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Atlanta Business Chronicle
November 15, 2002
THE ACCOUNTING FRAUD SQUADS
Jeff Moore is suddenly a very busy man. A certified public accountant, Moore also carries the designation "Certified Fraud Examiner," and although his business long has been steady, of late it's been downright frenetic.
"I think business owners are just becoming more aware of how easily things can be taken right out from under their noses," Moore said by cell phone en route to yet another client meeting. Moore is president of J.E. Moore, CPA, PC.
Reaction to reports involving high-profile financial malfeasance is creating new opportunities for a unique type of "numbers" professional, the forensic accountant. A nationwide study by Kessler International, a large accounting consulting firm, found that 39 percent of the organizations surveyed have considered bringing in some forensic help. Another 28 percent said they already had done so.
"It's safe to say that the fraud investigation business is booming," said Dana Hermanson, director of research at the Corporate Governance Center of Kennesaw State University.
The terms "forensic accountant" and "fraud investigator" are often used interchangeably. Both describe a specialized form of exhaustive probing of financial and accounting data, generally undertaken only after someone either suspects fraud has occurred or has found some evidence of it. Forensic experts also may help to trace and recover a company's missing assets, investigate money laundering or act as expert witnesses should a case wind up in court.
Publicity about corporate misdeeds involving companies like Arthur Andersen LLP and Enron Corp. (OTC: ENRNQ.PK) have shed fresh light on the obscure field of forensic accounting, but the discipline has been around for a long time.
As far back as 1817, a Scottish accountant advertised his skill as an expert witness in accounting matters. Larry Crumbley, an accounting historian at Louisiana State University, credits Maurice Peloubet, a partner in a New York City accounting firm, with coining the term "forensic accountant" in a 1946 journal article.
Digging for gold
The forensic experts are the numbers-crunchers who dig for fraudulent transactions, falsified paper trails and cooked books. Unlike auditors, who certify that a company's records conform to generally accepted accounting principles, forensic accountants get down and dirty, poring over the minutest details and reconstructing documentation in an effort to uncover nuggets of evidence. Forensic practitioners are typically autonomous experts employed by independent organizations outside the corporate sanctum.
"Diagnosing is a good word to describe what they do," said University of Georgia Professor Denny Beresford. "They try to find out what has happened and what can be done to make the patient well again."
The so-called "Big Four" accounting firms provide forensic services as part of their global practices. Many smaller firms specialize in this financial niche, as do a handful of larger companies, such as New York-based Kroll Inc. (Nasdaq: KROL), and FTI Consulting Inc. (NYSE: FCN), of Annapolis, Md. Both Kroll and FTI Consulting maintain substantial operations in Atlanta.
"There are a growing number of us," Moore said. "The fraud investigator is becoming more visible, and more active in helping the public and business owners become aware of fraud and what can be done about it."
Plenty of work
Research by Ernst & Young International, one of the Big Four accounting firms, recently found that one in five American workers admitted that they knew of co-workers who had lied on expense reports, stolen from their boss or pocketed money from cash sales. It all adds up. The Association of Certified Fraud Examiners estimates workplace fraud will cost U.S. businesses about $600 billion this yearthat's $4,500 per employee.
It's the big companies that get all the publicity, but statistics show fraud is far more prevalent in small firms. Research conducted by the Center for Corporate Governance found that in the decade between 1987 and 1997, most companies committing fraud on their financial statements were relatively small in size-less than $75 million in assets and revenues. In more than 80 percent of the cases, the CEO, chief financial officer or both were involved.
"Large companies tend to spread the accounting process over several people.
In a small company, if one person handles the entire process, he or she can commit fraud much more easily," Hermanson said.
Jobs for the future
Accounting has always been a popular field with a plethora of job opportunities. Forensic accountants, however, are not born; they are made. Few colleges none in Georgia-offer degrees in the discipline, although that could change in the future.
"Curriculum changes tend to be rather slow, because textbooks have to be updated and rewritten, but the auditing professionals are already starting to emphasize some of these things," Beresford said.
CPAs who choose to pursue forensics need a good grounding in several other disciplines as well. Since they essentially play the role of detective, they need good investigative skills.
Moore said a working knowledge of the law helps, too.
"You have to know about courtroom procedures, and how to handle and preserve evidence. You don't have to be a lawyer, but the more legal knowledge you have, the better."
Two national trade organizations offer certification programs in forensic accounting. The Association of Certified Fraud Examiners bestows the CFE designation on professionals who meet certain standards. Accountants also may earn a Cr.FA (Certified Forensic Accountant) from the American College of Forensic Examiners.
Author - Lee Hall
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