CSI For CPAs: Searching For Financial Fraud | Forensic accountants find drama, routine on the job
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Catherine M. Parente, a partner with CCR LLP.
As a rule, accounting probably isn’t a profession that’s ripe for a television drama. But the specialty of forensic accounting, essentially digging up financial information that could be used in court, may be an exception.
Sure, forensic accountants may need to spend days poring over boxes of records and convoluted spreadsheets, but they also confront crooked bookkeepers who’ve robbed their employers blind, face cross-examination on the witness stand and even go undercover.
Forensic accountants may be hired by companies that suspect employees of wrongdoing, firms in the midst of criminal or civil proceedings, even divorcing spouses who want to make sure they know exactly how much income their husband or wife was really bringing in.
Sometimes straightforward methods for gathering evidence work fine. William E. Philbrick, a senior vice president at Worcester’s Greenberg, Rosenblatt Kull & Bitsoli who specializes in forensic accounting, said a first step in examining a company’s books is to compare expenses from one year to the next.
“If all the sudden your miscellaneous expenses, or any expense, is jumping, what’s the reason for that?” he said. “There may be a valid reason, but what’s the reason?”
Getting Investigative
Other times, Philbrick said, especially with companies that work mainly in cash, it can be much more complicated. He recalled investigating a company that sharpened saw blades for construction companies, taking its payments all in cash. To figure out how much business the company was doing, Philbrick found the only place that sold the files it used, checked how many the company had bought and determined just how many saws it could have sharpened.
Joy Child, a CPA who does forensic accounting at Alexander, Aronson, Finning & Co. in Westborough, said she’s been able to find restaurants hiding money by actually showing up and observing how many customers are there. Then, she can check the records for that night and use an estimate of how much patrons spend based on the menu prices to see whether the reported revenues are far lower than they ought to be.
Catherine M. Parente, a partner at CCR LLP in Westborough and a forensic accounting expert, recalls working with a nonprofit that suspected it was being defrauded. Parente said she looked through applications supposedly from low-income people and soon picked out a bunch that she could easily tell were fake: pay stubs had been doctored with the top and bottom of different documents placed together and photocopied, addresses had been changed, social security cards were fakes. Just as significantly, all the offending applications included tax returns made with tax preparation software.
“How many low-income people have TurboTax?” she said.
Parente said the organization’s executive director was embarrassed not to have seen through the fraudulent documents himself, but she said it’s only easy to spot these sorts of issues if you know what to look for.
Alcohol Abuse
Philbrick, who worked for the IRS before moving to the private sector, said he got a taste of the trade’s excitement early on. As a college student working at the freight claim department of a railroad, he said, he helped out with an investigation by going undercover with a liquor and beer distributor that kept filing claims saying their merchandise was damaged. He soon found out that the company was hiring people off the street to unload the cars, then refilling them with boxes of broken bottles and soaking the mess with beer.
All three accountants said they’ve had moments that were like something out of a crime drama, when they confronted a miscreant with their suspicions.
Parente said she recently flew to Texas to talk to two people for a major case she’s working on, simply so she could conduct the interviews in person.
“You get to see facial expressions, body language,” she said. “Sometimes you can get as much from that as you can from the actual interview and what people are saying.”
The field of forensic accounting is a growing one. A recent survey by the American Institute of Certified Public Accountants found that two out of three CPAs say their forensic practices have grown over the past year.
Still, the job isn’t always as exciting as it may sometimes look. Parente said that while she’s able to do some high-profile work like testifying in big court cases, some of the less senior accountants who work under her have less glamorous roles. Right now, she said, a team of CCR employees is making its way through 4,000 boxes of papers that were left in a warehouse for a case she’s working.
“If you’re the staff there sifting thru 4,000 boxes of records… you have to have the right personality and temperament to enjoy it,” she said.
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