Demand Surges for Experts in AML and Forensic Accounting
U.S. Accounting firm BDO Seidman recently announced its annual revenue jumped 12% percent in 2008, helped by strong growth in its consulting business. BDO - one of the largest U.S. accounting firms after the “Big Four” auditors - says revenue for the fiscal year ended June 30, 2008 increased to $659 million, an 11.9% percent increase over last year’s revenue of $589 million. The firm points out that while its core business lines of assurance (+7.1%) and tax (+11.2%) showed continued growth, the firm’s consulting business line achieved unprecedented growth of a whopping 84.6%. BDO Seidman CEO, Jack Weisbaum, says one of the main drivers behind the growth is increased demand for its anti-money laundering and forensic services.
Exacerbated by the credit crisis and economic slowdown, the fields of fraud and litigation as well as forensic accounting are hot…and getting hotter. Membership in the Association of Certified Fraud Examiners (A.C.F.E.), which was founded only in 1988, has increased by more than 50% since 2003 to 45,000 members. Executive search firm, A.E. Feldman, says that accounting jobs, particularly fraud and litigation opportunities as well as business valuation jobs are opening up. CPAs with expertise in forensic accounting are in a prime position to capitalize on the surge in demand. The recruiting firm adds that the CFE (certified fraud examiner) has emerged as the “gold standard” in the area of fraud. The certification not only opens doors for qualified candidates, but also commands a higher salary.
The changing nature of business has created new opportunities, but also new risks and potential threats, according to KPMG. Among those risks are the increasing sophistication of fraud, organized crime and terrorism, more complex legislation and regulations, developing challenges around technology, complex cross-border disputes as well as the theft and misuse of intellectual property. And dealing with corporate fraud increasingly requires multi-purpose teams, bridging legal, accounting, technology and investigative skills, according to a report from Kroll, the world’s leading risk consulting company.
Banks to Boost AML Efforts
Estimated money laundering flows are reported to be in excess of $1 trillion annually, according to KPMG’s 2007 Global Anti-Money Laundering Survey. The firm notes that as the gatekeeper to the legitimate financial system, the banking sector faces continued challenges combating money laundering amid recent and rapid change in the financial services industry and growing regulatory pressures.
UK banks alone have been hit by record levels of fraud over the past six months and the situation is likely to get worse as the full impact of the credit crunch unfolds, according to FinExtra, citing KPMG research. According to the report, KPMG Forensic’s Fraud Barometer shows that banks are the main victims of fraud, accounting for more than 50% of all cases. KPMG adds this is more than the total for any previous entire year of the 20 year history of its Fraud Barometer.
AML costs have grown well beyond expectations, according to the KPMG survey. Those polled say average AML costs have increased by 58% over the last three years – much more than previously expected. The survey also shows that banks predict an average increase of 34% in AML costs over the next three years.
The main drivers of the past and future increases in costs continue to be transaction monitoring and staffing, finds KPMG’s survey. According to the report, “As banks develop more risk-based AML programs, the pressure will be to focus on using resources within compliance effectively and efficiently, and this may involve considerable reallocation of resources within compliance as well as cost reduction through outsourcing, offshoring or centralization of AML functions.” The survey results also show significant investment in AML systems and controls, and increased engagement from senior management.
Tackling Corporate Fraud
Multi-purpose teams are required to tackle corporate fraud, according to a report from Kroll. “Increasingly, the cases we deal with are cross-border and multidisciplinary,” said Blake Coppotelli, a New York-based Senior Managing Director in Kroll’s Business Intelligence and Investigations division. “Not considering one aspect or another risks jeopardizing success.”
According to the report, the intricacies of the U.S. legal system are having a major impact in the way investigations are addressed, even in cases outside the United States. “Concepts like privilege and discovery must be considered in any investigation,” said Coppotelli. “The application of U.S. law to foreign subsidiaries, increased litigation and legislation like the Foreign Corrupt Practices Act underscore the need for sound investigative methodology,” he adds.
Sophisticated accounting techniques are necessary to detect, trace and resolve frauds - especially when the results may impact financial statements, finds the Knoll report. “The skills of forensic accountants are essential both to uncovering the extent of certain frauds and to negotiating the regulatory challenges which they entail,” said David Hess, Managing Director in Kroll’s Forensic Accounting and Litigation Consulting practice.
Forensic accountants conduct investigatory accounting work in preparation for prosecution and litigation. They identify evidence of irregularities in financial statements and non-financial records and build compelling cases for what that evidence shows. Forensic accounting requires familiarity with both criminal and civil law. They must use hundreds of techniques from statistics to psychological profiles.
Need Surges for Forensic Accountants
Looking ahead, forensic accountants today must be adept at dealing with the many complexities involved in investigations, including managing cultural divides in cross border disputes, tracing and recovering assets, maintaining confidentiality and maintaining momentum when hard evidence doesn’t surface, according to Knoll.
The New York State Society of CPAs recently held a conference to discuss ways that accountants can battle fraud at the companies they audit, according to WebCPA. During the conference, PricewaterhouseCoopers Partner, Jonny Frank, recommended that accountants invest time in building relationships with lawyers to collaborate on more cases. Accountants should be sure to “become a core member of the team” in an investigation, he said.
WebCPA also quotes Bryan Skarlatos, Partner with the law firm Kostelanetz & Fink, and Professor at New York University Law School, as saying, “State of mind is the most important thing in fraud investigations.” The report states that fraud examiners often need to find a “badge of fraud” such as a double set of books or an offshore bank account to prove that the fraud is intentional.
The FBI is currently investigating 21 companies involved in the mortgage/subprime industry. “Given the volatility of today’s subprime market, we have seen an increase in subprime-related complaints,” reports the FBI.
In recent months, the FBI announced it was already investigating 14 corporations involved in subprime lending as part of its Subprime Mortgage Industry Fraud Initiative launched last year. The companies in question come from the financial services industry, including mortgage lenders and investment banks that bundle loans into securities which are sold to investors. Forensic accountants are among the professionals the FBI has enlisted to work on the investigations, according to AccountingWeb.com.
FTI Consulting, the global business advisory firm, says that opportunities in forensic and litigation consulting will be significant in 2008 as litigation surrounding the global credit crisis and turmoil in the financial markets has started to provide multiple engagements. The firm says the issues involved include valuation of complex financial instruments, financial statement reporting and investigations into business practices.
A.E. Feldman’s accounting and legal divisions are constantly researching industry trends and developments. To learn more about these issues or inquire about existing and future job opportunities in accounting or legal, the lines of communication are open. Contact the A.E. Feldman’s President, Mitch Feldman and the firm’s cutting edge recruiting team here.
