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The Growing Field Of Forensic Accounting
by D. Larry Crumbley, PhD, CPA
Sherlock Holmes is probably the most famous forensic practitioner,
being a forensic chemist. Another famous practitioner of forensic science
was Quincy, a television pathologist who used autopsies and pathology
to find murder clues. A future television series may feature a forensic
accountant as discussed in the Dallas Times Herald: "Accounting +
Intrigue = Lenny Cramer."
Many people consider accountants to be dull bean counters without many
original ideas. After
all, everyone knows that bean counters are bespectacled, pale-skinned
wretches who spend mind-numbing lives in dreary cubicles poring over faint
computer printouts and dusty ledgers. Within recent years, a bolder accountant
has evolved with a suspicious mind. This forensic accountant looks behind
the facade and does not accept information at its face value. Some accounting
firms have built entire practices around forensic accounting. Executive
recruiter Robert Half International reports increased client requests
for CPAs with fraud examining skills and FBI experience.
What Is Forensic Accounting?
Forensic accounting covers two broad areas: litigation support and investigative
accounting. The
AICPA describes litigation service as "any professional assistance
non-lawyers provide to lawyers in the litigation process." Forensic
science may be defined as the application of the laws of nature to the
laws of man. "Forensic scientists examine and interpret evidence
and facts in legal cases and offer expert opinions regarding their findings
in courts of law." David Akst and Lee Berton indicate that other
accountants may look at the charts, but forensic accountants actually
dig into the body. The need for this forensic accountant is demonstrated
by a passage from The CBS Murders: Margaret Barbera was very good with
numbers. She could take a balance sheet, a set of account books, invoices,
bills, and more, juggle and manipulate the figures and, presto, thousands
became millions, losses became profits, profits became losses, sales soared
or fell, whatever her employer desired, and it would take an expert auditor
knowing precisely where to look and what to look for to figure out what
she'd done, and even then, it still might slip by. Professor Cramer was
in front of his auditing class
quoting a passage from The CBS Murders, by Richard Hammer.
Expert Testimony at O.J. Simpson's civil trial, forensic accountants testified
as to the worth of O.J. The final damage awards were based upon this testimony.
According to an article in the New York Times by Glenn Collins, entitled
"A New Kind of Detective for the Longer Goodbye," Richard Friedman
is a forensic accountant, an investigative number-cruncher who assesses
the value of privately held corporations and family businesses, and ferrets
out spouses' hidden assets. During the past few years in New York, Mr.
Friedman and other such accounting sleuths have become increasingly engaged
in the thriving industry of divorce. In a recent divorce case, Mr. Friedman
was awarded $274,970.87. Furthermore, Judge Saxe, who presided over the
case, noted that payments for other accountants and appraisers warranted
"additional expert fees" of $200,000.
What Are Investigative Accountants?
Although the billings rates for litigation support tend to exceed the
rates in other practice areas, a
more exciting area of forensic accounting is the investigative accountant
or fraud auditor. The American Institute of Certified Public Accountants
(AICPA) indicates that this person searches for evidence of criminal conduct
or assists in the determination of, or rebuttal of, claimed damages. They
question seemingly harmless documents and look for inconsistencies.
The title of a newspaper article best describes an investigative accountant:
"Detectives Hunt for
Cooked Books." The article describes a forensic accounting firm,
such as Smith, Sibley & Co., in Dallas, Texas: Robbers do not need
guns. Pencil and paper will do. Opportunity and greed are thievery's driving
forces. Put enough zeroes behind a number, and it's amazing how flexible
morals become. How many years in prison would you do to accumulate a half
a billion dollars in your bank account?With white collar crime, insurance
scams, the federal savings and loan debacle, and computer crime reaching
$3 billion per year, there is a need for a new breed of forensic accountants
like James Smith and Ken , Sibley in Dallas. With their magnifying glasses,
computer print-outs, and calculators, this glamour profession should rate
a television series such as
"Designing Accountants" or "Fraud Busters." They certainly
have destroyed the green eye shade
image.
Some Tax Forensic Accountants
Forensic accounting work is performed by IRS and FBI agents. The FBI has
twice as many
forensic accountants today as they had in 1992. The IRS has an advertising
poster with a picture of Alphonse Capone. The poster states:
ONLY AN ACCOUNTANT COULD CATCH AL CAPONE.
Infamous mobster Al Capone wasn't easy to catch until special agents of
the IRS stepped
in and charged him with tax evasion. This crime czar's career came to
an end. This is proof that sometimes only the accountant can apprehend
the criminal.
Be An Accountant With Conviction
Robert G. Roche, a retired chief of the IRS Criminal Investigation Division
of the IRS, gives this
description of a forensic accountant: Someone who can look behind the
facade---not accept the records at their face value---someone who has
a suspicious mind that the documents he or she is looking at may not be
what they purport to be and someone who has the expertise to go out and
conduct very detailed interviews of individuals to develop the truth,
especially if some are presumed to be lying.
Fraud Detecting
Joseph T. Wells is the founder of the National Association of Certified
Fraud Examiners (NACFE) with over 15,000 members. Mr. Wells believes that
there is a need to marry the auditor with the investigator. Talking about
interrogating suspects and witnesses, he stated: "It's like branding
cattle. Get them in the pen where the only way out is toward you---and
you're standing there ready to poke 'em." His simple recipe for spotting
fraud perpetrators is to look for flashy clothes and jewelry.
Another group, the National Association of Forensic Accountants (NAFA),
was formed to help
members market forensic services to insurance companies. Ralph M. Ciarlo,
vice-president, states that their members apply analytical skills to unravel
the mysteries of rising insurance claims and apply practical skills to
help detect "inflated claims."
The American College of Forensic Examiners (ACFE) has developed an additional
training, testing, and certification to give added qualifications to CPAs
working in the field of litigation support and forensic accounting. The
term forensic accountant refers to a Certified Public Accountant who performs
an orderly analysis, investigation, inquiry, test, inspection, or examination
in an attempt to obtain the truth and from which to form an expert opinion.
Forensic accounting and litigation support includes services CPAs provide
in legal matters.
William Dunton, Chairman of the American Board of Forensic Accounting,
comments that, "the specialty of forensic accounting has grown for
several different reasons, the most important of which is the recognition
by other professionals of the value of the service. Whether it is investigation
or litigation, the accountant's role can be a very important part of the
process. Some other reasons for the growth in this specialty would be
the increased tendency of our society to resolve its disputes through
courts of law, the increased complexities of our society, and the decrease
in integrity within our society.
Conclusion
The accounting profession is much more challenging and interesting than
the stereotypical image most people have. Forensic accounting is just
one of the many specialty areas in accounting. An effective forensic accountant
must be bright, personable, and technically competent. Become an accounting
sleuth.
D. Larry Crumbley is KPMG Peat Marwick Professor at Louisiana
State University.
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