You steal a sword from a man's home as he sleeps. It's just a normal sword, nothing special about it.
The next day, you're walking the street, brandishing the blade, as your victim walks past. He sees you with his sword. To anyone it's just another sword, but this man knows better, he's had that sword for 15 years, he knows every nick and groove on it. He knows it's his.
He chases after you, shouting and screaming for you to give back his sword, then he screams at the guards to apprehend you, the thief. The guards circle you, but with no intent to harm you, and ask if they can ask you about the sword. You can:
A: Refuse, and they'll forcibly detain and arrest you (or try to), and charge you for not co-operating, and maybe the theft too, since running or refusing to answer quests would lead them to suspect you of guilt.
B: Accept, and try to convince the guard that the blade is yours. Factors like personality, reputation, factions and the value/rareness of the stolen object will lead to the guard either arresting you for theft or letting you go about your business, and if this were Sphagne's system, removing the flag from the object, or at least lowering the the chances of you being caught for thievery, as others might still believe the accuser, even if the guards didn't.
Having a system like that, in my opinion, would increase the value of Personality and Speechcraft, which need as much attention as they can get, and add some more flavour to the game.
Why should you be arrested for theft when the only person who saw the crime is the person who would benefit from accusing you of theft? Crimes committed with witnesses around (excluding witnesses you've... silenced) would of course be much more difficult to cover up. But if your Speechcraft and Personality are high enough, there's no reason why you shouldn't at least be able to talk your way out of it.
Honestly, this is my favorite system by far. You SHOULD be able to talk your way out of small crimes where there is only one witness. Specchcraft and Personality would them become more important to a theif.