 stablishing a solid antifraud practice
is not the same as building a typical CPA firm,”
says Karen J. Tierney, CPA, of Glastonbury,
Connecticut, “but for CPAs with the right
background, training and expertise, I believe the
antifraud profession offers great opportunities.”
Craig L. Greene, CPA, a partner in the accounting
firm of McGovern & Greene in Chicago, agrees.
“You’ll find the niche market in fraud examination
can involve different clients and unique
approaches,” he says. He deals with embezzlement
cases, corporate internal investigations and fraud
by contractors and vendors. This article details the
steps these two CPAs used to build and promote a
practice in this fast-growing field.
THE MARKET
There are many areas where CPAs—especially
small practitioners—can specialize.” Tierney, who
spent nearly a decade investigating bond claims,
has made insurance fraud her specialty. “While
working for an insurance company, I discovered
that I had a passion for investigating fraud in
fidelity and surety bonds and decided to pursue
this field.” Now a sole practitioner, Tierney has
nearly 200 cases under her belt. She notes that in
the business community today “clients are more
attuned to fraud than ever before because of
high-profile accounting failures such as Enron and
WorldCom.”
| “With Sarbanes-Oxley an entire
cottage industry of experts in corporate
governance and compliance has emerged,”
says Greene. “The positive aspect coming
from the large accounting frauds is that
there is an increasing awareness by
clients that they might have problems of
their own,” he adds. “Certainly, the
growth in antifraud services has exploded
recently. All of the Big Four firms and
most of the second-tier firms now have
active and expanding fraud-examination
practices. But there is room for smaller
practitioners, too.” Greene’s practice
followed a more traditional path. After
spending four years with a large CPA
firm, Greene went on his own,
specializing in condominium association
audits. During that time he investigated
an embezzlement of $1.5 million by the
CFO of a condominium management company.
“I discovered that I loved fraud work
and made the decision to start seeking
out those kinds of assignments,” Greene
said. (See “
Antifraud Services: A Partial List
” for some services CPAs can
provide.)
THE EXPERTISE/EXPERIENCE
COMPONENT
Obviously, becoming an
expert in the field is the first step to
building an antifraud practice. Both
Greene and Tierney are seasoned veterans
and certified fraud examiners, but many
CPAs can go through their entire careers
without investigating a fraud. So if you
lack experience, there are ways to
obtain it.
Advocate fraud-prevention
services. As Greene
says, “Although investigating fraud can
be exciting, preventing fraud from
occurring in the first place provides
the most professional satisfaction.” A
thorough audit, although not designed
specifically to detect fraud, has been
shown to be a significant deterrent.
According to the Association of
Certified Fraud Examiners’ 2002
Report to the Nation on Occupational
Fraud and Abuse, audits cut the
average fraud loss in half (see “
Occupational Fraud: The Audit As
Deterrent, ” JofA ,
Apr.02, page 24). |
| Antifraud Niche
Areas
 Insurance fraud.
Financial
institution fraud.
Theft of
intellectual property.
Health care
fraud.
Fraud in
manufacturing.
Transportation
fraud.
Securities fraud.
Employment
background investigations.
Financial
statement fraud.
Employee fraud
and theft.
Fraud in
contracts and procurement.
Bankruptcy fraud.
Tax fraud.
Inventory fraud.
| |
But the great majority of small businesses,
with the highest statistical risk of fraud, are
not audited. That fact provides an excellent
opportunity for CPAs seeking fraud-detection
experience to expand their services to current
nonaudit clients through fraud-education programs
as well as internal control and cash account
reviews.
Education. The cornerstone
of fraud prevention is education, and CPAs can
offer in-house seminars and other types of
training programs to the staffs of their clients.
After all, it is difficult to defraud someone who
has enough knowledge to recognize the warning
signs. “Education begins,” says Greene, “with the
client and the employees who work for the
organization.” Greene lectures regularly on the
subject.
Internal control reviews.
Although most small business clients
don’t need or in many instances can’t afford a
complete audit, they can greatly benefit from a
thorough review of their internal control
structure, observes Tierney. “Schemes against
small businesses are usually made possible by a
lack of separation of duties. By conducting an
internal control review, the CPA is providing a
valuable service for the client,” she adds.
|
Cash account reviews.
Because cash is by far the
asset most frequently misappropriated, a
periodic review of receipts and
disbursements is an excellent way for the
CPA to increase service to the client.
“When I examine the cash account, I am
normally looking for several things,” says
Greene. “On the deposit side, I examine
the mix of credit cards, checks and
currency. If someone is stealing currency,
it usually will show up in an analysis of
the deposits. On the disbursement side, I
look for checks to unknown vendors or
persons, checks made out in even amounts,
dual endorsements, checks to cash and to
employees. Most of the cash schemes are
pretty simple and the employee doesn’t
make much effort to conceal the thefts.”
Pro bono work.
Another way to gain
valuable fraud-detection experience is
to volunteer your accounting skills to
those who can least afford it: your
local police department or prosecutor.
“If you talk to the police about their
problems in pursuing complicated frauds,
you find that they rarely have the
manpower or talent needed,” says
Tierney. As a result, many such cases
are not prosecuted at all. Greene says:
“When a business is victimized by a
crooked employee, too often the police
look at it as an internal problem. Even
though a crime has been committed, law
enforcement resources are very limited,
so they often look for a way not to take
such cases.” Assisting the police by
performing traditional accounting work
without charge can help you learn some
unique aspects of criminal cases and
provide a valuable public service at the
same time. |
Antifraud
Services:
A Partial List
 Pretrial
investigations.
Assistance in
court-related deposition
preparation.
Legal case
strategies.
Expert
witnessing.
Corporate
investigations.
Search for hidden
assets.
Fraud damage
calculations.
Computer
forensics.
Reconstruction of
accounting records.
Fraudulent
financial transaction
analysis.
Fidelity and bond
claims.
| |
PRACTICE TIPS
Once you’ve obtained the
necessary expertise, you’ll want to employ some
traditional methods to grow your practice. Both
Tierney and Greene have joined professional
organizations related to the field and are active
in them (see “ Network Builder
” and “ Media Savvy ” ).
“You need to be careful in selecting the
organizations you join,” says Greene. “When I
started in practice a number of years ago, I was
not focused on my marketing approach and spent too
much time in organizations that could not benefit
my practice.” Greene now occasionally exhibits at
large conferences of antifraud professionals, CPAs
and lawyers. “I also have a Web site with
interesting and ever-changing useful information.
Attorneys frequently use the Internet to locate
fraud examiners,” he says.
Network
Builder
Karen J. Tierney, CPA, CFE
President,
Karen J. Tierney, CPA, PC, Glastonbury,
Connecticut
Specialties
Asset
misappropriations, insurance fraud,
valuation and litigation support.
Advice to practitioners
“To build an antifraud
practice, making the right contacts is
essential. Join the organizations that
are related to your field and be active
in them. You’ll get more business from
referrals than you ever will with paid
advertising.”
Education
BS in
accounting, University of Hartford in
Connecticut.
Experience
 Auditor,
PricewaterhouseCoopers.
Financial analyst,
Continental Insurance.
Internal auditor, CSU
Systems.
| Tierney,
past president of the Connecticut area chapter of
ACFE, says attending the group’s monthly meetings
has been an excellent way of expanding her
knowledge and contacts. Since Tierney is a sole
practitioner, she is careful not to take on
assignments that overcommit her. “Don’t make the
mistake of taking on a case you can’t handle,” she
says. “Find the right expert to assist you in a
fee-sharing arrangement.” Fraud examinations are
typically done on-site, so the overhead of an
office is not always necessary. Tierney practices
from her well-equipped home office. “Because
investigating fraud can be adversarial, make sure
you are adequately insured against lawsuits,” she
advises. Although she now has a successful
practice, Tierney says that initially she didn’t
realize how much time it would take. “Getting into
the antifraud field will not occur overnight; it
takes time, money and much effort. Developing a
realistic business plan is crucial.” Both Tierney
and Greene say that meeting the key players is the
most important aspect of growing such a practice.
MEETING THE RIGHT PEOPLE
Criminal fraud is a different
world altogether from the workaday civil case that
is the mainstay of many CPAs who provide
litigation services. To integrate yourself into
this community, it is necessary to meet the right
people and cultivate meaningful relationships. In
developing contacts it is best to start out with a
letter introducing yourself and your firm and its
area of specialty. Then you should follow up with
a face-to-face meeting that is short and to the
point: You are available for fraud-related
assignments. Typically, you won’t get a great deal
of work directly from the criminal justice
community, but becoming known to them is a must.
In addition to local police and prosecutors, this
group includes the following. Media
Savvy
Craig L. Greene, CPA, CFE
Partner,
McGovern & Greene LLP, Chicago
Specialties
Embezzlement, corruption,
fraud in construction contracts and
health care fraud.
Advice to practitioners
“Unlike their attitude
about typical accounting work, the media
are always interested in crime-related
subjects. Make sure you make the right
contacts with newspaper and television
reporters. Let them know what you do.
Even though you usually won’t be able to
talk about your own cases, you can
always provide advice on how to prevent
and detect fraud.”
Education
BA in
accounting, Aurora University in
Illinois.
Experience
Auditor, Coopers &
Lybrand.
Partner, Rome &
Associates LLP.
|
Federal law enforcement
U.S. Attorneys. This office,
which is an arm of the Department of Justice, is
in charge of all federal criminal prosecutions
investigated by a variety of agencies. It also
handles certain civil claims. U.S. Attorney’s
offices are located in most major cities.
Federal Bureau of Investigation.
The FBI is the principal investigative arm of
the Justice Department and investigates more than
200 separate violations of federal law. Typical
fraud cases include financial institution frauds,
bribery and corruption of federal employees, wire
fraud and frauds against the U.S. government.
U.S. Postal Inspection Service.
The postal inspectors investigate a wide
variety of frauds that use the mail. These usually
involve Ponzi schemes and other investment scams.
U.S. Secret Service. This
agency, in addition to protecting high-level
public officials, investigates credit card fraud
and certain computer crimes.
Internal Revenue Service.
The Criminal Investigation Division of the
IRS handles all criminal tax-evasion cases as well
as certain money-laundering investigations.
State/local contacts
State attorneys general.
Although the duties vary somewhat from state
to state, a typical state attorney general’s
office will investigate consumer frauds and
Medicare and Medicaid claims.
Criminal defense lawyers.
Typically, attorneys handle either civil or
criminal cases, but not both. The bread and butter
of most criminal lawyers is drunken driving or
drug cases. However, a small cadre of criminal
defense attorneys—usually former government
prosecutors—specializes in white-collar-crime
defense. You should attempt to identify those in
your area and cultivate them for possible work.
Some CPAs might object to helping defend
accused white-collar criminals. When I was
practicing in this field many years ago, I
initially had such feelings, too. But the reality
is that when you are conducting a fraud
investigation, you will ask the same questions and
perform the same analysis whether you are working
for the prosecution or the defense. The truth is
the truth, no matter who is telling it.
Additionally, doing defense work allows you to see
both sides of the issue. This experience will make
you a better fraud examiner.
THE NATURE OF THE ASSIGNMENTS
You’ll normally receive
assignments from either your clients or local
attorneys. “The client usually wants you to
resolve the allegation of fraud,” says Greene. “In
some cases the client simply wants to get rid of
the problem employee. In other situations you are
expected to work with law enforcement officers,
with civil attorneys attempting to recover a loss
or with insurance companies to develop a bond
claim.” The latter requires that the loss be fully
documented. Work for attorneys—either
civil or criminal—typically involves your being
hired to sort out the accounting facts and to
testify as an expert witness in litigation. But
there are two types of experts: consulting (no
court room appearances involved) and testifying.
They can be the same person, but not always.
“Many attorneys want to know how you will
testify even before you’ve done the work,” Greene
says. “You can avoid this situation by first
accepting the assignment only as a consulting
expert. Then, based upon your work, you can decide
whether or not your testimony would be helpful. If
so, you then can accept a second assignment as the
testifying expert, too. If not, the attorney can
hire someone else.” Tierney sums it up
best. “Doing fraud work can be exciting,
challenging, frustrating and very rewarding. I
can’t imagine doing anything else.”
| | |
Resources
| Books
CPA’s Handbook of Fraud and Commercial
Crime Prevention (# 056504JA)
Financial Reporting Fraud: A
Practical Guide to Detection and
Internal Control (# 029879JA)
CPE
Introduction to Fraud Examination
and Criminal Behavior (# 730275JA)
Identifying Fraudulent Financial
Transactions (# 730244JA)
Finding the Truth: Effective
Techniques for Interview and
Communication (# 730164JA) To
order, go to
www.cpa2biz.com . |
AICPA’s Antifraud
Initiatives
Antifraud and
Corporate Responsibility Resource Center,
http://antifraud.aicpa.org/
.
SAS no. 99 information.
Management Antifraud
Programs and Controls (SAS no. 99
exhibit).
Fraud Specialist Competency
Model.
Free corporate fraud
prevention training and CPE.
Academia outreach and
assistance.
Other antifraud activities.
| Joseph T.
Wells, CPA, CFE, is founder and chairman of the
Association of Certified Fraud Examiners and
professor of fraud examination at the University
of Texas at Austin. Mr. Wells won the Lawler Award
for the best JofA article in 2000 and 2002 and has
been inducted into the Journal of Accountancy
Hall of Fame. His e-mail address is joe@cfenet.com
. |
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