Accountants take in-depth approach to finding fraud

As technology has made it easier to perpetrate fraud, it also has made it simpler to catch thieves, said Larry Ellison, certified fraud examiner with Kirkpatrick Phillips and Miller, CPAs, PC.

To combat fraud, companies are turning to forensic accounting, a discipline that deals with the relation and application of financial fact to legal problems.

Publicity from high-profile incidents of white-collar crime like those at Enron and WorldCom have increased public awareness and has made company owners more cautious. The Association of Certified Fraud Examiners estimates the median cost of occupational fraud to businesses is about 6 percent nationally, representing $600 billion in lost revenue in 2002.

Most business fraud cases deal with companies that are missing money and they don't know where to look for the leak, said Tom Everett, managing partner for Elliott Robinson and Company.

"Most of the time it is not a sophisticated scheme, and many times it is a trusted employee involved," Everett said.

Opportunities are increased for fraudulent activity with the Internet technology, both inside a company and from outside intrusion, said Eric Naw, attorney with William H. McDonald and Associates, PC.

In larger companies with complicated accounting systems, "it takes a pretty stout investigation group to find the root of the problem," Naw said.

To pivot the technology edge back around in favor of investigators, Ellison said certified fraud examiners have specialized software that detects certain types of irregularities. The system can compare employee records or pick up on an erroneous duplicate vendor.

Investigators claim that no company is exempt from possible fraud, but small businesses are more susceptible because they don't have the checks and balances that are in place at larger companies.

There are basic steps businesses should follow to help prevent fraud, Everett said. Someone besides the person who writes the checks should reconcile the books. The owner should open the bank statement and review checks for irregularities.

The most common method of detecting occupational fraud is by a tip from an employee, customer, vendor or an anonymous source, Ellison said. Sometimes it's noticed when an employee's lifestyle does not match his income.

Criminal prosecution may be avoided in smaller cases if a restitution agreement can be reached.

"The number one goal for the business is to recover the money," said Naw.

He often refers employers to the prosecutor's office where an agreement can be reached under threat of prosecution.

The business owner also can sue in civil court, but litigation costs money, Naw said. Expenses usually make it an unproductive situation, and chances are the perpetrator no longer has the embezzled money to give back. Thus, the business owner may end up with a judgment that is difficult to collect.