to take his position. The organization did not use any kind of accounting software, or even Microsoft Excel, but still used green-bar ledger paper and a checkbook. Complaints around the organization were that Ivan was never there and that things were starting to fall apart. Ivan began teaching Adam about the financial preparations for board meetings when Adam noticed payments to a financial institution. Shortly after the training, Ivan would bring Adam credit card statements and represent to Adam that these statements were Ivan’s personal credit cards. He would ask Adam to shred them. Recognizing that a couple of the statements were from the financial institution listed in the check register, Adam did not follow Ivan’s orders and kept copies of the statements in his file drawer.

The next time Adam was asked to prepare financial information for the board, he took the credit card statements into Ivan’s office while he was out and compared the payments listed on the credit card statements to the check register. The amounts matched. Adam was convinced Ivan was stealing from the organization.

The realization of the theft hit him, and in somewhat disbelief, Adam waited for Ivan to leave on several occasions to investigate other areas of potential theft including cash donations received. Records of the cash received were compared to cash deposited to the bank account. Having found no cash deposits over a period of time and knowing that Ivan was the person responsible for the deposits, Adam believed Ivan was stealing those funds as well. Adam provided me with copies of all the credit card statements and showed me the matching check register entries. The credit card statements were several pages long and listed numerous transactions at local casinos within an hour from the organization. I was sent back to my home office with 11 extra-large banker’s boxes full of paper documents including bank statements and green-bar check registers for 10 years. He also provided me with the records of cash donations and carbon copy deposit slips lacking cash or currency deposits. The attorney advised he was filing a civil lawsuit and was requesting a temporary injunction, so a sample of my findings proving the theft needed to be completed in 10 days and that I would be testifying. The analysis goals for the 10-day deadline were:

To determine if Adam’s allegations were supported by available information and evidence, and
To demonstrate payment of personal credit card charges and lack of cash deposits to the court so that Ivan’s assets would be temporarily frozen.

Starting with the analysis goals in mind, I had to find the most efficient path from start to finish and be ready to testify with exhibits in less than two weeks. Additionally, at 26 years old, any testimony where I might have said, “based on my experience. . .” would not be seen as credible, especially if Ivan had hired a more experienced expert, so I knew my analysis had to be perfect. Out of necessity, I exclusively relied on financial data, specific transactions, and patterns that would substantiate my testimony and reputation – especially with my first case as Workman Forensics.

Ivan’s credit card statements listing the gambling transactions and payments could not be subpoenaed and returned within 10 days, so I needed the next best type of evidence – the bank statements of the not-for-profit organization listing the payments on the credit cards. Returning to the data entry skills I learned at the FBI, I began entering banking transactions into an Excel spreadsheet for a relevant period of one year noting if any memo lines on checks referenced the credit card number associated with the payment and the signature authority on the check. I could have simply scheduled payments to the known credit card accounts for which Adam had saved statements; however, every time I had ever only processed select transactions instead of all the transactions listed on the statement to save time, I regretted it later and still ended up spending the time doing so.

This case was no exception; digitizing all the bank statement transactions and subsequent analysis identified two additional credit cards belonging to Ivan. These additional credit cards were paid using the organization’s funds. To confirm that the credit card payments did not belong to the organization, a Dunn and Bradstreet report was obtained from a company specializing in background checks. The report confirmed that the organization did not have any credit card debt in the organization’s name. Digitizing the bank statements also proved valuable because another area of loss to the organization was identified. Ivan had written multiple check payments for $1,000 each to himself in excess of his regular payroll. Tables listing the check payments to credit card companies and Ivan directly during the one-year period were prepared. I organized a binder for the hearing containing examples of the check payments made to credit card companies and Ivan’s credit card statements retained by Adam.

The records of cash donations were compared to corresponding bank statement deposits that had been digitized to list cash and check totals. For the year under investigation, none of the cash donations had been deposited to the bank account. Tables were prepared summarizing the findings and were accompanied by examples of the paper donation records and carbon copy deposit slips.

More nervous than ever, I testified to my assignment, my findings, and the evidence upon which I relied. During cross-examination, the opposing counsel questioned me on the validity of my procedures and evidence relied upon, but despite his efforts, the judge granted the temporary injunction. Relying on specific transactions from third-party source documents proved reliable and accomplished the goals of the case: it verified the legitimacy of the allegations and demonstrated to the court that Ivan’s assets should be frozen.
The fundamental skills I had learned were to process data and to identify patterns within the data. This approach worked by addressing the concerns of the clients and the goals of investigations using data-driven results.

Reprinted by permission of the publisher from Data Sleuth: Using Data in Forensic Accounting Engagements and Fraud Investigations, by Leah Wietholter.

Please complete and mail a copy of this exam along with your payment information to: Oklahoma Society of CPAs / CPAFOCUS Self-Study / 1900 NW Expressway, Ste. 910 / Oklahoma City, OK 73118-1898 by April 30, 2023.