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What Are Your Questions for a Forensic Accounting Partner?

Afternoon, gang. As the busy season winds down, you might be thinking about your next career path. Lots of you have expressed interest in forensic accounting and fraud investigations and as luck would have it, I got introduced to Derek Royster, a partner with RGL Forensics in Charlotte, North Carolina. From his bio, Mr. Royster has been with RGL since 1997, having worked extensively with insurance companies and attorneys focusing the scope of his career on forensic accounting, the measurement of economic damages and litigation support. He has lots of letters behind his name and has provided testimony as a damage expert witness.


Mr. Royster has agreed to discuss his career and other aspects of a forensic accounting with GC but since you people are the ones with career decisions to make (whilst I just write about it) we thought it would be best to get your questions for Derek. So whatever you want to know about a career in forensics but were afraid to ask, this marks your opportunity to get the answers.

Leave your questions for Derek in comments below or (email them to us) and we’ll get the answers for you and post our discussion with him.

LECG Fire Sale Continues; San Fran Forensic Accounting Group Joins FTI Consulting

After last week’s news of LECG Corp. selling off pieces of itself to FTI Consulting, Grant Thornton and WeiserMazars, today the company announced that it has also sold its forensic accounting practice in San Francisco to FTI:

Professional services firm LECG Corporation (NASDAQ: XPRT) announced today that it has transitioned its San Francisco forensic accounting practice to FTI Consulting, Inc. The transition involves approximately 25 employees.


Not only that but the pieces left are also up for bid for anyone interested, although common shareholders shouldn’t expect to see anything:

With the advice of its restructuring advisors, LECG continues to negotiate the transition of all practice groups remaining after today’s transaction and transactions disclosed in previous public communications. LECG will use the proceeds from all practice group transitions to repay the $27.8 million in principal outstanding under its credit facility. The company will use the balance of any proceeds to make payments to other creditors. Contractually, if there is any remaining value available to equity holders, it would be first allocated to the company’s outstanding preferred stock. The company believes that the transitions and these transactions will not result in any proceeds for the common shareholders.

The Philly Business Journal reports that the company still has about 500 employees left but at the rate things are going, they’ll be elsewhere by St. Patrick’s Day. Good luck to everyone affected.

LECG Transitions Parts of Forensic Accounting Practice Group to FTI [LECG]
LECG jettisons another practice group, this time in San Francisco [PBJ]
Earlier:
WeiserMazars Moves into Chicago as Part of Acquisition of LECG Units [GC]

The Future of Forensic Accounting is Now

Ed. note: Welcome to the first edition of Going Concern’s Guest Blogger series. We’ll be featuring both seasoned and new bloggers to share their views on various accounting topics. If you’re interested in participating, email us your submission to [email protected]. Please include “Guest Blogger Submission” in the subject line.

Imagine being able to take tens of thousands of pages of financial data and get it into a database in a matter of hours. Those mounds of paper are quickly turned into something useful to the forensic accountant, without spending hundreds of hours manually inputting the data. Financial data is suddenly transformed and the forensic accountant can quickly map the flow of funaction patterns, create charts and graphs that show entities and transactions of interest, and create customized reports.

Doing things the old way, such a result is only a fantasy. For decades, forensic accountants have spent their time manually sorting documentation, deciding which transactions are important, and doing data entry.

It sounds painful because it is. It takes a long time, there is a high risk of inaccuracy, and there is a great chance that an important transaction will be overlooked.

So if there is technology out there to change all of this (and yes, there is!), why aren’t forensic accountants using it?


The only real answer is that they’re afraid of changing their business model. Most accounting firms charge their clients hourly fees, so they are invested in a business model that is dependent on forensic accountants taking more time to perform work which results in more revenue.

Technology that nearly eliminates the need for teams to spend hundreds of hours analyzing financial documentation is not a welcome addition to the firm; it just causes them to lose money.

Of course, it’s not really true that such advances really cause forensic accountants to lose money. All that needs to happen is firms have to find different ways to bill their clients, rather than simply adding up the time of staff and multiplying by a big number.

In addition to this paradigm shift related to billing clients, technological advances also fundamentally change the way forensic accountants investigate fraud. That makes lots of them (especially the old timers) uneasy. After all, we’ve always done it this way! How can we rely on technology over our own hands and eyes?

Here’s the thing…. those forensic accountants who resist embracing technological changes are going to be left behind. I currently use a proprietary system to complete large forensic accounting engagements, making it possible for me to single-handedly do more investigative work in a few days than a team of 4 or 5 investigators can do in several weeks or months.

This is not a fantasy; it is my reality. And my clients are getting better results much faster, allowing them to plan their litigation strategy much sooner, and ultimately be more successful in finding fraud, defending regulatory actions, and competing in litigation.

Yet I am currently the only forensic accountant in the private sector using this system, or anything like it. The government has been using a similar system for years, and if a client is being investigated by a federal agency in a financial matter, there’s a good chance the government is using the latest technology to aid in their investigation.

The future is not going to wait just because so many forensic accountants don’t want to change how they investigate fraud or earn their money. Those who are unwilling to change are going to be left behind. Those, like me, who want to be on the cutting edge, will make more money and win more interesting engagements that previously may have been too large or complex for me to handle alone.

Tracy L. Coenen, CPA, CFF is a forensic accountant and fraud investigator with Sequence Inc. in Milwaukee and Chicago. She has conducted hundreds of high-stakes investigations involving financial statement fraud, securities fraud, investment fraud, bankruptcy and receivership, and criminal defense. Tracy is the author of Expert Fraud Investigation: A Step-by-Step Guide and Essentials of Corporate Fraud, and has been qualified as an expert witness in both state and federal courts. She can be reached at [email protected] or 312.498.3661.

Former Business Journalist Needs Help Becoming the Next Great Forensic Accountant

Welcome to the christ-is-it-next-Wednesday-yet edition of Accounting Career Couch. In today’s edition, a former business journalist is looking to get into forensic accounting. How on Earth can you do that?

Need help with your next career move? Want some advice on an awkward confrontation? Looking for a loophole in your firm’s dress code so you can show off your fantastic gams/guns? Email us at [email protected] and we’ll recommend what to say/wear.

Back to Mikael Blomkvist:

I’m in my earr worked in accounting. I have a B.A. in liberal arts and am currently enrolled in a Masters in Accountancy program. I formerly worked 10+ years as a business journalist, during which I learned a fair amount of basic accounting and financial statement analysis. I especially enjoyed investigative business journalism, which led me to get a PI license and a CFE designation and work as a freelance fraud investigator for several years. But I quickly saw that I needed a CPA license and real-world accounting experience to command decent fees.

Once I get my M.Acc., I’d like to get a job in forensics at a public accounting or consulting firm and starting working toward the CPA. I know exactly what I want to do: forensics, and even more specifically, fraud investigations. I’d rather not toil in entry-level audit and try to worm my way into forensics if I can avoid it.

My questions are myriad. For starters, am I too old to do this? (Yes, I’m a married parent, have paid dues before, don’t mind paying them again as a career-changer.) Where should I apply? Would the Big 4 even be interested, or should I concentrate only on specialized/regional firms? Would I have more luck going the entrepreneurial/sole proprietor route than trying to get a firm to hire me? Will investigate for food. Anything helps, even a smile.

Dear Blomkvist,

Let us just start by saying two things as it relates to the age question: 1) it doesn’t mean shit and 2) it’s irrelevant at this point. Judging by your actions you’ve already made up your mind and you’re just looking for a little confirmation.

Now, then. As far as where you should apply – Big 4 is an option but not a great one. They have forensics practices obviously but getting your foot in the door can be tough as the groups are small and positions are hard to come by. That being said, it won’t hurt to get in touch with the experienced-hire recruiters at the major firms in your area to see if there are openings. You’re certainly a better candidate than someone internal that has no investigative experience and wants to get into forensics for the hell of it. A little pavement pounding could turn up a great opportunity.

That being said, it seems to make more sense to seek out opportunities at boutique or small firms in your city. You will likely get the opportunity to meet the owner(s)/partners of the practice who will probably value your experience as an investigative journalist. Someone like Tracy Coenen would be a good example of an expert that could take you under their wing and show you the ropes (assuming they need someone).

As far as starting hanging your own shingle, it’s an option but you’ll eat what you kill. Are you prepared to live that way? Is your family prepared to live that way? Conversations need to be had. You may be able to lend a hand to other forensics specialists to get your feet wet but it will be a tough sell to land your own clients for quite awhile.

You’ve got the investigator’s instinct and presumably the iron-clad balls that Sam Antar insists are a must and that cannot be taught. These intangibles are extremely valuable and should be a major selling point no matter what path you choose. Skål!

Sam Antar Respectfully Requests to Be Included in the Overstock.com Earnings Call

Sam is certainly as insightful as the Easter Bunny:

From: Sam E. Antar

To: Patrick Byrne
Board – Jonathan Johnson
Joseph Tabacco

Dear Patrick Byrne and other persons from Overstock.com:

Overstock.com’s Q2 2010 conference call is scheduled for today at 3 PM ET. I will be calling in. I expect to be permitted to participate in said call and ask relevant questions about Overstock.com. As I recall, in 2005 you allowed a lay person named Phil Saunders AKA Easter Bunny to participate in the call.

Sam E. Antar


Gary Weiss predicts that Sam won’t be allowed to participate but stranger things have happened (e.g. Overstock turned a profit last year).

Earlier:
Remember the $3 Million in Overstock Shares Patrick Byrne Sold? Sam Antar Does

Remember the $3 Million in Overstock Shares Patrick Byrne Sold? Sam Antar Does

Last we heard from Patrick Byrne, the Overstock.com CEO and Farmville enthusiast, he had just disposed of 140,000 shares of OSTK via High Plains Investments, LLC, an entity 100% owned by PB. This had a few people scratching their heads, including us.

At the time, we wondered why Patsy would need to dump the shares, especially after all the excitement the company generated by turning their first profit ever in 2009 and a profitable Q1. We were hoping that the KPMG engagement team – that was doing such a bang-up job – would get some new Segways to cruise SLC but pesky independence rules probably got in the way of that.


Regardless, Q2 wasn’t expected to be a showstopper but when asked, Patsy wasn’t worried, telling Investor’s Business Daily, “Given that in 2009 we had close to $40 million of free cash flow (and $8 million net income), I think we should just continue building the intrinsic value of the business right now.”

Well! The Company reported its Q2 earnings after the close yesterday and, um, they missed the numbers badly. The $0.02/share loss expected by analysts was tripled with a loss of $0.06/share. As you might expect, the shares are taking a beating and Byrne nemesis Sam Antar finds this just a little bit fishy:

[N]ine days after Q2 2010 ended, Byrne led investors to believe that Overstock.com was going to break even in that quarter by citing previous year’s free cash flow numbers. However, Byrne did not mention that Overstock.com’s free cash flow for the six months ended June 30, 2010 was negative $54.8 million compared to negative $35.8 million in the previous year’s comparable perid [sic] or about $19 million lower.

So, there’s that. OH! And the $3 million in shares. Don’t forget that.

Overstock.com CEO Patrick Dumped Stock Ahead of Bad Earnings Report and Misled Investors About Earnings [White Collar Fraud]

Accounting News Roundup: Rangel Settlement May Be in the Works; IMA Launches New Website; Landing a Job with Uncle Sam | 07.29.10

Rangel Is in Talks to End Ethics Case [WSJ]
“Negotiations between lawyers for Rep. Charles Rangel (D., N.Y.) and House ethics investigators continued on the eve of a public hearing Thursday that was expected to lay out the charges aga ethics panel announced last week its plans to present a case against Mr. Rangel, his lawyers have been in private discussions about a possible settlement to avoid a hearing. A central issue is the wording of the House ethics panel’s findings about Mr. Rangel’s alleged ethics violations, according to a person familiar with the case.”

Audit reveals billions of dollars of Iraqi oil funds gone missing [Guardian]
Hard to believe that there would be trouble tracking the money over there, “The US department of defence has called in forensic accountants to help track $8.1bn (£5.2bn) of $9.1bn in Iraq’s oil revenue entrusted to it after the fall of Baghdad, following an official audit that revealed the money was missing.

The funds were to be used for spending on reconstruction during 2004-07, a period when Iraq was under weak transitional rule.

The report was issued today by the Special Inspector General for Iraq Reconstruction, which had previously criticised poor book-keeping by senior officials throughout the last seven years.”

Fannie Mae, Freddie Mac Still Too Big to Nail [Jonathan Weil/Bloomberg]
“This month Congress passed the 2,323- page Dodd-Frank Act without any clear understanding of why the financial crisis happened — and without doing a thing to address Fannie and Freddie, which were central players. Now the Obama administration says it will deliver a reform proposal to Congress by January on the nation’s housing-finance system, including Fannie and Freddie. Yet the government still hasn’t undertaken any comprehensive inquiry into why these companies blew up and who was at fault.”

Tax Consequences of the Mother of All Yard Sale Bargains ($200 Million for $45) [TaxProf Blog]
Just stumbling across some Ansel Adams negatives.

IMA Launches New Website to Support Accounting Community [Business Wire]
“IMA™, the association for accountants and financial professionals in business, unveiled [Wednesday] its new website, now making it even easier for professionals to experience IMA’s range of valuable resources and services. The website can be accessed at www.imanet.org.”


How to Get a Job in Financial Regulation [FINS]
The SEC, FDIC and CFTC are all hiring in the wake of Dodd-Frank. But landing a gig with the Feds isn’t like landing a job anywhere else. FINS breaks it down for you.

George Carlin Never Would’ve Cut It at the New Goldman Sachs [WSJ]
What’s next? They take your will to live? “The New York company is telling employees that they will no longer be able to get away with profanity in electronic messages. That means all 34,000 traders, investment bankers and other Goldman employees must restrain themselves from using a vast vocabulary of oft-used dirty words on Wall Street, including the six-letter expletive that came back to haunt the company at a Senate hearing in April.”

Alex Rodriguez Objects to Rangers Bankruptcy Plan [Bloomberg]
Chances are, A-Rod doesn’t know the particulars but he would like the $24.9 million he’s owed.

Convicted Forensic Accountant Lew Freeman Will Be Damned if You Think You’re Getting His Suits

Miami’s go-to forensic accountant-turned Ponzi Schemer Lewis Freeman was sentenced to eight years in prison earlier today. While that’s clearly an embarrassment for him and his family (he reportedly told his kids, “I know you’re smart enough not to follow … the horrible example I set for you.”) the man does have a shred of dignity left.

He still has plenty of friends who think that his charity work should have been enough to keep him out of the slammer altogether. Sam Antar – who did the exact opposite metamorphosis – isn’t impressed by this:

It’s hilarious how many people are supporting this guy. As the criminal CFO of Crazy Eddie, I used to do good deeds such as walking old ladies across the street, too. However, my so-called good deeds never made me any less of a cold-blooded criminal.

Good deeds are used by criminals to build walls of false integrity around themselves to increase the comfort level of their victims and to gain an outpouring of support, if they ever get caught.

But on a more superficial level, Lew Freeman was a dapper fellow. So don’t even begin to think that you’ll be getting your filthy mitts on the man’s fine threads.

[Freeman] spent his final moments of freedom Friday saying goodbye to family and stripping down to his jogging shorts before dozens of people in a Miami federal courtroom….“He didn’t want to give his suit to the authorities,” said Freeman’s attorney, Joseph DeMaria. “It was his idea.”

Freeman sentenced to eight years [South Florida Business Journal]