Demystifying financial fraud: forensic accountants gain in popularity: stop white-collar crime in its tracks.

According to Merriam-Webster's Dictionary of Law, "white-collar crime" is defined as a crime that is committed by salaried professional workers or persons in business that usually involve a form of financial theft or fraud. These types of crimes tend to be made up of complex, sophisticated and relatively technical actions, and examples include bankruptcy fraud, bribery, insider trading, embezzlement, computer crime and forgery.

One of the ways the Federal Bureau of Investigation and the Internal Revenue Service have kept abreast of these crimes is by training some of their special agents as accountants and by actively recruiting individuals who have banking or accounting experience behind them. These specialized employees, known as forensic accountants, are now a growing trade and are popping up all over in the world of accounting. In fact, Alaska is home to forensic accountants who are reputed for having handled some of the state's most intricate, complex cases.

One such forensic accountant is Debra Mason of Thomas Head & Greisen (Anchorage), who is often hired by firms who suspect internal fraud involving one of their employees. According to Mason, there are many ways a firm comes to this suspicion. One of the most common ways is when an employee "tips off" the employer about another employee. Another way is when an employee leaves for a new job and is caught stealing from the new company and the employer contacts the former employer about it; after investigating past financial records, the company often learns that the former employee was stealing from them as well. But, there's more to fraud investigations than solving the mystery of "whodunit;" many times, Mason is hired for analysis and documentation purposes when a firm already knows who to point the finger at. "Sometimes we're hired to help figure out how much might be missing and possibly document it," she says.

Mason has worked with a variety of fraud cases, and yet found that the most common internal fraud cases involve expense reimbursements. In some of these cases, employees are getting away with receiving a reimbursement check for a non-business-related expense, while others are legitimately getting reimbursed, but more than one time. She recalls a case where an employee was writing out legitimate business checks to pay off legitimate loans, but was not including information on the check explaining which loan it was for. This lack of information eventually became suspicious and Mason was hired to conduct a full investigation to determine where this money was actually going. It turned out the employee was endorsing business checks for his/her own personal loan. "There are a variety of ways of disguising a check," she explains.

A DEFINED SKILL SET

In general, forensic science is defined as using the laws of nature and applying those to the laws of man (such as the court system). With this in mind, there are very specific skills that a forensic accountant must possess in order to be successful. When hiring a forensic accountant, it is important to consider the experience and qualifications of the forensic accountant. A good forensic accountant should have exceptional investigative skills and be trained to consider all alternatives and scrutinize the fine details. Also, the forensic accountant should have a variety of traits such as persistence, curiosity, creativity, discretion, organization and confidence, and provide sound professional judgment. Businesses can obtain maximum benefits (and reduce the overall cost) if they try to retain a forensic accountant as early as possible.

There are two broad areas of forensic accounting that an accountant can specialize in: litigation support and investigative accounting. Litigation support is where one professional who is a non-attorney provides assistance to attorneys in the litigation process. In this area, attorneys hire forensic accountants to investigate situations, to calculate damages, and to render opinions in courts of laws as professional witnesses.

The investigative accounting area relates to the world of white-collar crime, which is where Mason specializes. In today's world, computer and complex transactions and altered documents are too easy to pass on as real. Some forensic accountants point to technology as a factor of what's driving the growth of white-collar crime.

The business community can benefit immensely from a forensic accountant when investigative skills need to be used at the expert level. Often, lawyers, police forces, insurance companies, government regulatory bodies and agencies, banks, and courts retain forensic accountants due to the growing complexity of the business environment and the growing number of white-collar crimes.

IT'S ALL ABOUT THE TECHNIQUE

Forensic accountants have their own unique way of performing an investigation. While some, like Mason, focus on auditing techniques involving analyzing documents and crunching numbers, others focus on the more personal aspect. Take, for instance, Michael Hanrahan of Hanrahan & Associates LLC (Anchorage). Hanrahan, who often teaches classes on interrogation, advises forensic accountants to enter into a conversation with the client's employees and ask questions (without violating their constitutional rights). "Don't only listen; observe what they're doing," he says. "Enter into a conversation with them to get a feel for what their patterns are and observe how they behave." According to Hanrahan, some of these patterns may include which way the speaker moves his/her eyes while speaking, or whether or not he/she fidgets, etc. Any unusual body movements could signify the speaker is lying or leaving something out.

This strategy is one that has helped Hanrahan tremendously. "I'm hard of hearing so I have a tendency to watch a lot and I found that once somebody starts talking, their body posture will tell you more than what's coming out of their mouth," he says.

Despite which road they take to get there, the bottom line is that all forensic accountants must be trained to pick up on subtle clues that will help lead them to the next clue, and so on and so forth, until the case is solved. Forensic accountants are trained to look behind the surface and not accept financial records at their face value. Most of these specialized accountants use the motto, "nothing is what it appears to be." Hanrahan and his staff are trained to be skeptical about every document they handle and are trained to question everything. "It's not what's there, it's what's not there," explains Hanrahan.

In addition to being skeptical, forensic accountants sometimes look at the motivation of the people who have generated the documents. Understanding their goals and objectives can sometimes help a forensic accountant to analyze what the true nature of a document really is as opposed to what it's purported to be.

Forensic accountants stand as an example of how the world of accounting has evolved and how accounting firms are offering highly specialized services as a way to keep on top of today's business community. Adds Mason, "Forensic accountants enjoy putting together the puzzle and putting together the missing piece."

Print Get the Mag Weekly Updates