Technology detects anomalies.

Deloitte & Touche LLE, the professional services firm, has its own forensic unit that assists corporate clients with fraud investigations, said William O'Connell, national leader of the firm's Forensic and Dispute Consulting Services practice.

"When someone perpetuates a fraud internally, an embezzlement, we investigate that" said O'Connell, a founding partner of the practice. "Forensic investigators also assist companies with corporate investigations either required by a regulatory agency or separately by the board of directors"

He recalled one case when company officials received an anonymous letter tipping them off that someone was stealing gasoline from their storage tanks. "We went in and helped them find out what the issues were," O'Connell said.

Technology helps them get these answers. O'Connell, who has more than 30 years of experience in this business, started out when forensic accountants were using paper spreadsheets and everything was noted by hand. Now, technology has taken over, and his staff is able to use some very sophisticated tools that will readily detect anomalies in recordkeeping, he said.

"Very few companies have one integrated system--they might have a human resources system for payroll, an accounts payable system that makes payments, a system that does purchases, and another system that keeps track of intellectual property" O'Connell said. "What we try to do is develop programs and technology to match those systems."

For example, the Deloitte & Touche staff might run employees' Social Security numbers in the payroll system against tax identification numbers in the accounts payable system. "And guess what? We might fred that a company is making accounts payable payments to people who have the same tax ID number as their employees," O'Connell said. "Maybe that's appropriate, maybe it's not. But it's something that should be investigated"

Or, Deloitte & Touche might run a file of terminated Social Security numbers against active ones and find out that a company is paying 50,000 employees and seven of them happen to be on the termination list. "Some of these might be simple mistakes and some might be an indication of fraud," he said.

In fact, the advent of technology is one of the most significant changes in this business, O'Connell said. Technology provides forensic investigators the ability to go in and query systems, make comparisons and do "what if" scenarios. "With an insurance claim in the old days, you set your prices and set your costs, and ff you wanted to do a what if, you had to do a side calculation--what if the price went up 10%, or what if the price went down 10%, or what ff the costs went up 10%?" he said. "Now you can do almost an infinite number of variations on a computer."

Recent news reports have focused on investigations into mutual funds and market timing on trades. "Some of those investigations are ordered by regulatory authorities--the SEC, the Justice Department--and we are sometimes hired by the regulatory people or by the company, itself, to help carry out an investigation" O'Connell said.

Even the boards of some companies not named in these probes but operating in the same industry may wonder if they, too, have a problem. To fred out, they will initiate a forensic investigation before any agency asks them to do so, O'Connell said.

Finance and Law Enforcement

When companies issue a restatement, boards or regulatory agencies may require an investigation. In that case, O'Connell's division would work with Deloitte & Touche's audit group in ferreting out any discrepancies. "Our forensic investigators either come from a financial background--certified public accountants and financial analysts--or they come from a criminal background--former law enforcement people," he said. "We have people from the FBI, the Justice Department and even the Royal Canadian Mounted Police"

Some 25 years ago, this work was done only by certified public accountants who handled insurance claims. Now, "there's a vast array of people in the practice," including construction experts and engineers who help with construction litigation, economics experts, law enforcement people, nurses who assist with health-care cases, lawyers and former prosecutors, O'Connell said.

When it comes to insurance claim consulting, O'Connell's division usually will represent corporations in disputes with insurance companies. He estimates that more than 90% of his unit's recent business has come from its involvement in claims related to the Sept. 11,2001 attacks.

Forensic accounting goes back at least 50 years, O'Connell said. He knows that one of his mentors started investigating insurance claims in the 1950s for insurance companies. But he thinks it became a real industry in the early to mid-1970s when CPAs from the then Big Eight accounting firms took an interest in providing expert testimony. "I remember when I would go out to meet with attorneys and we'd say we do this kind of work and they'd say, 'I didn't know accountants did that.' Now every accountant, Big Four, middle tier, small tier, depending upon their clientele, probably offers some form of litigation activity," he said.

O'Connell was in regular auditing for 11 years before he turned to forensic investigation. "This became an interesting way to apply my financial knowledge in understanding how a company makes money, and to get involved in these disputes and help negotiate insurance company claims with the client," he said. "It's just a lot more interesting work."