Using Sources and Informants

Why This Topic Matters
Fraud is a concealed crime. Unlike a robbery or an assault, there is usually no scene, no visible victim at the moment of commission and no witness who saw the act. Documents can be forged, destroyed or simply never created. Because of this, much of what a fraud examiner learns about a scheme comes not from paper but from people – employees who noticed something odd, a vendor who was asked to inflate an invoice, a former spouse who knows where the money went, or a co-conspirator who wants to cut a deal. The ACFE's Fraud Examiners Manual treats sources and informants as one of the most productive, and most legally sensitive, tools in the covert-examination toolkit. On the CFE Exam (Investigation section), this material is tested because mishandling an informant can destroy a case, expose the examiner or employer to civil liability, place the informant in physical or professional danger and undermine the credibility of everything the informant provided. A CFE is expected to know how to find, evaluate, protect, pay and document human intelligence correctly.

What It Is: Key Definitions
The ACFE draws a specific distinction that is frequently tested:

Source – A person who provides information to the fraud examiner without compensation or expectation of compensation. Sources are typically people in a position to know something because of their job or circumstances: bankers, accountants, attorneys, law-enforcement personnel, regulators, journalists, trade associations, business associates, current and former employees, vendors, customers and competitors. Sources are often open about who they are, and much of what they provide is corroborative or background information. Many sources are cultivated over time as part of a professional network rather than for a single case.

Informant – A person who provides information for compensation or other consideration (money, leniency, a favor, protection) and who usually asks that his or her identity remain confidential. Informants are frequently inside the scheme or close to the people who are. Their information is often more specific and more valuable, but also more suspect.

Confidential source / confidential informant – Either a source or an informant who has requested that his or her identity be protected. Confidentiality, not payment, is what makes a person 'confidential.' A source can be confidential without being paid; an informant can be paid without being confidential, although in practice most informants want anonymity.

Remember the one-word discriminator for the exam: compensation. If the person expects something in return, think 'informant.' If the person is simply cooperating, think 'source.'

Why People Inform: Motives
Understanding motive is central because motive predicts reliability. The Fraud Examiners Manual identifies common motives, and exam questions often ask you to identify them or to recognize how a motive affects credibility:

1. Revenge – The most common motive. Passed-over employees, jilted partners, fired staff and ex-spouses frequently come forward. Revenge-driven information is often true but may be exaggerated or selectively presented.
2. Financial reward – Payment, whistleblower bounties or recovery of money they believe they are owed.
3. Reduction of personal problems – A participant in the fraud hopes for leniency, a reduced charge, immunity or continued employment. This is the classic 'deal' informant and the one most likely to shade the truth to please the examiner.
4. Ego or self-importance – Some people enjoy being on the inside of an investigation and feeling important to authorities.
5. Civic duty or conscience – Genuine desire to do the right thing. Often the most reliable, but also the least common.
6. Fear – Fear of being implicated, fear for job security or fear of a dangerous co-conspirator.
7. Mental instability or eccentricity – The 'crank' or chronic complainer whose information must be treated with extreme caution.

The practical rule: identify the motive early, because it tells you how much independent corroboration you will need.

How It Works: Developing and Handling Sources and Informants

1. Identifying candidates. Ask who has access (they can actually know what you need) and who has motive (they would be willing to tell you). Candidates include current and former employees, vendors and suppliers, customers, competitors, former romantic partners, and other professionals who deal with the subject.

2. Making contact. Approaches should be discreet, lawful and non-coercive. The examiner must never threaten, promise what cannot be delivered, or induce the person to commit a crime. Initial meetings are best held in a neutral, private location away from the workplace, and the examiner should, where feasible, have a witness or at least document the meeting contemporaneously.

3. Promises and confidentiality. The fraud examiner should never promise absolute confidentiality. In litigation or prosecution, an informant's identity may have to be disclosed – for example, when the informant is a material witness or when due process requires it. The examiner can promise to make every reasonable effort to protect identity and to limit knowledge of it, but not to guarantee it. Breaking a promise of confidentiality can expose the examiner to a lawsuit and will end the informant's cooperation.

4. Protecting identity. The Manual recommends that each confidential source or informant be assigned a code number or symbol (sometimes called an informant symbol). All reports, memoranda and notes refer to the person only by that code. The key linking the code to the true identity is kept in a separate, secure file with access restricted to as few people as possible – ideally the examiner and one supervisor. The informant's name should not appear in the case file itself.

5. Documenting contacts. Every meeting, call and item of information should be memorialized promptly in a memorandum stating the date, time, place, who was present and what was said. The informant's information is recorded as the informant's statement, not as established fact.

6. Paying informants. If payment is made: (a) it should be reasonable and related to the value of the information or the time and risk involved; (b) it should never be contingent on the outcome of the case, because contingent payment destroys credibility at trial; (c) cash payments should be witnessed by a second person where possible; (d) the informant should sign a receipt – by code symbol if confidentiality is required – and the receipt should be maintained in the secure file; and (e) payments should be approved in advance under the organization's policy and documented in the case budget.

7. Evaluating reliability. Never accept informant information at face value. Assess it on two dimensions: the reliability of the person (track record, motive, consistency) and the basis of knowledge (did they see it, hear it, or hear about it third-hand?). Corroborate every important fact through independent means – documents, public records, surveillance, other witnesses or interviews. An examiner should not build a report, much less an accusation, on an uncorroborated informant.

8. Controlling the informant. The informant should not be allowed to direct the investigation, conduct searches, take documents without authority, make recordings that are illegal in the jurisdiction, or do anything the examiner could not lawfully do. In a government or law-enforcement context, an informant acting at the direction of investigators becomes an agent of the state, so Fourth Amendment and entrapment rules apply to the informant's conduct. In the private sector, the informant may be treated as the examiner's or employer's agent, creating civil liability for trespass, invasion of privacy or defamation. Keep the relationship professional; avoid personal or financial entanglement.

9. Ending the relationship. When the informant's usefulness ends, close the relationship cleanly: final payment if any, final receipt, and a memo documenting termination. Do not leave an informant 'floating' who believes he or she is still authorized to act on your behalf.

Common Pitfalls
• Promising total anonymity that later cannot be honored.
• Writing the informant's real name into working papers or emails.
• Paying a bonus 'if we get a conviction' or 'if we recover the money.'
• Treating a revenge-motivated statement as proven fact.
• Letting an informant copy files, record conversations or enter areas illegally.
• Failing to document a meeting until days later, when memory has faded.
• Allowing too many people on the team to know the informant's identity.

Exam Tips: Answering Questions on Using Sources and Informants

Tip 1 – Nail the definitions first. Many questions are simple classification: 'A disgruntled former bookkeeper offers information in exchange for $500 and asks that her name be kept secret. She is best described as a ___.' Answer: a confidential informant. Compensation = informant; no compensation = source; request for secrecy = confidential.

Tip 2 – Watch for absolute language. Options containing 'always guarantee,' 'must promise complete confidentiality' or 'never disclose under any circumstances' are usually wrong. The correct ACFE position is that the examiner should not promise more confidentiality than can be delivered.

Tip 3 – Know the code/symbol procedure. Expect a question on how identity is protected in the file: assign a symbol or number, refer to the person only by that symbol in all reports, keep the identity key in a separate secure location with limited access.

Tip 4 – Payments: reasonable, documented, witnessed, non-contingent. If a question describes payment tied to the result of the case, that is the wrong practice. If it asks what documentation is needed, look for a signed receipt (which may be signed with the code symbol) and a witness.

Tip 5 – Motive questions test credibility, not morality. If asked which motive is most common, the Manual points to revenge. If asked which informant requires the most corroboration, think of the co-conspirator seeking leniency or the mentally unstable 'crank.' The exam is not asking you to judge the informant; it is asking what the motive implies for verification.

Tip 6 – Corroboration is the default answer. When a question asks what the examiner should do with information received from an informant, the ACFE-approved answer is almost always to verify it independently before relying on it or including it in a report as fact.

Tip 7 – Agency and legality. If a scenario has an informant doing something the examiner asked (entering an office, taking records, recording a call), remember the informant's acts may be attributed to the examiner or the government. The examiner cannot use an informant to do indirectly what would be illegal to do directly.

Tip 8 – Read scenario questions for the 'best' or 'most appropriate' action. The CFE Exam often provides several plausible options. Eliminate anything that (a) over-promises confidentiality, (b) pays by results, (c) puts the real name in the file, (d) skips documentation or (e) accepts information without verification. What remains is usually the answer.

Tip 9 – Connect the topic to the bigger picture. Sources and informants sit within the Covert Operations chapter alongside surveillance and undercover operations. Questions may blend them – for example, using an informant to decide whether surveillance is warranted. Remember that information from a source or informant is a lead that justifies further examination, not a conclusion.

Quick Review Summary
• Source = information without compensation; Informant = information for compensation or consideration; Confidential = identity protected.
• Common motives: revenge (most common), money, personal problems/leniency, ego, conscience, fear, instability.
• Never promise absolute confidentiality; promise reasonable efforts only.
• Use code symbols; keep the identity key in a separate, secure, access-restricted file.
• Document every contact contemporaneously in a memorandum.
• Payments: reasonable, pre-approved, witnessed, receipted (by symbol if needed), never contingent on outcome.
• Always corroborate informant information independently.
• Control the informant; the informant may be treated as your agent, so no illegal acts.
• Terminate the relationship formally and document it.

Master these points and the terminology behind them, and the Sources and Informants questions on the CFE Exam become some of the most straightforward in the Investigation section.