February 29, 2004
Establishing 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.
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.
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.
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.
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."
BS in accounting, University of Hartford in Connecticut.
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.
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."
BA in accounting, Aurora University in Illinois.
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 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."
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
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.
Questions or comments?