When a business owner suspects fraud or mismanagement, a forensic accountant can follow the trail and find the missing funds.

In a former life, Heinz Ickert was an intelligence agent in the U.S. Army. Now, he makes a living as a forensic accountant.

In some respects, the jobs are similar. True, forensic accountants are number crunchers who possess accounting and auditing skills. But they're also interviewers, investigators and expert witnesses. "A forensic accountant is an auditor with an attitude. ... It's a cop with a calculator," says Ickert, a certified public accountant and independent forensic accountant.

These specialized accountants are the ones who get the call when the numbers seem suspect, and they're tasked with following the money trail with dogged determination-even if their findings displease the client. "Your true client should be the truth, not one side or the other," says CPA Theodore Johnson, a member of Parms & Company and head of its tax, small business and forensic accounting services practice.

Forensic accountants have become more in demand as organizations and individuals see that their services pay off. There was a time when victims of fraud would blame themselves, says Ickert. "They would drop it, because they were embarrassed. But in the last five or six years, people are starting to get angry and pursue these cases."

According to the Ohio Society of CPAs' (OSCPA) Web site, demand will continue to grow as businesses seek help with issues such as economic damages, family law, fraud investigations and litigation. Indeed, a September 2008 survey by the American Institute of Certified Public Accountants (AICPA) found that 68 percent of CPAs polled say their forensic practices are growing.

So execs who are cooking the books or divorcing couples hoping to hide income from their spouse should beware: A forensic accountant could be coming for you.

The Job

A forensic accountant may work in the public sector for a government agency, in private practice for an accounting firm or be retained on an as-needed basis by organizations such as nonprofits, insurance companies or law firms. Typically, they are engaged when there is a possibility of litigation-"forensic" relates to their findings' suitability for the courtroom. Given the high fees forensic accountants command, the stakes must be high enough to merit their intervention.

"These guys are expensive, they're not cheap. So I have cases where we can't spend the money, and sometimes I'll have a side conversation with one to ask where to look for missing funds," says Anthony Delligatti Jr., a litigation, investor relations and family law attorney with Carlile Patchen & Murphy.

"Having a forensic accountant is not for the faint of heart, because it's not an inexpensive process," says Johnson. He was once approached in a divorce case where a woman thought her husband earned $15,000, rather than the $10,000 he claimed. Retaining an accountant to verify the $5,000 difference didn't make financial sense. "You're going spend that much just investigating," Johnson says.

Ultimately, a forensic accountant is charged with analyzing, interpreting and presenting complicated financial and business-related information. The job may include:

• Investigating and analyzing financial evidence, as well as making suggestions regarding possible courses of action

• Developing computerized applications to help analyze and present findings

• Communicating findings via reports, exhibits and other documentation

• Interviewing witnesses and people suspected of misdeeds

• Coordinating with other professionals who may be working on the case

• Assisting in legal proceedings, including testifying as an expert witness, helping attorneys formulate questions, preparing aids in support of trial evidence, reviewing the opposing expert's damages report to identify the opposition's strengths or weaknesses and aiding settlement negotiations

Investigation & Litigation

A forensic accountant is generally tapped when there is suspicion of fraud or other criminal or civil misdeeds. They may be asked to: search for hidden assets in a divorce; find out if an employee is embezzling; ferret out possible falsifications and/or manipulations of accounts or inventories; determine whether employee theft, securities fraud or insurance fraud have occurred; aid in probate asset identification and valuation; and more.

Unlike auditors, who generally work with their own clients, "I deal with a lot of adversary relationships, and I have to work with a lot of people who aren't going to like me," says Ickert. "With husbands, a husband knows I've been hired by his wife, and that's not good news."

"In high-end divorces, we've got serious dollars at stake, often involving a closely held business controlled by the husband, and the work involves taking a look at spending patterns and what are truly marital expenses, what are business expenses," says Delligatti. "If the lifestyle doesn't match up with the money, you've got some issues to deal with."

Often, a spouse will divert money using "large, prepaid credit card accounts, so their balance never shows the charges," Delligatti says. Grappling with such matters requires "somebody that is very aggressive and not afraid to chase the ball," he says. It's also important that a forensic accountant is capable of using available technology to trace where and how the money is being moved, Delligatti says: "The opportunity to steal or divert funds is much better now, but it's also more traceable."

A forensic accountant also must be able to effectively communicate findings, Delligatti says. "We're lawyers, not accountants. And beyond us, there are insurance companies, police and juries" that have to be able to understand the documents. The goal? To "put a good report together without overstating the facts," Ickert says. "You have to respect everybody's rights-the court determines people's guilt, not me."

Even though the possibility of testifying in court is a big part of the job, it's a facet that some forensic accountants don't relish. "You really have to have thick skin, because when you do a good job and do good analysis, what's left to attack is your credibility. And you have to understand that you can't take it personally-and that's difficult," says CPA Frank Wisehart, president of Wisehart & Wisehart. "You're up there on your own. That's the most challenging part of the job, because you have to think quickly," says Ickert.

After testifying in a sizable Delaware County divorce case in which a business's balance sheet was in dispute, the magistrate presented Johnson with the opportunity to cross-examine another witness. "For somebody like me who is a closet attorney, that was a dream come true," says Johnson, who was later asked by the magistrate to serve as a court-appointed forensic accountant.

Finding More Fraud

Employee dishonesty is nothing new, of course, but the field of forensic accounting got a big boost after high-profile corporate accounting scandals such as Enron and WorldCom. Enter the Sarbanes-Oxley Act of 2002, which set new and/or strengthened standards for all public company boards, management and public accounting firms.

The regulatory demands brought about by Sarbanes-Oxley garnered additional business for forensic accountants, and the legislation also brought more attention to fraud in general. "I think Sarbanes-Oxley created more of an accountable corporate culture environment," Wisehart says. "Corporations started to look for more areas of fraud and waste ... and as more fraud cases came to light, it demanded more forensic accountants."

"Frankly, the demand far outstrips the supply now," Ickert says. "It's a hot field, and forensic accountants are just pouring out of college. It's just that the supply is inexperienced."

The recent recession also has led to a spate of newly discovered fraudulent activities. For instance, when money was more readily available, those employing Ponzi schemes (notably Bernard Madoff) could rob Peter to pay Paul, says Wisehart. Now, "Peter's out of money and Paul's asking a lot of questions."

"A lot of people over the last two years are seeing fraud that they've never seen before, and it's probably because of the tough economy," Ickert says. "Businesses are stressed, so they're looking at the books and they're finding frauds that have been there forever-for six, seven, eight years. The recession didn't cause them, it just brought them to light."

"I hate to say it, but fraud is on the rise," Johnson says. The recent influx of federal stimulus spending, including the Troubled Asset Relief Program, could further boost fraudulent behavior, he predicts: "I have an attorney buddy who's a trial attorney. ... He went to a seminar where one of the speakers said, ‘10 percent of this money is subject to fraud, and we're going after every penny.' "

Long gone are the days when a business swept fraud under the rug for fear that execs would look ignorant for not knowing they were being taken for a ride. "As more of these cases have become public, people are seeing people that they think are smart get scammed," Ickert says. "Because of that, people are now really understanding it's not their fault they're victims. It wasn't that they were dumb, it was that they were trusting. Sure, maybe you could have caught it if you started out not trusting a person in the first place, but often these are longtime employees, and people say, ‘But they were so friendly.' Well, con men are often very friendly, very outgoing. It's hard to be a con man and a jerk."

"Firms really used to hide the fact that they had a fraud committed, because they thought it reflected badly on them," Wisehart agrees. "People understand that fraud takes place, and I think the public will reward firms that look for internal fraud."

In the post-Madoff, post-Enron era, the number of reported fraud cases is indeed growing. Accounting firm KPMG's Integrity Survey for 2008-09 polled more than 5,000 workers nationwide in 13 different industries. Three out of four survey respondents said they had observed or held firsthand knowledge of wrongdoing.

The cost to businesses is significant: The Association of Certified Fraud Examiners (ACFE) estimates U.S. companies lose about 7 percent of annual revenues to fraud. Based on the gross domestic product, the ACFE reported, losses totaled roughly $994 billion in 2008.

Résumé Builders

Forensic accounting doesn't require any specialized credentials, but obtaining one or more conveys credibility on the witness stand, says Wisehart. Both state and national organizations offer continuing education, certification and networking events that cater to those in the field.

In May, the OSCPA created a new specialty interest section for forensic accounting, says senior manager of member relations Greg Wilder. "Members started calling and e-mailing and saying they were interested in it," he says. Ninety-one members have signed on to the section (one of 16 offered by the OSCPA), which provides weekly e-mail updates, networking opportunities and webinars on hot industry topics. Available credentials include:

• Certified in Financial Forensics (CFF), from the AICPA. The certification is available to CPAs who have been practicing for at least five years and meet other requirements. According to the institute, the credential focuses on specialized skills including bankruptcy and insolvency, computer forensics, fraud investigations, family law and litigation support.

• Certified Fraud Examiner (CFE), offered by the ACFE. Individuals must hold a bachelor's degree or equivalent experience and pass a four-part test on criminology and ethics, fraudulent financial transactions, fraud investigation and legal elements of fraud.

• Forensic Certified Public Accountant (FCPA) with the Forensic CPA Society. To be a member of the society, a CPA or chartered accountant must pass a five-part certification test, but can automatically be designated an FCPA if he or she is already a CFE or CFF.

Johnson says forensic accountants run the risk of having an "alphabet soup" of credentials if they pursue too many. Still, having some sort of skills validation is invaluable. For example, the Accredited in Business Valuation (ABV) certification from the AICPA is key for someone performing valuations. "If you don't have that and you're sitting across from someone who does, you're going to lose the weight test. They're going to look like Superman and you end up looking like Robin the Boy Wonder," Johnson says.

Johnson holds a CFF and is studying for his CFE. Ickert is a CFE, CFF, CM&AA (Certified Merger & Acquisition Advisor) and CVA (Certified Valuation Analyst). Wisehart holds an AVB, CFE and CVA.

Additionally, more educational institutions, such as Franklin University, are offering majors in forensic accounting. "When I went to undergrad, there was nothing on this. Now there are schools picking up this type of study and creating specialized courses for this type of work, and I think it's a very good thing," Wisehart says.

Proactive Steps

While forensic accountants are most commonly called after a problem arises, they are sometimes asked to look at an organization's books to identify potential weak spots before fraud happens. "We review the operations, try to identify risk areas, exposure, key assets and any holes. We try to put screens in place and look for the red flags of fraud," says Ickert.

"Unfortunately, we're normally hired after the fact, and I think that organizations could save a lot of money if they would simply hire forensic firms to come and do annual audits," Wisehart says.

Sarbanes-Oxley has prompted bigger businesses to take such measures, but it's hard to get smaller companies to follow suit because of the investment involved, Ickert says. Still, the dollars lost to fraud are typically costlier than the expense of deterring it upfront. "Look at the consequences: The average loss is about $200,000 a year, and the cost in management time is double that. And, if you're a not-for-profit, fraud can [cause an organization to] lose donations if its reputation is damaged," Ickert says. "There's a lot to lose by just being reactive.

"If someone wants to steal, they're going to steal. What you can do is catch them real quick. The average scam lasts two years ... and most people, lower-level employees, may steal $10 at first. If they get away with it, before you know it, they're boosting thousands," Ickert says. Failing to take action "kind of sends the word it's OK," he says.

In this economy, that's a message no business can afford.

Jennifer Wray is a staff writer for Columbus C.E.O.

Reprinted from the September 2009 issue of Columbus C.E.O. Copyright © Columbus C.E.O.