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Certified fraud examiners combine accounting, investigative skills

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It’s a small business owner’s worst nightmare: discovering that a trusted, longtime employee has been siphoning money from the company for years.

In one case that involved a Central Iowa company, an investigation revealed that an administrative assistant had stolen thousands of dollars from the business by writing small checks over a 25-year period to a “ghost company” she had set up. Her employer fired her, but did not press charges.

“What struck me about that case was that this was a gray-haired, churchgoing lady you’d expect to see singing in the choir,” said Tom Conley, an Urbandale private investigator and certified fraud examiner who discovered the theft about four years ago. However, setting up a bogus billing company “is a common modus operandi in cases that I have investigated,” he said.

Forensic accounting, a field that has grown nationally in the past several years as experts have been called upon to trace money used to fund terrorism or to uncover corporate accounting scandals, is gaining increased awareness among Central Iowa businesses that are calling on these professionals to investigate wrongdoing, most often employee theft, and to obtain evidence that will stand up in court.

“There’s no shortage of theft in the workplace,” said Conley, who has nearly 30 years of experience in security and investigations. “Sometimes that can be theft of goods, sometimes time. In fact, employees stealing time is one of the largest theft items.

But once in a while, employees steal more. Stealing cash, embezzlement, racketeering schemes and short-loading of trucks in collaboration with an outside truck driver are examples.”

Accounting professionals as well as accounting educators are recognizing the need locally. Drake University’s accounting department, for instance, launched a graduate-level anti-fraud course this summer that has already proved to be popular with students. Additionally, a group of accounting and audit professionals are forming a Greater Des Moines chapter of the Association of Certified Fraud Examiners to increase education efforts in that field. Nationally, membership in that organization has grown from approximately 29,000 CFEs three years ago to about 34,000 currently.

Local experts on both the investigative and accounting sides of the street agree it’s an occupation that requires extensive preparation and training to do well.

“Proper interviewing skills are part and parcel of being a good fraud investigator,” said Conley, president and chief executive officer of The Conley Group Inc., an Urbandale-based security and investigative services company.

“Another skill you need is the ability to articulate an issue in court,” said Conley, who estimates he has testified in about 25 fraud cases as an expert witness. “Good experts can break down cases to elemental issues for juries. If you’re going to succeed in getting police or district attorneys to prosecute, you have to put the case together and hand it to them. An accountant bringing in a pile of documents and saying, ‘Here’s proof of theft,’ doesn’t cut it.”

Conley, who said he has seen instances of accountants who are not qualified to perform fraud investigations botch cases by accepting tainted evidence, said good accountants know when to call in an investigator trained in surveillance, interrogations and other techniques. “What I’ve seen numerous times is that when (accountants) go outside their areas of expertise, they get their clients in trouble,” he said.

In Central Iowa, companies are more likely to encounter fraud involving the theft of cash or assets than that associated with the deliberate misstatement of financial reporting information, said Kevin Prust, a partner with the Des Moines office of McGladrey & Pullen LLP.

“It is a growing field,” he said, “and the accounting profession takes fraud much more seriously than it has in the past, both from our standards and how we apply those standards.”

Though McGladrey’s Des Moines office does not have any CFEs on its staff, “we often see that designation used when fraud is suspected,” he said. “We can bring in the expertise to meet the demands of the engagement (from the larger offices). Oftentimes those people will team with auditors to do the work.”

Because obtaining certification requires taking extensive course work and passing a written examination, finding the time to have staff members become credentialed as CFEs is difficult, said Tom Ahlers, managing partner of Denman & Co., a West Des Moines CPA firm.

“We recognize the need, and have the people interested, but haven’t pulled the trigger yet,” said Ahlers, who said two of his firm’s accountants are interested in becoming certified. Meanwhile, Denman has held several educational sessions on the topic for clients, and has begun a background check service for companies to screen potential employees.

“If people are educated and aware of the issues, that goes a long way toward preventing fraud,” he said. “It’s more the preventive medicine than the surgery, so to speak.”

Conley, whose company also conducts background checks, put it this way: “There are really only two places to solve problems — at the front door or at the back door. The front door is a lot cheaper.”

Additionally, “any time there’s a leadership change in an organization, there absolutely needs to be an audit,” he said. “I’ve seen it happen that the new leadership accuses the previous leadership of theft.”

Maintaining independence is important for a good fraud investigator, said Conley, who said he has more than once found a company’s allegations against an employee to be false.

“The biggest mistake an investigator can make is taking the word of the company as gospel,” he said. “Even though you’re paying me, I have to remain independent. If a partner hires me, I’m going to talk with the other partner, and look at the allegations both ways.

“The key is to have really good procedures in place, do periodic audits, and if something is amiss, call in someone who has the certification and expertise.”

More information about certified fraud examiners and the professional chapter being formed in Des Moines can be found at www.cfenet.com.

STUDENTS LIKE FRAUD CLASS

Fraud investigation has, until recent years, typically been an area the accounting profession has resisted becoming involved with, said Jim Dodd, a Drake University accounting professor who teaches a new anti-fraud elective course.

“It was really not until Sarbanes-Oxley and the enhanced penalties for mail and wire fraud that the accounting industry began looking more at fraud,” Dodd said, which parallels how the profession didn’t physically verify inventories until a landmark inventory fraud case in the 1930s.

The accountants who make up Drake’s accounting professional advisory board suggested creating the class, which about a dozen master of accounting degree candidates have enrolled in. Dodd said he expects the elective, which will initially be offered only during the summer semester, will become popular with students and may lead to further courses.

“The students tend to like it,” he said. “I think they’re fascinated by the fraudsters, their rationalization for what they’re doing and what they as accountants might try to do to minimize that.”

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