Public protector: integrity defines extraordinary forensic CPA.

If, for a single day, fate would allow each of us to appear as our alter egos, Paul Regan undoubtedly would fly into Hemming Morse's San Francisco offices as an evidence-wielding caped crusader. Just ask John DeLorean and Michael Milken--two of the many corporate scoundrels Regan has helped to bring to justice with his pioneering work in forensic accounting.

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Regan, president and chairman of Hemming Morse, Inc., brings the same energy, determination and integrity to his term as CalCPA chair that he brings daily to the office as he heads one of the nation's top forensic accounting practices.

ALL ABOUT TRUST

Reflecting on the lingering fallout from the rash of high-profile corporate scandals, Regan--who has been named an expert witness in the case against Enron--has emerged with a clear mission: "We must focus on the restoration of the CPA brand, because 99.9 percent of the people in our profession have integrity, are competent, independent, objective and protect the public."

Regan wants to reinforce this point to Californians through CalCPA's continuing image advertising campaigns and public outreach efforts.

He'd also like to see additional corporate reforms focused on scrutinizing those who "cook the books."

In an ideal world, Regan says, CPAs with active licenses would be the primary preparers of financial statements for public companies and perhaps a few other types of entities, like large nonprofits. He believes that financial statements prepared by those without the skills of an active CPA are at increased risk of containing misstatement.

Currently, "Regulatory focus has been on auditors, but auditors don't prepare the financial statements," Regan says. "The people cooking the books are not being held under the microscope or under the scrutiny of licensing authorities."

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But those crooks are often held under Regan's microscope.

BLAZING A TRAIL

Regan's pioneering work in forensic accounting began in 1970 when, a tender two years into his career at Peat Marwick, he was given a leadership role in auditing for the firm's San Francisco office. There, an audit of the commercial airlines Airwest--on the eve of its acquisition by Howard Hughes' Summa Corporation--became an engagement he calls "one of the largest influences on my career."

Regan noticed Airwest had made some unusual accounting entries that reduced the purchase price received by the shareholders. He pointed out the discrepancies to the shareholder's council and, for the next seven years, Regan worked on the resulting securities litigation case and was introduced to forensic accounting.

It opened the door to many future engagements. "I met many other attorneys through the Airwest case and later started working with those law firms on other cases," he says.

In 1973, Regan was promoted to Peat Marwick's management group, along with colleague John Skelton, but the two quickly saw an opportunity in forensic accounting.

"I looked around at that time and there were no firms that I knew of doing this kind of work," Regan says. "So John and I decided to try our hand at running our own company. We wanted to control our own destiny."

In September 1973, Regan & Skelton opened its doors. Since there were so few firms doing forensic accounting--and through the contacts Regan made from the Airwest case--the work piled up. So, in 1975, in need of office space and staff, Regan & Skelton merged with Hemming Morse, which at the time totaled only 13 employees. The rest, as they say, is history.

By 1996, Hemming Morse had 130 employees. Since its revenues were evenly split between forensic accounting and audit and tax work--and with little synergy between the two divisions--the firm spun-off its tax practice and a portion of its audit and accounting practice into San Francisco-based Burr, Pilger & Mayer LLP and San Mateo-based Harp, Harb, Levy & Weiland LLP.

BRINGING THEM TO JUSTICE

Regan has used his forensic accounting expertise to help the FBI, SEC, Federal Deposit Insurance Corp. and the U.S. Department of Justice, as well as various states' attorneys general, the British government and scores of large public companies.

He was involved with the British government's fraud investigation of John DeLorean and has helped various U.S. agencies investigate the Drexel Burnham junk bond scandals, as well as the savings and loan scandals of the late 1980s.

Some of the cases Regan has been involved with could serve as fodder for a "Law & Order" episode--every bit as dramatic and implausible. Take, for example, the case of MiniScribe, a maker of computer disk drives.

Since its disk drives were about the size and weight of a brick--and with no hope of meeting Wall Street's earnings expectations--MiniScribe held a mock company picnic at its warehouse, where employees packaged thousands of bricks, disguised as disk drives, and made it seem as though it they had been shipped to customers.

The bricks were then hidden on a ranch (owned by the controller's uncle), and brought back to the warehouse a few days later. The company then reversed the recorded revenue and receivables (it did not want the outside auditor to confirm these sales) as of year end.

"They increased inventory by their standard cost of a drive, which at the time was around $200," Regan says. "And they reduced the cost of goods sold by $200. All as a result of buying 26-cent bricks."

THE WRITING ON THE WALL

Regan says the most satisfying work he does concerns public frauds, companies that act as if they're a money market fund, a precious metals company or a mortgage broker, for instance, to bilk the unsuspecting.

In one such case, Regan took part in an FBI raid of a supposed Bay Area-based precious metals investment firm. "It's like the raids you see in the movies," he says.

"We were there to take the accounting records. But the firm had been tipped off. When I went up the elevator, I could see that something very heavy had just rolled along the carpeting," he says. "And I saw gouges on the wallboard in the hallway."

Regan followed the marks to a computer room, "which didn't have a computer in it," he recalls. After finding the missing computer's back-up tapes, which implicated the precious metals company, one of the players involved confessed that they had dumped the computer in the San Francisco Bay.

HIT MEN AND TABLECLOTHS

Regan also worked on a case with the FBI that involved a contract murder. While investigating a public fraud, one of the three principles of the suspected company died. The FBI suspected an organized crime connection and told Regan to be on the lookout for suspicious invoices.

"We found an invoice, and all it said was 'For Services Rendered, Initial Payment: $25,000. Amount Now Due: $25,000. Project now complete,'" he says. "There was no other description." And sure enough, Regan's work led to the arrest of the hit man.

Then there's the case of a popular San Francisco restaurant with two owners--one that provided the funding and one that managed the restaurant. For the restaurant's first three years, money poured in. But during the next three years, a profit was barely shown.

The managing owner told the investing owner that business was just slow, but the restaurant seemed as busy as ever.

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That's when Regan got involved. "I asked the investing owner whether they changed tablecloths after every meal and had them laundered. He said 'yes,'" Regan says. "I had the laundry records subpoenaed and the waiter checks--the top of a bill that shows what the bill came to--produced. I then created two databases."

For the first three years, the number of waiter checks and laundered table cloths were essentially equal. But for the last three years, Regan found that "there were 600 tableclothes being laundered a week, but only 300 waiter checks." When he confronted the perpetrator with the chart, "the guy basically said, 'Wow, you nailed me.'"

Regan's work in forensic accounting has expanded the profession's vocabulary and broadened the definition of an accountant. But when asked about his career, he's characteristically humble.

"That's just accounting," he says. "Accounting is the history of a company, how it's organized, maintained and kept."

BETTERING THE PROFESSION

Regan's commitment to bettering the profession can be seen by his extensive involvement at the national and state levels.

Among his work at the state level, Regan was on the California CPA Education Foundation's board of trustees from 1997-2003 and served as treasurer, first vice president and president.

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He is the immediate past chair of the Litigation Sections and has served as chair of the Economic Damages Section, Litigation Services Conference, Advanced Litigation Forum Planning Committee and Computer Show and Conference.

Nationally, Regan has been an AICPA Council member since 2003; a member of the AICPA Litigation and Dispute Resolution Services Subcommittee from 1998-2001, as well as chair of its National Economic Damages Subcommittee from 1999-2001; and a member of the AICPA's Auditing Standards Board National Computer Audit Subcommittee.

He also has served on the American Arbitration Association's National Panel of Arbitrators and has been involved in leadership roles with the Western Association of Accounting Firms.

PUBLIC DUTY

Regan's civic contributions include serving on the board of trustees at Golden Gate University and the Jesuit School of Theology at Berkeley since 2002. And some of his civic contributions hit close to home.

Since 2002, he's been mayor of Hillsborough, about 20 miles south of San Francisco, where he lives. He's also been vice mayor and commissioner of finance for the town, and has served as president of the Hillsborough City School District Board of Trustees and the Hillsborough Recreation Commission.

Regan began working with the town when budgetary problems threatened to roil the school district in 1985. "I volunteered to help work with the budget, which led to my involvement with the school district," he says. "My CPA background has really helped me serve the public in more ways than one."

A FAMILY AFFAIR

Regan and his wife of 36 years, Barbara, have three children, and Regan's passion for accounting has inspired two of his children to follow in his footsteps.

The oldest, Greg, began his accounting career with Ernst & Young and then moved to be controller of SupportSoft, a software maker that he helped turn a profit and launch a successful IPO. Itching for his next challenge, he began asking his dad about forensic accounting and career opportunities at Hemming Morse.

"For about six months, he talked with various partners of mine. I didn't want to influence his decision," says the elder Regan.

Now, a year and a half later, Greg Regan is a manager in the forensics practice of Hemming Morse. Dad reports, "He's doing a great job."

Tim Regan also caught the accounting bug--specifically auditing--and is a manager at Ernst & Young in Palo Alto. Regan's daughter, Courtney, is an account executive for an advertising agency in San Diego.

TEARFUL BEGINNINGS

Regan's accounting acumen, problem-solving abilities and sense of public duty have formed an extraordinary career. It's a good thing, too.

"When I started college, I thought I'd go into human resources, because I've always been a people person," says Regan.

But a funny thing happened to Regan while taking an accounting class at the University of San Francisco--he loved it.

"I enjoyed the accounting assignments immensely. I enjoyed solving the puzzles. But at that point, I had no idea you could make a decent career out of accounting," he says.

After being recruited by Peat Marwick in his senior year, Regan informed his mother that he would take a job as an auditor.

Regan's mother, a schoolteacher, wanted her outgoing son to do something that would help people. When informed of his career choice, she replied, "My God, you're going to be an auditor? And then she began to cry. So I figured out right then that our profession has an image problem."

As his career gathered steam, Regan showed his mother that there was public good in the work he was doing--that CPAs safeguard and provide information that helps the public. It's a point Regan continues to keep in focus.

Jerry Ascierto is CalCPA's associate editor. You can reach him at [e-mail].