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Forensic Accountants Uncook Bogus Books : Investigators also advise companies on how to limit opportunities for employee fraud by installing more checks and balances.
By Christina Lee
Michael L. Mann was a rising star in the Long Beach office of a manufacturer of underground storage tanks.
People who knew Mann told investigators that he was a hard worker who had risen through the company’s ranks to become executive vice president in charge of daily operations. Sales were strong, thanks largely to federal environmental laws requiring more stringent rules for underground storage of chemicals.
Then, in April, the company’s auditors sounded an alarm. They said that $200,000 of the company’s money had been misappropriated and that more money might be missing. They recommended an immediate investigation.
The auditors called in a team of so-called forensic accountants, who specialize in financial investigations. The company they hired was Murphy & Maconachy Inc., a Santa Ana firm considered one of the nation’s top financial investigators.
After a two-month investigation, MMI officials determined that since 1988 Mann had been creating bogus billings to nonexistent companies and cooking the company’s books. The company’s losses: $500,000.
Mann, 35, pleaded guilty and was sentenced in December to spend 10 weekends in a New Jersey county jail, to perform 200 hours of community service and to serve three years of probation.
As the recession lingers, companies out of necessity watch the bottom line more closely. For some companies, that watching means keeping an eye out for employee fraud. Investigators advise companies on how to limit opportunities for employee fraud by installing more checks and balances in the way they conduct business.
Private investigators such as Murphy & Maconachy, of course, benefit from this increase in fraud. Mark T. McGannon, the company’s marketing director, said business was up 15% in 1991, when annual sales topped $4 million for the first time ever.
Lee M. Roberts, a retired San Clemente police officer who started a Santa Ana investigation firm 10 years ago, said insurance fraud has been on the rise.
People or companies will often try to inflate losses by altering the receipts of damaged properties, thus increasing the amount of their insurance claims. Often, “people fail to alter the tax on the doctored invoice, and that’s how they’re caught,” he said.
Bankruptcy fraud is another area that keeps investigators busy. The recession has put many individuals and companies in financial trouble. That has led to an increase in cases where assets have been illegally hidden from creditors, investigators say.
In Orange County, bankruptcy filings reached a record 12,368 in 1991.
Financial investigators report an increase in requests to search for hidden assets during the past year. Martin Investigative Services Inc. in Orange said demand for this particular service is up 30% since last March.
Thomas G. Martin, owner of the firm and a former Justice Department agent, said 95% “of the times that we get called in to a case, there’s a fraud going on.”
He traded in his badge 10 years ago to start his own company, which he staffed with former Internal Revenue Service and FBI agents.
“We analyze a company’s books to determine at what level fraud has been committed by company personnel,” he said.
“We add up and subtract numbers to see if anybody has blatantly stolen money from a company or made an error in accounting,” he said. “Unfortunately, the former is what happens most of the time.”
Lately, even Las Vegas casinos are complaining about increased fraud. At the request of several attorneys representing casino operators there, Martin said, he is applying for a license to open an office in July in Las Vegas.
“There are a lot of people who go to Las Vegas for entertainment and leisure, and they get into trouble,” he said. “Our job is to assist the public in litigating civil or criminal matters.”
Tips for Finding a Financial Investigator
* Make sure the firm is licensed by the state Bureau of Collection & Investigative Services.
* Ask for references and check them.
* Find out if the company specializes in a particular type of financial investigation.
* Ask about the backgrounds of the firm’s personnel. A typical group might consist of former federal agents, police officers, accountants and computer specialists.
* Find out what services will be provided and get an estimate of fees. An asset report for a medium-sized company can cost about $1,000.
Source: Murphy & Maconachy Inc.; Martin Investigative Services Inc.; and Roberts Protection & Investigations