Forensic Accounting: The Delicate Art of Tracking the Hidden Criminal

By Jay Dismukes

White collar fraud doesn’t leave an easy trail to follow. The crime doesn’t come with a 12-point fingerprint match or a spent shell casing. There’s not likely to be a surprise eyewitness to the scene, a distant relative who reveals a dark family secret, or a thuggish looking suspect. The evidence in white collar fraud is usually more subtle and difficult to piece together, and, therefore, more difficult to trace back to the perpetrator. That’s what makes forensic accounting such a labor of love.

Curious Minds Want to Know

As managing director of Ernst & Young’s Global Fraud and Investigation (F&I) Services, David L. Stulb heads a team of forensic accountants, attorneys and former government and law enforcement officials. Though his forensic specialists usually possess quantitative backgrounds, strong business, analytical and computer skills, and a sound understanding of the law, Stulb believes they also need to have a “little charge to them, to be willing to take the extra step.

“You have to be curious to take that next step,” Stulb says.

It’s this heightened curiosity that Stulb believes is necessary to connect the “little pieces” that are left behind. These pieces could include anomalies in a financial statement or casual remarks made during an interview, anything that can help the forensic accountant follow the fact pattern and find out the truth.

If anyone’s qualified to know what makes a successful forensic accountant, it’s Stulb. A Marine and former operations officer with the Central Intelligence Agency, Stulb is a 17-year veteran of investigative services, who has advised global corporations and major U.S. law firms about fraudulent activities. Graduating from the College of the Holy Cross in Worcester, Mass., with a bachelor’s of arts in political science, Stulb later earned an executive master’s in business administration from INSEAD in Fontainebleau, France. He also is a certified fraud examiner (CFE).

In the early 90s, Stulb joined what was then the Big 6, specializing in securities fraud and international investigations. His move into the public accounting arena coincided with the historic opening of private sector markets, including those in Russia and China, that had previously been closed off to the West. Given the absence of accounting standards in these new markets, Stulb found an increased demand for his background and expertise.

Over the last 10 to 12 years, Stulb says the Big 4 have focused on growing their dispute resolution practices for clients that need assistance with regulatory issues or business conflicts.

At Ernst & Young, approximately 200 full-time professionals are involved with the F&I practice. The F&I unit primarily focuses on financial statement and securities fraud, such as accelerating revenue recognition, making false disclosures to the marketplace and underestimating expenses; as well as occupational fraud, such as embezzlement and dummy vendor schemes.

These two types of fraud generally require different skill sets and backgrounds. According to Stulb, about 80 percent of those specializing in securities and financial statement fraud have their CPA license. In most cases, this group is brought in by outside counsel that is working for the independent committee of a company’s board of directors to validate or refute allegations that have been made.

Most forensic investigations are “complex,” Stulb says; therefore, the ideal candidate to investigate allegations and measure the impact they may have on financial statements would be someone with a few years audit practice under his or her belt and a strong familiarity with audit policies and internal controls.

Wising Up

According to Thomas Buckhoff, a major in accounting and a minor in criminal justice is the “ideal combination,” from an educational standpoint, for anyone wishing to go into forensic accounting.

A former professor of accountancy at North Dakota State University, Buckhoff, a CPA and CFE, is no stranger to academia. During the seven years he taught there, the Ph.D. in accounting regularly reminded his students that forensic accounting is a broad term that encompasses fraud examination (to uncover asset theft fraud, similar to occupational fraud); financial statement fraud; and litigation support, hence the need for the different skill sets and backgrounds as previously mentioned. Therefore, he says, working as a public auditor, internal auditor, law enforcement agent or loss prevention specialist, among other jobs, could all be beneficial experiences to succeeding in forensic accounting, depending on the type of fraud being investigated.

While at North Dakota State, Buckhoff also made fraud awareness presentations to community business owners and CPAs, a highly successful enterprise that eventually led to his current position as senior forensic accountant and manager of Fraudwise, a division of national public accounting firm Eide Bailly, LLP. Primarily specializing in fraud examinations as well as offering litigation support, Fraudwise provides anti-fraud consulting services to Eide Bailly’s clients.

According to Buckhoff, asset theft fraud makes up the large majority of most fraud cases, followed by corruption schemes and financial statement fraud, respectively. Like Stulb, Buckhoff notes that the very nature of white collar crime presents a number of disadvantages to those investigating it.

“White collar criminals are known criminals only to themselves. Everyone else perceives them to be upstanding members of the companies where they work and the communities in which they live,” Buckhoff says. “The white collar offender is a hidden criminal.”

Because of this almost irreproachable image, interviews with suspects and their co-workers and the ability to pick up both verbal and non-verbal cues can play a critical role in forensic accounting, both to identify and exonerate a potential suspect, Buckhoff said. Electronic document restoration and a proficiency in computer technology are also highly effective means of obtaining information, according to Stulb.

Findings that prove to be illegal are handed over to the appropriate government agencies including local law enforcement offices, the Justice Department, the Securities and Exchange Commission and the Federal Bureau of Investigation, among others.

The Real Deal

To Buckhoff, the most gratifying aspect of his work is being able to “right a wrong,” spotting the fraud, fingering the perpetrator and obtaining restitution for his client. For Stulb, the satisfaction comes from working with young people who have curious minds and from being able to provide solutions for companies that have business disputes.

Given its exhilarating and fulfilling character as well as the deluge of corporate accounting scandals over the last two years, it’s not surprising that interest in forensic accounting is “skyrocketing.”

“I’ve seen more interest in the last three years by young people wanting to focus on this environment because they think it’s more exciting,” Stulb said.

According to Buckhoff, more than 150 schools have at least one course in forensic accounting and numerous others are considering developing programs in the field.

The pay is nice, too. Depending on credentials and level of experience, a first-year forensic accountant can earn between $40,000 and $60,000, Buckhoff said.

And, lest intrigued candidates worry the vocation to be only a passing fad, U.S. News and World Report in its Feb. 18, 2002 issue listed forensic accounting as one of the most secure career occupations available.