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Anti-fraud pros busy amid slump

by Parker
Leavitt - Aug. 2, 2009 12:00 AM
The Arizona
Republic

When the economy sours, corporate fraud usually soars.

That's when forensic accountants and fraud examiners - the crime fighters of
the business world - go to work.

It was fraud examiner Harry Markopolos who blew the whistle on Bernard
Madoff's multibillion-dollar Ponzi scheme.

There are about 37,000 certified fraud examiners working to uncover an
estimated $994 billion in fraud schemes in the United States, according to the
Association of Certified Fraud Examiners.

Joe Epps, who runs a forensic-accounting practice in Scottsdale, is one of
them.

Epps began his career as a certified public accountant doing "garden-variety
work, and absolutely hated it," he said. But he soon found a job as a
forensic-accounting specialist.

"Every day I go to work and I'm excited to get here and see what's going to
happen today," he said.

The National Association of Certified Valuation Analysts calls forensic
accounting the "art and science of investigating people and money."

Forensic accountants analyze financial records to detect fraud.

They often are called on to testify in court and can be vital in prosecuting
white-collar criminals.

In 2007, Brad Preber, a forensic accountant with Grant Thornton in Phoenix,
testified against two men who allegedly embezzled millions of dollars from the
California state government over at least five years.

A jury found Robert L. McWhirk, an attorney, and John Schienle, insurance
director for the California Housing Finance Agency, liable for fraud and
negligent misrepresentation.

The men, who used government contracts to funnel cash into their private
company, were ordered to pay about $9 million in compensatory and punitive
damages.

"It takes a certain kind of mind to commit these acts," Preber said.

"It can be very rewarding to use your creativity and say, 'You can't fool me.
I'll figure out how you did this.' "

The number of reported fraud cases has increased during the recession.

About 55 percent of fraud examiners reported a jump in the number of frauds
in the past year, according to a survey conducted by the Association of
Certified Fraud Examiners.

"Whenever the economy declines, you see a lot of fraud cases exposed," said
James Ratley, president of the ACFE in Houston.

"When businesses see sales and revenue start to decline, some executives will
cross the line."

National Bank of Arizona Senior Vice President Chris Fell said employee fraud
has always been a concern at the bank.

"It should be a concern with any industry that deals with cash," Fell said.

"With this economy, good people - honest, hard-working people - can get
desperate and find themselves in a tough situation and make a bad choice."

The bank uses surprise audits and employee-support programs to protect
itself.

But layoffs and budget cuts have made more organizations vulnerable, experts
say.

"What you end up with is a perfect storm of risk where opportunity is high,
incentive is high and it's easy for an individual to take advantage of it,"
Preber said.

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Joe Epps

More on this topic

Fraud by the numbers

$994 billion

Estimated 2008 total of fraud losses in the United States.

$175,000

Median loss among reported fraud cases.

27 percent

Percent of fraud cases from financial institutions or government
agencies.

17-30 months

Estimated duration of a typical fraud scheme before detection.

Source: Association of Certified Fraud Examiners.

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