CPAs: Criminal-pursuing agents

Ronald L. Durkin feared for his life. That’s not something you would expect to hear from a CPA describing a meeting with potential clients. But these were not your ordinary clients.

And this was not your ordinary accountant.

Durkin was an FBI agent working undercover as he had a drink with known members of an organized crime group at a fancy restaurant in Los Angeles. The goal was to establish a business relationship between their crime ring and a faux accounting firm Durkin had established. If all went well, the meeting would be another step in building a case against the criminals. If something went wrong and Durkin’s cover was blown, he could find himself in mortal danger.

“You had to be careful,” he said. “These were very bad guys.”

All went well at the meeting until it came time for Durkin to pay the bill. Then something went wrong.

Nearly very wrong.

“By mistake I pulled out my personal credit card, instead of my undercover credit card, and started signing,” he said. “I then thought, ‘What am I doing?’ So I jumped up, went straight to the waiter, tore up the bill, and yelled at him that he charged us for something we didn’t order and that he needed to bring us a corrected bill.”

Luckily for Durkin, none of his drinking companions noticed his mistake, and his undercover operation continued. It was not, however, the last time Durkin found his life in potential danger.

KEEPING CRIMINALS ACCOUNTABLE

Society at large would be more likely to view CPAs as bean counters than as crime fighters. But CPAs such as Durkin have been battling bad guys as far back as most people reading this article can remember. Sometimes, accountants work behind the scenes in a forensic role, scouring financial and other documents to ferret out fraud. Other times, accountants take on a more forward role in the fight with a variety of law enforcement and regulatory agencies.

The FBI has a long history of hiring accountants as field agents. Accounting, in fact, represents one of the five “FBI Special Agent Entry Programs” that qualify an individual for potential employment with the bureau (the others are language, law, computer science/information technology, and “diversified”). According to numbers provided by the FBI, the bureau employs about 700 CPAs as special agents. These CPAs take on a variety of assignments, including the investigation of complex financial crimes as well as counterterrorism, cybercrime, and counterintelligence cases.

The role of accountants at the FBI has grown in recent years. In 2009, the bureau established the Forensic Accountant Program (FAP) and instituted the Forensic Accountant Unit (FAU) as part of an effort to recruit and retain top-tier accounting professionals to conduct the financial piece of complex investigations. Today, the FBI employs about 600 forensic accountants, more than 40% of whom are CPAs (for more details, see “CPAs and Forensic Accountants in the FBI”). Forty-one FBI agents hold the AICPA Certified in Financial Forensics (CFF) credential, according to the AICPA Forensic and Valuation Services Section.

The FBI is far from alone in employing CPAs, including many with the CFF credential, to help find and fight financial crimes including Ponzi schemes, bogus investment scams, and other types of fraud. The SEC’s Division of Enforcement employs roughly 100 accountants, most of whom are CPAs, according to Michael Maloney, CPA/CFF, the division’s chief accountant. CPAs with the Division of Enforcement work closely with attorneys to investigate financial reporting issues, investment schemes, stock offering frauds, and the like. By law, the SEC is not allowed to conduct undercover investigations.

Other large employers of CPAs in crime- and fraud-fighting roles include the IRS and various state regulatory bodies, including the Texas State Securities Board (TSSB).

LATE START, LOTS OF SPARKS

Letha Sparks, CPA/CFF, didn’t follow the traditional path into accounting. Although she married a CPA, she didn’t earn her undergraduate degree in accounting until she was 41 years old. By then, she had raised a family, including two children who earned accounting degrees of their own.

After teaching for much of the 1980s, Sparks launched into forensic work in public accounting—a path that led her from Texas to Philadelphia. After returning to public practice in Texas, she applied for a job opening she saw advertised in Today’s CPA, the Texas Society of CPAs’ bimonthly magazine. She was then hired by the TSSB.

Sparks has made a name for herself since joining the TSSB in 1998. She appeared on national TV when she was interviewed for an episode of the CNBC show American Greed. She was featured for her work investigating a $100 million fraud involving “life settlements,” a type of investment involving life insurance policies.

“An insured person sells their life insurance policy to an investor group or investor,” Sparks said in an interview with the JofA. “Because each policy might be $5 million or $10 million, you could have 100 to 200 people each owning a percentage of the policy. Basically, they all hope the insured person dies sooner rather than later.”

While “life settlements” are legal, the scheme orchestrated by three Texas men certainly was not. Paying sales agents returns of 14% to 16%, A&O Resource Management Ltd. touted its life settlements as secure, no-risk investments while providing misinformation to investors regarding A&O’s size, office locations, prior success, the risks of its investment offerings, and the safekeeping and use of investor funds. A&O eventually brought in more than $100 million from more than 800 investors, many of whom were elderly and had invested their life savings. A&O’s owners, meanwhile, failed to pay premiums on the life insurance policies and instead diverted the money to buy personal items such as multimillion-dollar homes, luxury cars, and other property, including a 15-carat diamond ring.

Sparks’s job was to untangle A&O’s financial manipulations, which was no easy task. In addition to their malfeasance with investors’ funds, A&O’s owners even perpetrated two phony sales of the company to try to throw off the investigation into their activities. Sparks’s work tracking down where A&O’s money came from and went, painstakingly put together as bank spreads (a reconstruction of banking inflows and outflows) in an Excel spreadsheet, helped lead to all three A&O principals’ and four other defendants’ serving time in federal prison.

“When all was said and done, so much of the money had disappeared,” Sparks said. “Investors got only 7 cents on the dollar back.”

Sparks and her colleagues enjoyed much more success in recovering investor money in another life settlements case. Undercover work was essential in quickly unraveling the scheme. Sparks posed as a prospective sales agent and a TSSB colleague posed as an investor for a scheme promising annual interest payments of 8% to 10% for five years. In that undercover role, she was able to procure the documents promoting the scheme. This helped lead to a quick crackdown on the perpetrators—one that helped recover 70% of the investors’ funds.

“The worst time I have is when I tell an elderly investor the money is all gone,” Sparks said.

UNDERCOVER AND LARGELY UNDER WRAPS

At least 40 federal agencies engage in some kind of undercover operations, according to a report last year by The New York Times, which found a rapid rise in the practice. Among the agencies cited by the Times as using undercover agents was the IRS, which, reporters Eric Lichtblau and William M. Arkin wrote, employs dozens of undercover agents who “chase suspected tax evaders worldwide, by posing as tax preparers, accountants, drug dealers, or yacht buyers and more, court records show.”

Exactly how many of those agents are CPAs is difficult, if not impossible, to determine. The IRS did not respond to multiple JofA requests for the number of CPAs it employs, much less the total doing undercover work.

The FBI has certified a certain number of special agents with CPA credentials to perform undercover work. The CPAs can play a variety of roles in many types of investigations, but the bureau won’t disclose any more specifics, including the number of CPAs in undercover roles.

That reluctance to give more information is understandable. By their nature, undercover assignments require anonymity and secrecy. Disclosure of too many details can put investigations at risk of exposure and, in certain cases, individual agents’ lives at risk.

CPAs who have worked undercover rarely talk about their cases. And when they do, it’s always about closed cases—often those that are at least several years old.

Durkin is a prime example. His career with the FBI lasted from May 1976 until the end of 1986. He has since built a successful career as a forensic accountant, but his memories of the FBI are still fresh.

THE FULFILLMENT OF A DREAM

Growing up in California, Durkin decided that he wanted to be an FBI special agent. With that dream still burning bright after military service, he decided to pursue an undergraduate degree—and, later, a graduate degree—in accounting. “Accounting was one of the best vehicles to get into the FBI,” he said.

After earning his undergraduate accounting degree at California State University, Sacramento, Durkin began a 3½-year stint at a public accounting firm. “It was with a local firm in Sacramento, which was great,” he said. “I got to do everything—tax, small business work, consulting. I enjoyed audit.”

Durkin was one of 30 or so prospective agents assigned to the 19th FBI Academy class of 1976, the first FBI class composed entirely of accountants. After graduation, Durkin was assigned to a squad that tracked down military deserters. The next year, he was assigned to work white collar crime in Los Angeles. In that role, he performed the forensic accounting work in a multimillion-dollar Ponzi-scheme case.

In April 1979, he moved into undercover work, establishing a fake CPA practice located in the offices of an FBI informant with connections to organized crime figures in Los Angeles.

“He was very credible. He looked the part. He acted the part. He provided credibility for me,” Durkin said. “I set up an undercover CPA name in his office. I had business cards and stationery. I didn’t take walk-in clients, only those sent to me by the informant.”

The criminal clients sent to Durkin usually were looking to launder money generated by criminal activities including gambling and drug trafficking—though not always. One client wanted to pass a huge batch of counterfeit cashier checks. Another time, Durkin was called on to help in a Racketeer Influenced and Corrupt Organizations Act (RICO) murder case. “They ended up putting that guy in jail,” he said.

Sometimes, Durkin had to get creative in his cover job. In one case, a criminal wanted to launder $14 million—or about $40 million in 2015 dollars. This was no small task. To wash that much money, Durkin’s informant, a business partner of famed disc jockey Wolfman Jack many years earlier, suggested they put together a rock concert.

“This is where my informant was really good,” Durkin said. “We told the subject that we had a ’55 Corvette and were going to put it in a shopping mall to promote the rock concert. It was very creative.”

STARING DOWN THE BARREL OF A GUN

The funding for Durkin’s undercover CPA venture in Los Angeles was provided by local and federal law enforcement agencies. In the early 1980s, the initiative ran out of money, and Durkin began doing surveillance work. In that role, Durkin would help follow people as part of FBI surveillance teams. “It’s a lot more sophisticated than on TV,” he said. “You’re not just going to get behind them in your car and follow them. You have to be invisible with a lot of sophisticated skills and techniques.”

During his three years doing FBI surveillance, Durkin also was called upon to do special weapons and tactics (SWAT) duty. In that role, he found himself involved in three firefights—the most terrifying of which took place during a raid to capture a suspected hit man in Newport Beach, Calif. Durkin was at the front of a column of SWAT team members who entered a house to arrest the suspect they believed to be in a bedroom. Unfortunately, after a failed attempt to enter the bedroom by surprise, Durkin found the hit man was waiting for him across the room. Suddenly, the FBI agent was face-to-face with the barrel of the hit man’s gun.

“He was in a combat position with arms extended, pointed the gun at my face, and pulled the trigger, but it did not go off,” Durkin said. “I could not take my eyes off the barrel.”

The SWAT team shot and captured the suspect, who survived. Soon after, Durkin left the FBI, but not because of his near-death experience.

‘THE SADDEST DAY’

By 1986, Durkin faced the toughest choice of his career. While he still loved the FBI, he also was married with two children and tight finances. “It was very expensive to live in Los Angeles,” he said. “I couldn’t afford to support my family.”

As a CPA with a master’s degree in accounting, Durkin knew he could make more money in the private sector. A former FBI colleague had told him that he could put his forensic accounting skills to work as a partner in an accounting firm. “I just held off doing it until I absolutely had to,” he said. When he did turn in his resignation from the FBI, he sat in his car and “cried like a baby.”

“It was the saddest day,” he said. “It was like the worst day but for the right reasons. I ended up being very blessed.”

Durkin’s post-FBI career has seen a number of highlights. He spent 11 years helping to build Neilson Elggren Durkin from a five-person public accounting firm into a 90-person forensic accounting shop that merged into then-Big Five firm Arthur Andersen. After three years with Arthur Andersen, he served as partner in charge of fraud and misconduct investigation for KPMG for seven years. After retiring from KPMG, he launched Durkin Forensic Inc., joined regional firm Clifton Gunderson, stayed through the merger that created CliftonLarsonAllen, jumped to Grant Thornton, then returned to Durkin Forensic.

Along the way, he has enjoyed a career in public accounting that has been rewarding financially and allowed him to apply his forensic accounting skills in investigations involving a variety of frauds, including employee embezzlement, money laundering, and Ponzi schemes, as well as Foreign Corrupt Practices Act cases. He earned a CFF credential and also become a Certified Fraud Examiner and a Certified Insolvency & Restructuring Advisor.

Still, despite all the success he has enjoyed in the nearly 30 years since he left the FBI, Durkin still looks back with more than fondness at the job that occasionally put his life in danger.

“The beauty of the FBI is that it’s one of the most attractive jobs that combines the mental and physical skill sets along with having courage,” he said. “You have to have the ability to fight when you need to fight and shoot when you need to shoot. Those are the things the bureau represents.

“The FBI was the best job in the entire world—no doubt about it.”

About the author

Jeff Drew is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at jdrew@aicpa.org or 919-402-4056.

How all CPAs can fight fraud

Are there lessons CPAs in the private sector can learn from their crime-fighting counterparts at law enforcement and regulatory agencies? Ronald Durkin, CPA/CFF, Letha Sparks, CPA/CFF, and the FBI itself all say “yes.”

The FBI, in an emailed reply to questions from the JofA, said, “Almost every corporate fraud scheme or employee embezzlement scheme results from some sort of deficiency in the company’s internal control structure. Although there are inherent limitations in cases involving employee collusion, overwhelmingly the corporate fraud schemes we encounter involve a lack of oversight or insufficient segregation of duties. Accordingly, the advice to CPAs is to focus on the control structure and environment.”

Sparks, who works for the Texas State Securities Board, urges CPAs who hear of strange kinds of investments to alert the appropriate regulatory body. Warning flags to look for include financial terms or promised returns that seem too good to be true, the use of specialized language, including provisional patents, and claims of multiple, especially high-end, academic degrees. Some of those claims are false. For example, “Rice University doesn’t have a law school,” she said.

Durkin, a former FBI agent, recommends a list of seven investigative techniques he derived from a U.S. Department of Justice handbook written by Richard A. Nossen. Durkin urges caution with at least portions of the list—CPAs outside of law or regulatory enforcement should never act in an undercover capacity or misrepresent who they are. In addition, CPAs must be careful not to act in a manner that could require them to have a private investigator’s license. Those rules vary by state, so CPAs should know them before engaging in certain types of surveillance.

CPAs and forensic accountants in the FBI

The FBI employs about 700 special agents who are CPAs. In addition, the FBI has 600 forensic accountants as part of its Forensic Accountant Program (FAP). Following are details about the roles of CPAs and other accounting professionals with the FBI.

• Of the on-board personnel in the FAP, 41.63% are CPAs and 35.62% have earned graduate degrees.

• FBI forensic accountants (FoAs) plan, coordinate, and direct the financial aspects of investigations in cooperation with FBI agents, prosecuting attorneys, and other law enforcement agencies. They use their expertise to examine, identify, and analyze financial data associated with financial crime investigations for high-priority cases.

• FoAs investigate complex financial crimes involving corporate fraud, financial institution fraud, health care fraud, and securities and commodities fraud. Their expertise is also applied to counterintelligence, counterterrorism, cybercrime, organized crime, public corruption, and violent crime investigations.

• FoAs develop financial profiles of individuals and/or groups. They accompany FBI agents on interviews of subjects and/or key witnesses. They participate in gathering evidence and assist in preparing affidavits and warrants associated with financial analyses.

• FoAs conduct thorough forensic financial analyses of business and personal records and identify or trace funding sources and interrelated transactions.

• FoAs conduct investigations in cooperation with private industry and other government agencies including, but not limited to, the Bureau of Alcohol, Tobacco, Firearms and Explosives; the CIA; the Department of Homeland Security; the IRS; the Offices of Inspector General; and the SEC.

• FoAs compile findings and conclusions in financial investigative reports and financial exhibits. They provide knowledge regarding accounting and industry practices. They also deliver presentations and briefings to assistant U.S. attorneys, FBI agents, and other government agencies.

• FoAs also meet with prosecuting attorneys to discuss strategies and other litigation support functions and testify when needed before a federal grand jury or as a fact witness or expert witness in judicial proceedings.

• Although potential FoAs must attend a five-week training program at the FBI National Academy, the FBI prefers they come to the Academy equipped with experience and certifications in some of the following areas: forensic accounting, public accounting, government accounting/auditing, corporate accounting/internal auditing, and litigation support/dispute services.

Source: The FBI.

AICPA RESOURCES

JofA articles

• “What’s Your Fraud IQ?” Aug. 2015, page 24
• “What’s Your Fraud IQ?” April/May 2015, page 60
• “What’s Your Fraud IQ?” Feb. 2015, page 48
• “What’s Your Fraud IQ?” Oct. 2014, page 34
• “Lessons From an $8 Million Fraud,” Aug. 2014, page 32

Publications

• Essentials of Forensic Accounting (#PFF1401P, paperback; #PFF1401E, ebook)
• Forensic and Valuation Services Library (#PFVSCOLLO, one-year online access)

CPE self-study

• AICPA CFF Exam Review Course (#164330, one-year online access)
• Forensic Accounting Investigative Practices (#731801, text; #163020, one-year online access)
• Fundamentals of Forensic Accounting Certificate Program (#159950, two-year online access)

Conference

Forensic & Valuation Services Conference, Nov. 8—10, Las Vegas

For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.

FVS Section and CFF credential

Membership in the Forensic and Valuation Services (FVS) Section provides access to numerous specialized resources in the FVS discipline areas, including practice guides, and exclusive member discounts for products and events. Visit the FVS Center at aicpa.org/FVS. Members with a specialization in forensic accounting may be interested in applying for the Certified in Financial Forensics (CFF) credential. Information about the CFF credential program is available at aicpa.org/CFF.