Battling fraud Featured

9:21am EDT July 16, 2004
As scandals continue to raise questions about corporate America's business practices, companies and law enforcement agencies are increasingly turning to forensic accountants for assistance in the fight against fraud.

In particular, the FBI has stressed the critical role forensic accountants play in the battle against corporate fraud.

The FBI and the American Institute of Certified Public Accountants have formed a partnership to identify, detect and halt fraudulent accounting schemes. The partnership recognizes that forensic accountants are often the ones to uncover the first evidence of wrongdoing in corporate fraud cases.

These accountants blend traditional accounting and auditing methods with investigative techniques to ferret out wrongdoing, making them invaluable to law enforcement agencies. In fact, the FBI counts among its special agents more than 1,300 former accountants who lend key support to investigations and prosecutions of fraud and other white-collar crime.

Whether in-house or from the private sector, forensic accountants also provide clear and concise accounting analyses tailored for use in the courtroom.

Payoff
In one example of cooperation between forensic accountants and law enforcement, the owner of a luxury car dealership was shocked to learn the business was almost $2 million in arrears on its line of credit, despite apparently steady sales. Unbeknownst to the dealer's controller, the owner's attorney brought in forensic accountants, who discovered discrepancies in the dealership's daily deposits.

Further investigation by the accountants revealed a complex scheme by which the controller planned to purchase the weakened dealership after fraudulently misappropriating almost $1 million in company assets and inventory for personal use. The investigators worked with the attorney general's office on a criminal investigation that led to conviction of the controller and a sentence of 15 years in prison.

Another case involved the foreign currency exchange department of a community bank. During a mandatory review by the Federal Deposit Insurance Corporation (FDIC), regulators found the department maintained inadequate controls and accountability. They issued a cease-and-desist order to the bank and requested a criminal investigation by the FBI.

Collaborating with the FBI, forensic accountants developed a computer application to analyze inconsistencies in the currency exchange department. The accountants discovered the bank had been defrauded of more than $1.5 million and testified on their analyses at trial. The investigation ultimately resulted in four convictions.

A third example of successful collaboration focused on a security company retained to provide 24-hour guard services for several public housing authority buildings. The housing authority suspected the security company was rigging its time records to overcharge for its services.

The authority and the FBI hired forensic accountants to assist in the investigation. The accountants reviewed and analyzed huge amounts of data. Investigators subsequently found the security company not only directed its guards to falsify time records but also extorted payments from some guards in exchange for continued employment.

Additionally, the company's owners were committing insurance fraud by paying the lower premiums charged for non-weapons carrying guards, when their guards did carry weapons. The accountants testified at trial, where the company's owners and several employees were convicted.

With more than 2,000 securities and corporate fraud cases pending, the FBI will likely continue to rely on the expertise of private sector forensic accountants. Their cooperation can only help in both cutting fraud losses and restoring faith in corporate America. Curtis T. Crawford, a retired supervisory special agent with the FBI now with consultants Crowe Chizek and Company LLC, can be reached at (312) 899-7091 or ccrawford@crowechizek.com.