Forensic accounting is one of the fastest-growing practice niches among CPA firms. The trend, which began several years ago, has evolved into an era in which CPAs are in constant demand as expert witnesses and litigation specialists. Today, amid the recession, forensic accounting has also become an integral part of “recovery teams” organized by CPA firms in an effort to help financially troubled clients navigate through these uncertain times.
Exacerbated by the credit crisis and economic slowdown, accounting jobs in the fields of fraud and litigation as well as forensic accounting are opening up. In fact, AICPA research shows that CPAs represent 94% of forensic experts hired over the past two years. Executive search firm, A.E. Feldman, says that CPAs with expertise in forensic services are in a prime position to capitalize on the surge in demand.
Forensic Accounting Exploding
This year, demand for CPAs with expertise in forensic accounting services has accelerated, according to a survey conducted by the American Institute of Certified Public Accountants. Two out of three CPAs polled, or 68%, say their forensic practices are growing. “The survey findings tell us that not only are forensic accounting services in demand, but specifically that CPAs with this expertise are in high demand,” said Stephen Winters, AICPA Director - Firm Practice Management and Specialized Communities.
In response to the rising demand for forensic accounting services, the American Institute of Certified Public Accountants (AICPA) Governing Council last year approved a new credential: Certified in Financial Forensics (CFF). According to the AICPA, “The Certified in Financial Forensics credential combines specialized forensic accounting knowledge and expertise with everything that makes CPAs among the most trusted business advisers.”
A Forensic Certified Public Accountant carries expertise as a CPA and a forensic accountant. Forensic CPAs utilize accounting and auditing skills, while also applying investigative skills to uncover what actually took place in a particular financial setting or transaction. Forensic accountants conduct investigatory accounting work in preparation for prosecution and litigation. They identify evidence of irregularities in financial statements and non-financial records and build compelling cases for what that evidence shows. Forensic accounting requires familiarity with both criminal and civil law. They must use hundreds of techniques from statistics to psychological profiles.
Sophisticated accounting techniques are necessary to detect, trace and resolve frauds - especially when the results may impact financial statements, according to Risk Consulting Firm, Kroll Worldwide. “The skills of forensic accountants are essential both to uncovering the extent of certain frauds and to negotiating the regulatory challenges which they entail,” said David Hess, Managing Director in Kroll’s Forensic Accounting and Litigation Consulting practice.
Allan Koltin, Chief Executive of PDI Global, told Financial Week that forensic accounting is one of the hottest areas in the profession. “I think the industry has probably quadrupled in the last seven years, and over the next decade, anything forensic or investigative will remain hot,” he says.
Recession Boosting Demand for Forensic Services
Right now there is heightened risk that reports of serious misconduct may not reach boards and senior management. That’s according to KPMG Forensic SM’s Integrity Survey 2008-2009, which examines corporate fraud and misconduct based on the experiences and views of more than 5,000 employees nationally across 13 different industries.
The survey found that three out of four employees in all industries reported having observed or having firsthand knowledge of wrongdoing. And although employees in highly regulated industries like insurance and banking reported the lowest rates overall, the prevalence of reports of serious misconduct that could cause a “Significant Loss of Public Trust” was highest in the banking industry.
In our current economic environment, “The need for effective fraud risk management efforts could not be greater, especially as we move through a volatile market in which management’s risks and opportunities may be amplified,” said Richard Girgenti, National Practice Leader, KPMG Forensic. Girgenti adds that, “While pressures may exist to meet revenue targets, managers may be able to leverage their anti-fraud efforts to control costs and reduce losses associated with fraud, waste, and abuse - particularly in circumstances involving significant government funding in private enterprise.”
In this climate, forensic accountants believe their skills will be even more valuable, as jilted investors and taxpayers are asking tough questions about where their money is going, according to AccountingWeb. The report states that Investigators report the number of people trying to pull off low-level Ponzi schemes is increasing so quickly that they are now calling them “mini-Madoffs.” As a result, companies and governments being more cautious and watching their funds with more scrutiny than ever before.
Accounting Firms Anticipate Increase in Fraud
Awareness of Ponzi schemes has grown exponentially since Madoff’s alleged $50 billion scheme was uncovered. The New York Times reports that the Commodity Futures Trading Commission has seen a doubling of complaints leading to possible Ponzi schemes in the last year, according to AccountingWeb. The report states that last year the agency prosecuted 15 Ponzi schemes and expects that number to increase in 2009.
U.S. Senators Charles Schumer (D-NY) and Richard Shelby (R-AL) have introduced legislation to provide $110 million to hire 500 new FBI agents, 50 new assistant U.S. attorneys, and 100 new SEC enforcement officials to crack down on financial scams, according to AccountingWeb. In addition, the FBI and CIA are seeking accountants to track down where criminals got their money and where it went
Certified fraud examiner firm, Walter C. King Associates, says it is offering tax recovery and forensic accounting services to investors who fell victim to Madoff’s Ponzi scheme. AccountingWeb also quotes Joseph Centofanti, the Training Director of the Connecticut Certified Fraud Examiners Association, as saying that he’s got plenty of business, and plenty of work to delegate to interns. “We just started 11 accounting interns and every single one wants to work on fraud stuff,” said Centofanti.
Meanwhile, a forensic accounting firm has opened a new office in Los Angeles and added one of the nation’s leading forensic investigators to its team of experts in anticipation of an expected increase in fraud, waste and abuse as billions in Federal bailout money is about to be injected into the economy. Forensic/Strategic Solutions, PC announced that Don Mullinax, a 29-year veteran of conducting complex forensic investigations involving allegations of fraud, waste and abuse and providing anti-fraud consulting services in the public and private sectors, will lead its expanded government practice team from the firm’s new Los Angeles office. “Our current economic crisis unfortunately creates an environment that fuels bad decisions in both the public and private sectors,” says Mullinax.
“As the perception and likelihood of fraud continues to grow in the public and private sectors we want to remain at the forefront of the country’s most prominent forensic accounting firms,” said Ralph Q. Summerford, President of Forensic/Strategic Solutions. Summerford adds that, “Our team will also consult with organizations to analyze their systems to reduce the opportunities for fraud to occur and to put safeguards in place to prevent fraud before it happens.”
Mullinax also sees the growing government “economic stimulus” and “bailout” programs as a breeding ground for fraud, waste and abuse. He says forensic accountants are in a “unique position to help government organizations, non-profits, businesses, and associations create safeguards to prevent potential fraud before it occurs and to find and stop fraud, waste and abuse when it does occur.”
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