White collar criminals exhibit certain behavioral traits that can be warning signs of their crimes, and which can be used to catch them or trap them in the act.
COMPILED BY MILES Z. EPSTEIN,
FRAUD AND ABUSE COSTS U.S. ORGANIZATIONS more than $400 billion annually, according to the Association of Certified Fraud Examiners. The majority of corporate fraud cases involve accounting schemes designed to deceive investors, auditors and analysts about the true financial condition of a corporation. Thanks to forensic accountants, the white collar criminal gets caught “by the numbers,” as the following examples illustrate.
I’ve seen forensic accounting used to piece together seemingly unrelated documents that have established events in the absence of clear evidence trails, effectuating case outcomes. Recently, I used peripheral information to track an elusive debtor’s bank account, which led to my client collecting full judgment due to the extensive funds hidden by the debtor.
With more than 25 years of forensic accounting experience, we have helped countless clients implement safeguards and procedures to deter criminal activity and reduce the risk of financial loss. We have also identified criminal activity in major cases by conducting intensive fraud investigations; including reconstructing financial books and records, interviewing witnesses, identifying assets and determining the flow of funds.
Data analytics empower forensic accountants to identify anomalies warranting further investigation. One analysis led to the identification of a contractor who engaged in bid-rigging for 20+ years by supplying more than 100 losing bids to a procurement official in exchange for one lucrative contract. Numbers don’t lie and technology keeps us one step ahead.
Assessing whether subjects are deceptive or truthful during forensic interviews is a core skill of an investigator. Highly skilled investigators can formulate questions appropriately (e.g., probing and bait questions) and can also identify the verbal and nonverbal signs of deception in order to help potentially get that “Perry Mason” or “Columbo” confession.
EisnerAmper was asked to review some suspicious activity by a newly hired president of a national company. We performed a forensic analysis on the computerized accounting records which uncovered some unusual patterns and trends that were not authorized by management. This resulted in a referral to and successful prosecution by law enforcement.
Well-trained forensic investigators are able to assess allegations and, with a skeptical mindset, raise questions and conduct substantive procedures with financial and accounting evidence to make judgments and ultimately report a series of findings based on the alleged criminal activities.
Unfortunately, most businesses don’t recognize the benefit of forensic accounting until after the criminal activity has occurred. In our experience, it is the long-time, “trusted” employee who perpetrates the crimes. We have assisted with many cases where theft could have been prevented by establishing regular forensic accounting procedures and controls.
Our client was a doctor, a solo practitioner who suspected that something was amiss with his income statement at the end of the year. He engaged us to do a forensic audit, and we determined that his office manager was forging his signature on insurance payment checks and depositing them to a bank account she had opened in his name for that purpose.
We reviewed the operations and questioned expenses of the executive director of a not- for profit entity. We met with the director and obtained a confession about her $200,000 embezzlement. We met with the board chair and legal counsel and obtained a full recovery from the director, and her resignation.
Embezzlement is a fraud that demands constant vigilance to prevent. A fraud risk assessment should be conducted to assess internal controls and rank potential vulnerabilities; to design controls to minimize “opportunity”; to evaluate enhanced controls; and to investigate “red flags.” These heightened procedures will likely deter employees from stealing and identify guilty parties.
Since I spent 20 years in law enforcement, I can say unequivocally that forensic accounting techniques have assisted in the prosecution of criminals within New Jersey. In 1932, these techniques assisted the NJSP in the Lindbergh kidnapping. Today we utilize forensic accounting enhanced by computers to solve all types of financial crimes.
One of our investigations involved a large business broker that was, in reality, just a front for a Ponzi scheme. Through our focused analysis of more than 36,000 transactions involving more than 50 bank accounts, we were able to prove the theft of more than $29 million from unsuspecting investors.