How long have you been in business and how did you get started?
My experience relating to criminal justice started when I was fourteen as a member of an organization affiliated with a local police department. I continued my education after high school, earning a degree in criminal justice and in accounting. After my involvement as an accountant assisting a local police department with an embezzlement case in 1990, I knew this was the field for me. The challenge in 1990 was that the field of forensic accounting was much less known than it is today.
I started my own firm at the end of 2005 after completing over thirteen years with a regional public accounting firm, having founded and ran the firm’s forensic accounting department for years. I never wanted to run my own business, but I also knew that if I wanted to see if I had learned any skills about running a company and being a business owner, I would have to try and apply what I had learned. I was very fortunate to have worked at a firm that provided many great experiences, including guest speakers and experts in personal development. Leaving behind my friends, co-workers, clients, comfort zone and paycheck, I decided I would give it a try. I never saw it as quitting the firm, but rather graduating, with all this knowledge to apply.
I took out a line of credit, and set a goal that I would start a firm specializing only in forensic accounting. My plan was to assess my success at the six-month mark. I would either be out of funds and seeking re-entry into the work force, or I would have built a sustainable cash flow stream to continue. After an initial drawdown for capital purchases, I hadn’t needed to touch the line during the initial period. My work was far from over, but I knew I could continue on my own. The next thing I knew, my first anniversary passed, as did my second, third, fourth and fifth.
Now in my sixth year, I have been reflecting back on how I managed to remain in business, especially given the economic downturns we have experienced. I am thankful to have formed friendships with so many colleagues who willingly shared their expertise, time and energy to ensure my success.
How prevalent is fraud and employee embezzlement today and has it been increasing due to the economy?
The term “fraud” encompasses a very broad spectrum of financial-related crimes, including employee embezzlement. Fraud includes financial statement misstatements, such as those perpetrated by Enron and Worldcom, as well as investor schemes like the Bernie Madoff scandal. Fraud also includes all the schemes perpetrated against banks, investment brokerages, insurance companies, and virtually every government-sponsored social program in existence. Lastly, fraud includes other financial issues involving individuals within political and governmental positions, such as corruption, bribery, inappropriate gifting and undue influence.
Fraud like most every other type of crime has an inverse relationship with the economy. That’s not to say when things are strong under a thriving economy these cases go away, because they don’t, but looking at the big picture, if unemployment is down and individuals are working and spending, there is less likely a need to steal from one’s employer to make ends meet.
Having said that, I fear our society has evolved into a materialistic “living beyond one’s means” culture, whereby even in the down economy, people are overspending, using credit versus cash. The ongoing debate in the fraud field is whether there is more fraud being committed today versus more fraud surfacing today given the diminished universe to conceal the thefts.
I know from my personal experience I am seeing more fraud today than I have in the past. Blaming the economy for most of the schemes I have investigated would not be fair, as the average scheme had been perpetrated for many years before discovery.
Another driver blamed for an increase in employee embezzlements has been gambling. Two casinos opened in the state, and both have been blamed for the rise in employees stealing from their employers in Connecticut. The funny thing is, having investigated employee fraud right here in Connecticut both before and since the casinos opened, I haven’t seen that trend. I have had instances where that was the case, but it was only in a fraction of my cases. Most of my cases involved employee “entitlement.” The gambling issue has come into play far more frequently in the matrimonial cases we have been retained to help resolve.
What do you recommend a business owner should do if they suspect fraud in their company?
My recommendations for business owners who suspect fraud have evolved over time based on my involvement in over a hundred of these types of cases, some that went well and others not so well. I have developed a standard response – Do Nothing!
Do nothing rash, that is, as often those rash decisions simply create more risk and exposure to the organization. All too often an employer decided to terminate an employee at the point potential fraud was first identified, or worse, conducted their own interrogation of the employee. Unfortunately initial rash actions cannot be reversed, nor can the damage they caused be reversed.
I highly recommend when the first indicator of potential fraud has been identified, the business owner immediately contact an attorney for advise. I recommend calling not just any attorney, but one that has experience in resolving these types of matters, as well as employment law. Simultaneous to that call, I recommend the owner continue acting “business as usual” to ensure the employee is not tipped off that their scheme has been discovered. Employees committing fraud are constantly monitoring everything, every last behavior and mannerism, watching for that very first clue of discovery. Once alerted, they will act in desperation, destroying physical records and computer evidence.
Once the business owner and counsel determine the transaction or activity could in fact indicate fraud, the individuals potentially responsible should be immediately placed on paid administrative leave with no warning or opportunity to destroy or delete information. Placing individuals on paid admin leave preserves the integrity of the individuals as well as the investigation. It also allows time for the business owner and attorney to discuss options and strategy. There is much to discuss and plan in order to have a successful resolution and to minimize further exposure to the business and owner.
What should a CPA do if they suspect fraud is occurring with one of their business clients?
My response varies depending on what type of fraud the CPA believes could be occurring. If the CPA suspects the owners of the business are involved in some fraud scheme, such as tax fraud, bank fraud or insurance fraud to name a few, the CPA has to consider the profession’s ethical and regulatory requirements to determine whether the relationship should be continued or terminated. The CPA should consult with counsel to obtain further guidance and to minimize the CPA’s potential exposure. While the CPA should create distance from their client, the reality is most CPAs who encounter this scenario maintain their professional relationship and continue to provide services to the client, often to the CPA’s peril.
With regards to employee theft and embezzlement, the CPA has a duty to bring the potential fraud to the attention of an owner, or in the case of a non-profit, to a member of management or a Board member at least one level higher than the suspected fraudulent activity is occurring. Having served on several Boards, I recommend the suspicious activity be reported directly to an owner or Board member, to ensure the message has been received by the highest-ranking individuals. Otherwise, the message may never reach the appropriate level, especially if a member of senior management is involved.
Fraud by its very nature is concealed and extremely difficult at times to detect. A CPA could perform many engagements where fraudulent activity is present and not detected. I know that was the case for a few clients of the firms I was employed, but the firms always did a great job of pro-actively talking to client owners about the importance of internal controls, even for non-financial statement clients. Our defense each time when a client asked how we missed fraudulent activity was to remind them, often with copies of letters we had sent them, of the conversations and recommendations we made to them addressing their internal control issues.
What is the best thing you like about your business?
Owning your own business provides flexibility along with uncertainty. It is the ying and the yang, a delicate balance requiring constant monitoring. I’d have to say having the ability to make decisions and accept engagements without having to consult partners or other owners is the best thing I like about running my firm. This freedom has given me the ability to drive the firm in the direction I envisioned.
I like to think I am a visionary, always looking for opportunities and seeing the potential in new ideas, especially as it relates to forensic accounting and fraud. As an employee prior to starting my firm, I would often come up with new and innovative ideas to promote the firm or services we offered. My creativity was often countered and stymied by partner-imposed budgetary constraints. When I decided to start my own firm, these barriers to my creativity were removed. I have been fortunate to have an established, talented and supportive image team, and each time an idea has been identified, I have had the sole authority to allow the new idea to proceed from concept through delivery. Looking back over the last few years my firm has done a lot of creative marketing and promotion of forensic accounting, and I am proud of each initiative. I have often said if I wasn’t working in accounting, I could be just as passionate working in marketing.
If there was one thing you could change about your business, what would it be?
Uncertainty. Isn’t that what every business owner would want to change, the uncertainties within their business.
In my case, I never know where the next project or engagement will come from, or when it will arrive. I have been fortunate to receive projects and calls throughout the past five years, but I can never rest from marketing and the other project-seeking efforts. As soon as the work for one engagement has been completed, another needs to be scheduled. The development of my professional reputation started twenty-three years ago, and will continue even after I retire. While providing the highest level of customer service and responsiveness possible on my cases, I also need to expend as much energy on developing new leads and referral sources. This has always caused me to work very long hours.
In my field projects seem to turn on and off much like the weather changes of New England, requiring my schedule to remain fluid and flexible. Most times seem to be boom or bust, with either too little or too much at any one time. In my world, looking out in my calendar beyond four or five weeks often looks dismal, but experience has shown me the empty pages quickly fill with new opportunities, leaving me scrambling to find a few open hours.