Written by Tracy L. Coenen, CPA, CFF
Wisconsin Law Journal
Reprinted in the Kansas City Daily Record
Traditional accountants and auditors have long been referred to as “bean counters.” Some may take offense at the phrase, but if they’re being honest, they admit that it is a simplistic but accurate representation of the work they do.
Your average, everyday accountants and auditors are generally engaged to count the beans. They take a look at the numbers, make sure they all add up, and possibly issue a report saying how and why the numbers add up.
There are different kinds of beans, just like the various industries that accountants may come across. Counting different types of beans may require different techniques and rules.
Accountants are good at reporting their findings after they count the beans. But what if the beans are missing? Or what if the beans are there, but are so mixed up that they make no sense?
Would a “regular” accountant know how to find the beans? Could she or he sort the beans in a way that makes sense to non-accountants? The average accountant has never had to find or sort beans before, so who knows if she or he can find the beans?
Forensic Accounting as Bean Finding
In contrast to traditional accounting and auditing, bean finding involves different skills. A good understanding of financial statements and the underlying data is still critical. In addition to this, forensic accountants need an ability to effectively apply investigative techniques.
“Investigative intuition” is a good way to describe a necessary element of the forensic accounting equation. While understanding investigative techniques is one thing, being able to apply them in the best way is different.
I don’t think that the “gut” feeling of a good investigator is teachable. If one possesses that intuition, even in its rawest form, then that ability can be developed and honed. But if a person doesn’t have the basic instinct, it will be hard to make her or him into a good forensic accountant.
The investigative intuition is used to find the beans, or in other words, to follow the money. Forensic accounting engagements are usually geared toward finding where money went, how it got there, and who was responsible.
Once the beans are found, they must be reassembled into a meaningful format. Sometimes all the beans aren’t found. There may be holes in the data, and a good forensic accountant can fill in some of the gaps with good estimates or explain why those gaps aren’t filled.
While “regular” accountants and auditors typically have a standard format for their work, often detailed in work programs, forensic accountants do not usually have such a structured method of conducting investigations. There are standard documents that are collected and possibly a typical starting point for an investigation. But from there the project can go in any direction.
I liken a forensic investigation to a family tree. The investigator starts going down one path, and there are several branches and directions in which to move. A path is selected for the investigation, and again there are many more paths branching off that one.
A good investigator is able to organize those divergent paths so that she or he can go back and investigate the remaining paths. An effective investigation, therefore, combines the instinct, technical knowledge, and organizational skills.
Areas of Specialty
Within the specialty of forensic accounting, there are sub-specialties. Some forensic accountants try to work in all of them, while others of us have selected a couple of areas on which to focus.
Some forensic accountants may focus on investigating corporate fraud, while others work mainly in litigation, assessing damages in corporate disputes. Insurance claim analysis is a popular area of expertise, and this involves examining the accuracy and completeness of insurance claims and supporting documentation.
Other specialty areas include business valuations and computer forensics. In my opinion, both of these areas require a fair amount of specialized knowledge. Look for a firm that has professionals who focus entirely on one or the other of these, rather than firms or professionals who dabble in them.
In my opinion, it is best to work with an expert who has chosen one or two areas of specialty, rather than trying to be all things to all people. Specialists are much more valuable to cases, rather than professionals who muddle through any sort of work they can acquire.
Certifications can become an important part of selecting an expert. Be wary, though, of certifications that are nothing more than a title for sale. Selling certifications and continuing education is big business, and it is important to be sure that any certification touted by a potential expert is meaningful.
As an example, the Certified Fraud Examiner (CFE) designation is the “gold standard” in the area of fraud. It is earned through an application and testing process, so membership is limited to those who can demonstrate their knowledge. On the other hand, some certifications simply may be purchased. Attorneys should be skeptical of seldom-heard designations and inquire as to their authenticity and meaningfulness.
Industry experience is less important than investigative experience, in my opinion. It is easy to get up to speed on a particular industry and its unique characteristics than it is to hope that someone develops investigative skills overnight. If you are lucky, you may find a competent forensic accountant with a particular industry focus such as hospitality, construction, or the like. However, the investigative skills should be the primary concern when searching for an expert.
One further complication is the ability of the forensic accountant to testify well. A good investigator does not necessarily make a good witness in court, so it is imperative to find a forensic accountant who can convey findings in a non-technical format.
Look for an expert who has testified ten or more times in the last five years. There is nothing wrong with asking an expert for a list of testimony experience prior to engaging her or him on your case.
Why does it matter?
An attorney generally gets only one chance to make her or his client’s case. Do you want an inexperienced so-called expert to spoil the evidence, spend your client’s money, and waste everyone’s time? It would seem so much more logical to engage a qualified, experienced expert who can handle the case the right way from the start.
I’ve often been asked how an attorney can differentiate between potential experts. My best advice is to ask fellow attorneys. I’ve found that attorneys are a fairly close-knit community when it comes to referrals. The names of the good experts will surface repeatedly.
Fortunately, bad experts are generally discovered fairly quickly. It takes only one botched case for an expert to be blacklisted. A botched case isn’t one in which the results were unfavorable to the client. It is a case in which the forensic accountant very simply messed up the investigation, issued a baseless report, or did not testify well.
Look for an expert who can “walk, talk, and chew gum at the same time.” A good expert should be familiar with legal terminology and should be able to carry on an intelligent conversation about her or his work on prior cases. The inability to communicate about one’s supposed area of expertise should throw up major red flags.
Forensic accounting isn’t really new, but has received more press in the last five years. Prior to that, forensic accountants worked quietly and without fanfare. Since this specialty is now the hot new career, it is important to be able to differentiate between truly qualified professionals and those who are simply in training. I don’t like to see clients spend money on training for a novice.
Locating the right bean finder may take a bit of work. It’s not always easy to verify an expert’s qualifications and experience. But the work will pay off in the long run, because you will work with a professional who has the proper credentials and the ability to execute under pressure.
Traditional accountants and auditors have long been referred to as “bean counters.” Some may take offense at the phrase, but if they’re being honest, they admit that it is a simplistic but accurate representation of the work they do.
Your average, everyday accountants and auditors are generally engaged to count the beans. They take a look at the numbers, make sure they all add up, and possibly issue a report saying how and why the numbers add up.
There are different kinds of beans, just like the various industries that accountants may come across. Counting different types of beans may require different techniques and rules.
Accountants are good at reporting their findings after they count the beans. But what if the beans are missing? Or what if the beans are there, but are so mixed up that they make no sense?
Would a “regular” accountant know how to find the beans? Could she or he sort the beans in a way that makes sense to non-accountants? The average accountant has never had to find or sort beans before, so who knows if she or he can find the beans?
Tracy L. Coenen CPA, MBA, CFE is president of Sequence Inc, a forensic accounting firm with offices in Milwaukee and Chicago. Ms. Coenen can be reached at 414.727.2361 or [email protected].
