December 13, 2018

Forensic accountants

(UPDATE) Layoffs Watch ’12: A Lone Wolf in KPMG Forensics

The aforementioned forced rankings appear to still be taking effect. A tipster laments: I just got laid off from KPMG's Forensic practice in Los Angeles [and] there were a few other associates in my group that got laid off as well. Our tipster claims that this is only happening at associate level although the layoffs in […]

PwC Forensic Experts to Determine How Much Money PFGBest Customers Won’t Be Getting Back

The bright side in all this is…oh, let's face it: when your broker's auditor is in jorts, the situation is hopeless: Peregrine Financial Group's bankruptcy trustee has hired a team of forensic accountants to help figure out what remains at the failed futures brokerage after its CEO's arrest and confession to years of stealing from customers. PricewaterhouseCoopers […]

When Your Forensic Accounting Firm Is Worth Millions, No Point in Being Humble

WaPo columnist Thomas Heath recently profiled a Virginia accountant who rakes in the big bucks in forensic accounting for both sides. He's the guy who helped Credit Suisse First Boston prove it had nothing to do with Enron's collapse. He also defended a family who invested millions in Bernie Madoff's infamous Ponzi scheme when the […]

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!

Tree Huggers Are Indirectly Responsible for Undetected Fraud

“How about going online and printing [the statement or report] every month as if it were mailed to you — and actually looking at it?”

~ Stephen Pedneault, a veteran forensic accountant, isn’t crazy about all the benefits of technology.

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]

Accounting News Roundup: Rangel Found to Have Violated Ethics Rules; Friends of “Miami’s Go-to Forensic Accountant” Ask for Leniency; A “Refreshing” Settlement | 07.23.10

Rep. Charles Rangel broke ethics rules, House panel finds [WaPo]
“A House ethics subcommittee announced Thursday that it found that Rep. Charles B. Rangel violated congressional ethics rules and that it will prrobably beginning in September. The panel is expected to make the details of his alleged violations public next Thursday.

Rangel (D-N.Y.) has been under the House ethics committee’s microscope since early 2008 after it was reported that he may have used his House position to benefit his financial interests. Two of the most serious inquiries have focused on Rangel’s failure to declare $239,000 to $831,000 in assets on his disclosure forms, and on his effort to raise money for a private center named after him at City College of New York using his congressional letterhead.”

Geithner: Taxes on Wealthiest to Rise [WSJ]
“The Obama administration will allow tax cuts for the wealthiest Americans to expire on schedule, Treasury Secretary Timothy Geithner said Thursday, setting up a clash with Republicans and a small but vocal group of Democrats who want to delay the looming tax increases.

Mr. Geithner said the White House would allow taxes on top earners to increase in 2011 as part of an effort to bring down the U.S. budget deficit. He said the White House plans to extend expiring tax cuts for middle- and lower-income Americans, and expects to undertake a broader revision of the tax code next year.

‘We believe it is appropriate to let those tax cuts that go to the most fortunate expire,’ Mr. Geithner said at a breakfast with reporters.”

FASB Requires More Disclosures Around Credit Risk [Compliance Week]
Accounting Standards Update No. 2010-20, Receivables (Topic 310) calls for more credit risk disclosures to give investors a better view of the credit risk in a company’s portfolio of receivables as well as the adequacy of its allowance for credit losses. Under the update, companies will be required to say more about aging receivables and credit quality indicators in particular.

The new disclosure requirements affect financing receivables and trade accounts receivable, including loans, trade accounts receivable that are greater than a year old, notes receivable, credit cards and receivables for certain leases. The new disclosure requirement does not affect short-term trade accounts receivable, receivables that are measured at fair value or the lower of cost or fair value, and debt securities.”


Convicted accountant Lewis Freeman’s friends urge leniency [Miami Herald]
“Miami’s go-to forensic accountant” Lewis Freeman is to be sentenced today for stealing nearly $3 million from victims of fraud who he was appointed to protect. He faces a dozen to fifteen years in prison but his friends and supporters have turned on the pity party, sending nearly 300 letters to Judge Paul Huck, asking for leniency.

“[E]very one of those letter writers also asks the judge to show mercy, emphasizing that the affable New York native should not have to languish in prison because he has done so much for institutions like his alma mater, the University of Miami, Miami Children’s Hospital and the Miami Children’s Museum, among others.”

No need for non-audit ban, regulator claims [Accountancy Age]
“Accountants will not have to give up their non-audit work for audit clients, under proposed guidelines released today, which have not recommended an outright ban, suggested by politicians in the wake of the financial crisis.

The Auditing Practices Board, of the Financial Reporting Council, which publishes guidance for auditors, does not believe an outright ban on non-audit services should be enacted and has instead proposed to tinker with present disclosure requirements.”

Could This Be a Real Deterrent? [Floyd Norris/NYT]
Despite the usual fare in the SEC’s settlement yesterday, Floyd Norris writes that the $4 million fine for Michael Dell and other executives is “refreshing.”

Accounting News Roundup: Liberty Tax CEO Hints at Combination with H&R Block; Former NABA President Killed in Skydiving Accident; Sam Antar Has a Question | 07.20.10

Liberty Tax CEO Floats Combining With H&R Block [AP]
John Hewitt, CEO of Liberty Tax, is hinting that maybe he’d like to merge with H&RB, “John Hewitt, founder and CEO of Liberty Tax Service, said Monday he is trying to contact departing board member Thomas Bloch to discuss the potential for combining his privately held company with Kansas City, Mo.-based H&R Block.

‘With my leadership and the name and backing of the Bloch family, we could put a great company going back in the right direction,’ said Hewitt.”

We didn’t say it was a subtle hint.

SEC May Add 800 New Positions as Part Of Reform [Reuters]
At least try to keep the porn enthusiasts out, “The top U.S. securities regulator will need to add about 800 new positions to carry out its part of the massive financial reform legislation, the head of the agency said in testimony to be delivered on Tuesday.

Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, said the agency is still crunching the numbers on costs and hiring, and expects the upcoming rulewriting task to be ‘logistically challenging and extremely labor intensive.'”

Two 70-somethings, Theodore Wilson and George Flynn, killed after mid-air skydiving collision [NYDN]
Messrs Wilson and Mr Flynn were both experienced jumpers and were having textbook jumps until something went wrong with approximately 100 feet to go. Mr Wilson was born and raised in the Bronx and he was a former president of the National Association of Black Accountants.

Job Hunting Is Often One Step Forward, Two Steps Back [FINS]
A recent study from the University of Minnesota suggests that people on the hunt for a new job are their own worst enemies, “The results won’t be news to anyone who has ever returned from a jog and mauled a chocolate cake or followed up a productive hour of work with some heavy Facebooking.”

In other words, if someone has a good interview, they’re likely to return home and vedge for the rest of the day, feeling good about their prospects, when the best thing would do is to land the next interview with another prospect.


BP Weighs New Way to Kill Gulf Well [WSJ]
“Oil giant BP PLC was Monday considering yet another method to kill its ruptured Gulf of Mexico oil well amid concerns that the cap it installed last week could be allowing oil and gas to seep out the sides.

Meanwhile, a federal panel investigating the disaster heard that the Deepwater Horizon drilling rig suffered a series of power outages and seized-up computers in the months before it exploded.

BP’s new containment cap has stopped the flow of oil since Thursday, but with the well now sealed at the top, government officials are worried that oil and gas could now be escaping elsewhere.”

Facebook Claimant Must Answer `Where Have You Been?’ to Succeed [Bloomberg]
“Paul Ceglia, the western New York man who says a 2003 contract with Facebook Inc. founder Mark Zuckerberg entitles him to 84 percent of the company, will have to answer a critical question to pursue his claim, lawyers said.

‘The first thing that comes to mind is, where have you been all this time?’ asked Los Angeles litigator Bryan Freedman, who isn’t involved in the case.”

Answer: Been busy on Facebook.

Nokia Conducting Search for New CEO [WSJ]
Get your résumé in now.

I Have A Question [White Collar Fraud]
If Sam Antar is asking a question, something usually stinks. This time he’s wondering if someone had the NBTY Directors jumped the gun on some stock purchases prior the company’s purchase by the Carlyle Group, “If [CNBC’s David] Faber’s reporting is correct, does ‘early May’ mean before or after Michael Ashner and Peter White bought their NBTY shares?”

Accounting News Roundup: Goldman CFO’s ‘Unfortunate’ Response; EU Prepares to Scrutinize Auditors; SEC Chief Accountant: June 2011 Deadline for Convergence Is ‘Arbitrary’ | 04.28.10

Carl Levin To Goldman CFO: When You See ‘Sh–ty Deal’ E-mail, ‘Do You Feel Anything?’ [TPM]
Late in the proceedings of yesterday’s epic Senate subcommittee hearing (involving some of the Almighty’s finest), Goldman CFO David Viniar may have had a bit of a Freudian slip when he responded to potty-mouth Senator Carl Levin’s badgering.

Levin asked Viniar how he reacts to hearing about the email. “Do you feel anything?” Levin asked. Viniar replied: “I think that’s very unfortunate thich got a smattering of laughter from around the room. Levin asked Viniar how he reacts to hearing about the email. “Do you feel anything?” Levin asked. Viniar replied: “I think that’s very unfortunate to have on e-mail,” which got a smattering of laughter from around the room. “On an e-mail?” Levin shot back angrily. “How about feeling that way?” Viniar started to backtrack: “I think that’s a very unfortunate thing for anyone to have said in any form.” “How about to believe that and sell that?” Levin asked. “I think that’s unfortunate as well,” Viniar responded.

That unfortunateness is in no particular order.

Brussels to scrutinise role of auditors [FT]
The EU has had it with auditors in their current form and is turning their stink eye towards the profession with a whole lot of skepticism, especially since Ernst & Young got in trouble over you-know-what.

Michel Barnier, the new EU internal market commissioner, joined the debate on Tuesday saying that the role of auditors needed closer scrutiny now that the financial turmoil of the past two years was subsiding.

“I’m convinced that it is the right time to launch a real debate at European level on the subject of audit. This conviction is reinforced by the questions recently raised in the context of the audit of the accounts of US bank Lehman Brothers,” Mr Barnier said.

The FT reports that the EU is kicking off this increased level of scrutiny by publishing a green paper this fall on the subject that will examine the way “audit firms are owned and governed…the concentration in the audit market and its implications on financial stability, the emergence of small and medium-sized practitioners, the audit of smaller companies and international standards on auditing,” and also the supervision of global audit firms.

PwC pays £427,000 damages over valuation work [Accountancy Age]
The original suit was for £35 million; that would a W for P. Dubs.

Miami accountant’s workers accused of aiding fraud [Miami Herald]
Two employees of “Miami’s go-to forensic accountant if you want to get ripped off” Lewis Freeman have been charged with conspiring with him in the embezzlement scheme that he pleaded guilty to last month.

SEC Chief Accountant Says Convergence Need Not Be Completed by June 2011 [Journal of Accountancy]
No rush on that, sayeth James Kroeker, on convergence by June 2011:

SEC Chief Accountant James Kroeker told the JofA Tuesday that he would support the boards’ cutting the number of projects due in June 2011, provided there was good rationale for a delay.

“June 30, 2011, is an arbitrary deadline and it’s not one that’s been put in place by the SEC or by our road map,” said Kroeker.

So You Want to Be a Forensic Accountant

Forensic accounting is about as sexy as it gets these days for boutique accounting services. For starters, there’s no shortage of work. And even if you’re too inexperienced to start up your own firm, you might be able to cut your teeth at a Big 4 forensic practice or since the SEC seems to getting serious about doing its job, you could go that route.

Hell, even if you’re currently on the other side of this equation (i.e. the perp) it seems to have worked out for at least a couple people, namely Barry Minkow and Sam Ae–>
The AICPA sees the potential and is on the offensive, offering a
“Certified in Financial Forensics” credential starting in 2008 after demand for such a cred came from its members.

The Institute recently published Characteristics and Skills of the Forensic Accountant, a survey of attorneys, forensic CPAs and academics that presents their “views on the qualities they believed were essential in a forensic accountant.”

Surprisingly, the three groups managed to agree on the most important trait, “All three groups surveyed overwhelmingly cited analytical ability as the most essential characteristic of a forensic accountant: 78 percent of attorneys, 86 percent of CPAs and 90 percent of academics.”

And that’s where the agreement ends:

Attorneys believed oral communications to be the most important skill, reflecting the need to express an opinion effectively in a court of law. CPAs, on the other hand, identified critical and strategic thinking as most important, with written and oral communications as second and third, respectively. The academics agreed with the CPAs that critical and strategic thinking was the prime skill, but, interestingly, rated auditing skills and investigative ability as second and third.

Hard to believe this differing opinions here. Lawyers prefer blabbing? Accountants prefer keeping their heads down and academics take it to an even brainier level? Shock.

We shot a message over to Tracy Coenen, friend of GC, forensic accountant for her thoughts and she notes that all these people surveyed are missing something important – intuition:

I think what they’re missing is investigative intuition. It’s common for people to think that a good auditor makes a good forensic accountant, and that’s simply not the case. Some people have a gift for thinking outside the box and can get a gut feel for what’s wrong. Others only have a gift for reconciling numbers and using checklists. The survey addressed investigative intuition, but it didn’t even make it into the top five of core skills. I think that’s wrong on many levels.

We’d have to agree that there is something to be said for raw talent. You can try and teach someone the necessary skills but if they don’t have that sleuth mentality, forensics probably won’t be a natural fit. Sam Antar agrees, and he laid out his own crucial characteristics for us:

The AICPA likes to talk about the skills of an effective forensic accountant, but it ignores the important personality traits required for them to be successful:

• An effective forensic accountant must have a pair of double iron clad balls and a triple thick skin. Prospective forensic accountants can count on making many enemies in the course of their work and must be unhinged by the retaliation that normally follows uncovering fraud and other misconduct.

• The saying, “It takes one to know one” applies to being an effective forensic accountant. If a forensic accountant is not a convicted felon (like me), there must be at least some degree of larceny wired into their personalities. Effective forensic accountants must at least think like a scumbag to understand criminal behavior, techniques, and countermeasures.

• “Critical and strategic thinking” are relatively ineffective unless the forensic accountant exercises “professional paranoia” in the conduct of their work. Effective forensic accountants must be born cynics and skeptics and never accept any information at face value. A healthy degree of paranoia helps.

Without the personality traits enumerated above, no amount of education can help a person be an effective forensic accountant.

Regardless of the differing opinions, the AICPA wants more people getting into forensics and we think that’s a good thing. However, since the chances of a CSI: Bean Counter are nil, more traditional recruitment measures have to be employed.

AICPA Report Educates CPA Firms, Professors on Forensic Accounting [AICPA Press Release]
AICPA Forensic and Valuation Services Center [Website]

Five Questions with Tracy Coenen

If you’re currently engaged in fraudulent activity at your company, eventually you’re going to find yourself in Tracy Coenen’s Fraud Files Blog. She has published two books on the subject, Expert Fraud Investigation: A Step-by-Step Guide and Essentials of Corporate Fraud and more than a 100 articles in industry publications.

When she’s not writing about all things fraud, Tracy runs Sequence, Inc., providing forensic accounting and fraud examination services. The Sue Sachdeva/Koss fiasco happened in her backyard of Milwaukee and she’s been all over it, providing fine quotes on the matter.


Why do you blog?
Somebody has to expose the frauds and scams!

Why should you accountants read your blog?
Because I have interesting insights and I’m not afraid to state my very strong opinions.

Who is your favorite blogger?
Mike Masnick at Techdirt

Best thing about blogging for accountants?
There is a wide open market for accounting bloggers to be thought leaders (and to market themselves) because so few accounting and finance professionals are blogging about their profession.

The biggest issue facing accountants today is…
Truly understanding how fraud happens and how to find and prevent it.

Accounting News Roundup: CFOs, Staff Are Getting Worn Down by Guidance; Miami Forensic Accountant to Plead Guilty; Big 4 In Pari Delicto Defense Strategy | 03.10.10

A Growing Contagion: Accounting Fatigue Syndrome [CFO Blog]
Anyone getting worn out from all the guidance that is coming from the alphabet soup of regulators? You’re not alone and there appears to be an epidemic, something that CFO Blog has deemed “Accounting Fatigue Syndrome.” The long/short of it is that things are only going to get more complex as FASB and IASB continue to converge their rules and guidance continues to come out of both rule making bodies.

“Like many finance executives, Terry Lillis, CFO of Principal Financial Group, is tired. The constant stream of guidance from regulators and accounting standard-setters — plus the expected inflow of more to come over the next few years — has created “huge accounting fatigue” among his finance staff”


What’s the solution to AFS? How about just getting out of the biz altogether? “While the panelists gave no hope to CFOs who wish the standard-setters would either slow down or cut back on their agenda, they did offer one tip for ending accounting fatigue. ‘If I were a CFO, the first thing I would do is look at my early-retirement provisions,’ quipped J. Edward Grossman, a Crowe Horwath partner.”

High-profile Miami accountant Lew Freeman to plead guilty to fraud [Miami Herald]
A couple of weeks ago we told you about “go-to” forensic accountant turned swindler Lewis Freeman and his legal trouble.

Today he is expected to plead guilty in Miami to embezzling $2.6 million from his clients. Prosecutors have alleged that Freeman, “wrote 162 unauthorized checks to himself totaling about $6 million from the accounts of five failed businesses once under his company’s control, but put back about half of the money.” Freeman has been cooperating with investigators since his arrest but still may face 10 – 20 years in prison.

In Pari Delicto: Are Auditors Equally At Fault In The Big Fraud Cases? [Re: the Auditors]
Francine tackles PwC and KPMG’s defense strategy involving in pari delicto to avoid their roles in fraud cases.

The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse a bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.

Bad News: Forensic Accountants Are Crooks Too

Allegedly of course! Despite our best wishes for a forensic accountants to be fraud-busting crusaders that pursue truth, justice and all that crap, this corner of the profession is not immune from shiesty characters.

Lewis Freeman, “Miami’s go-to forensic accountant”, has been charged with embezzling $2.6 million from his clients. The Miami Herald is reporting that Lew has pleaded not guilty but is planning to change his plea to guilty “within a few weeks” while his attorneys try to negotiate a lighter sentence. The Herald also reports that two other employees of his firm, including the CFO, will be charged as co-conspirators in the case.


When you think about it, this really exposes Freeman as not being a very smart guy, just smarter than the people he was ripping off. As criminal mastermind Sam Antar told us in an email, “Lewis Freeman may have been considered ‘Miami’s go-to forensic accountant’ but he was not a very bright guy. He simply took old money from his client’s trust accounts and replenished it with new money. As a forensic accountant, he should have known that ultimately such Ponzi schemes end up collapsing over time.”

Despite this, Freeman was able to carry on the scheme for approximately a decade, swindling up to 250 victims.

Wondering what this latest development meant in terms of fraud involving forensic accountants, Sam told us, “Forensic accountants turned white collar criminals present a real challenge for law enforcement, since they (excluding Lewis Freeman) are far more sophisticated in their knowledge of anti-fraud measures and are more innovative in exploiting weaknesses in internal controls than the common white collar criminal.”

And don’t worry, they’re out there, “Freeman is probably not the only forensic accountant turned Ponzi schemer out there. The smarter and more sophisticated one’s have not been caught yet,” Sam said. Got it. Suspect everyone.

We first mentioned Lewis Freeman last fall when his firm was under investigation by the FBI and that his firm briefly served as the Chief Restructuring Officer for the Palm Beach Funds that were part of the Tom Petters orgy of fraud.

The bright side is we can’t foresee any scenario where the image of accountants gets worse.

Miami’s ‘go-to’ forensic accountant pleads not guilty to fraud [Miami Herald]