Sleuths on the money trail: Forensic accountants solve financial puzzles, even crimes
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A business owner suspects an employee of stealing.
A soon-to-be-divorced wife believes her physician husband is hiding his assets.
A company's partners want to split up the business but are battling over its worth.
Nowadays, all may end up turning to a forensic accountant for help.
From large companies, such as Houston-based energy trader Enron, which recently filed for bankruptcy protection, to small businesses with only a few employees, forensic accountants are often called upon to help track the money trail.
"It's an area that's on the rise and a growing niche market for CPAs," said Vicki Yarbrough, a senior director for the Florida Institute of CPAs, a professional association. "There's an increase in awareness of the expense of fraud that's committed against corporate and small businesses."
Forensic accountants generally are CPAs, or certified public accountants, whom attorneys bring in when a case involves a legal dispute or fraud allegations that could end up in court.
The specialists pore over financial documents, reconstruct records, interview people and present a report that interprets and explains complicated financial information. They also are expert witnesses who can testify in court.
"Doing forensic accounting is like solving a large puzzle," said Mike Crain, a forensic accountant at Peed, Koross, Finkelstein & Crain in Fort Lauderdale, Fla.
"It's very challenging, and you don't know if you have all the pieces."
Michael Kridel, a forensic accountant at Daszkal Bolton in Boca Raton, Fla., said a good forensic accountant tries to determine the facts, present them clearly and help the parties reach an agreement, without the stress and cost of going to a trial.
"A medical examiner practices forensic medicine. They do autopsies and determine the cause of death," Kridel said. "A forensic accountant practices a form of accounting, part of which is a financial autopsy."
Forensic accountants are involved in three types of financial work: fraud investigations, such as embezzlement or Ponzi schemes; disputes over a company's valuation; and economic damages, such as determining how much lost profit a business has suffered as a result of a breach of contract.
Among the most typical types of fraud the accountants investigate is employee theft.
Sheri Schultz, a forensic accountant with Fiske & Co. in Hollywood, Fla., said the specialists examine the company's books, bank statements, canceled checks, computer records and other financial documents to find out where the money went.
Embezzlement often is committed by a company bookkeeper or office manager who has access to financial records and reconciles bank statements with canceled checks, she said.
In one case, Schultz's firm was hired by a South Florida security company that suspected money was missing. An investigation found an office manager had stolen $700,000. The employee was charged and convicted, Schultz said.
While small in number, forensic accountants are in demand. A 2001 survey by Accounting Today, a trade publication, said 37 percent of the country's top 100 accounting firms had reported they were increasing business in forensic and fraud services.
Crain and other forensic accountants say that although the pay is good — $175 to $300 an hour — their numbers will remain relatively small because many CPAs don't like being subjected to verbal attacks by lawyers in depositions and on witness stands.
"You have to deal with lawyers on a regular basis, and accountants don't enjoy that very much," Crain said.
"Accountants are not risk takers in general. And having to stick your neck out and testify in court is taking on risk."