25 Years of FSS: Looking into the Past, Present and Future

25 years ago, a dream came true – Forensic Strategic Solutions (FSS) came to life! In October of 1992, FSS was created as the product of a plan to specialize in investigative financial services. We narrowed our scope to the specific field of fraud investigation, while also serving as expert witnesses on complicated financial matters. Many people thought such a niche practice would not be successful, but today, the industry continues to flourish. In fact, back in 1992, few people – especially in the general public – had even heard of forensic accounting. Most folks thought forensic accounting was providing accounting services to dead people!

To celebrate the 25th anniversary of our company, we are examining how the industry has changed, revisiting our most fond memories and forecasting how we predict both FSS and the industry will evolve over time.

What has been the most significant change in the industry since FSS opened?

Until the mid-1990’s, courts of law did not recognize anyone as a “fraud expert” – nor had they heard of a Certified Fraud Examiner (CFE). In the late 1990’s, the Association of Certified Fraud Examiners (which was founded in 1988) and its members were recognized by governmental agencies for their expertise in fraud detection and prevention. CFE then became a recognized brand of fraud experts. Even the television series, “The Sopranos,” identified the forensic accountant as an investigator and expert in fraud! Times were changing, indeed.

In 1997, the American Institute of Certified Public Accountants (AICPA) began requiring certified public accountants (CPAs) to look for fraud in financial statement audits. This was also the year AICPA first used the word “fraud” in any of the accounting professional standards or literature.

In July 2002, as a result of massive fraud schemes in publicly traded companies such as Enron, WorldCom, HealthSouth and Adelphia Congress, the Sarbanes-Oxley Act was signed into law. This legislation was enacted to require reporting companies to implement strong internal controls, enforce management, compel their auditors to make assertions about the reliability of financial statements, and ensure that the companies were free from fraud.

How have the industry and the company evolved over the past 25 years?

The enactment of Sarbanes-Oxley led to industry recognition and growth – consequently, many accountants began to hold themselves out as forensic accountants. To the true financial investigator, however, the industry, while growing, remains very small with only a few organizations and firms equipped with the necessary skills to successfully conduct financial investigations.

As for FSS, in the early days it was much easier to practice solo. As the industry has evolved and technology has exploded, it has become virtually impossible to successfully practice alone. Our firm has found continued growth and success by building a strong team of financial and technology experts whose individual areas of expertise complement and support each of our five integrated practice areas.

What is your most meaningful memory since opening the business?

I have watched, with great pride, as our team has continuously grown to new heights and successfully taken on larger and more complex engagements.

Personally, in 2010 I was recognized by the Association of Certified Fraud Examiners with the Cressey Award, which is the organization’s highest honor bestowed annually on one individual for a lifetime achievement in the field of fraud detection and prevention.

How has technology shaped financial investigation? Where was it 25 years ago, and where is it going?

Data mining and artificial intelligence are significant keys to success in a financial investigation – after all, knowledge is power. These tools allow investigators – and even auditors – to review and analyze all the data in financial records, NOT just test it on a sample basis.

CPAs and auditors have been extremely slow to embrace technology and artificial intelligence as a method to perform their work. Current professional literature touts these methods as new, novel and great ways to change the industry. We have been using these tools for over 20 years, which has been critical to our success in helping our clients to detect and prevent fraud.

Financial data tells a story – data mining, advanced analytics and artificial intelligence allows us to get behind the story and objectively dig out the truth, whether it’s in support of or in stark contrast to the story being told by the party we are investigating – which could be a company, the suspected wrongdoer, or the plaintiff or defendant in a litigated matter – you name it. Technology is one of the key tools in our forensic toolbox.

What do you deem important to the future of financial fraud investigation?

Financial fraud investigation has never been more important than it is today with the proliferation of electronic devices and communication. Bank robbers no longer need to leave the comfort of their homes to steal millions of dollars from banks, organizations and individuals.

Fraud investigators must continuously be trained in all aspects of a financial investigation, yet remain smart enough to know that as the complexity and sophistication of fraud schemes increase, they won’t be able to perform each aspect alone. Staying ahead of technology changes, understanding new fraud schemes, knowing how to legally and ethically conduct financial investigations and building expertise in interviewing are just of few of the critical skills involved in financial investigation.

Where do you think FSS will be 25 years from now? What about the industry?

FSS will continue to be a leader in the financial investigation niche as expert witnesses and financial investigators because of the expertise we possess and the recognition we have received. We will continue to strategically build our team of financial and technology experts. The firm will have double-digit growth for at least the next 10 years.

The need for financial investigators will continue to grow, but the firms providing investigative services will be small, niche firms who have the expertise I have discussed. Our world of real forensic accountants, not those who just claim to be forensic accountants, is limited to those individuals who have very unique skills, intelligence in the field and an undying passion to solve financial jigsaw puzzles.

We are so grateful to our partners, employees and friends who have been by our side throughout the incredible past 25 years. We look forward to seeing what the years ahead will bring!

Trust Your Employees, but Verify Their Actions

Our team recently wrapped up another sizeable fraud examination for a small business whose trusted bookkeeper embezzled hundreds of thousands of dollars. While the names and the faces of fraud change, the story remains the same: the employee you least expect, the most trusted of them all, takes advantage of their position – and you – for their own personal gain.

Chances are, most of your employees would never dream of stealing from your organization. Honest people, however, have been driven to embezzle when faced with perceived overwhelming financial troubles. Perceived financial desperation, coupled with opportunity and constant temptation, increase the odds that even the most honest employee will succumb.

What do you think would happen if you scattered 1,000 one-dollar bills around your company’s break room with a sign that simply asked your employees not to steal? How long would it take for someone to give in to the rationalization that no one will miss just a couple of the one-dollar bills? It likely wouldn’t take long.

If most employees would steal under the right circumstances, how can you possibly prevent embezzlement? The answer begins with you.

Trust, but Verify

All too often, employers have a false sense of security and think they are immune to the risks of fraud, with thoughts like:

“My bookkeeper is the first one in and the last to leave.”

“They’ve been with me for years.”

“But I pay them so well. . .”

“Our accountant gives us a clean bill of health every year.”

Allow yourself to consider for a moment the opposite – that employee theft could happen to you. After all, according to the Association of Certified Fraud Examiners (ACFE), companies lose an estimated five percent of their annual revenue to fraud. Who at your company might have the opportunity to commit wrongdoing and is in a position to conceal it?

The first rule of thumb is to never leave someone in a position to check their own work. Think of a transaction like a circle: no single person should ever be allowed to complete the circle by themselves. You need to segregate duties, especially when it comes to bookkeeping.

Ask yourself these questions:

  • Who has access to the money coming in? Don’t leave them with the authority to post or edit customer transactions.
  • Who has access to the money going out? Don’t leave them in a position to create new vendors or employees – not to mention the authority to sign checks or execute bank transfers.
  • Who orders parts or services? Who opens the mail? Who takes the money to the bank? Who writes the checks? Who mails the checks? Who reconciles the bank statement?  I hope you are getting the picture.

Segregating duties in a small business isn’t always easy, but it can be done. One approach is to find a way to insert yourself into the process:

Cash receipts: Ideally, the employee collecting money and posting payments should not be the employee who bills customers. Only one employee? Don’t provide them with administrative rights to post credits, write-offs or void customer transactions. If you do, be sure to verify the electronic Audit Trail (an invaluable feature of QuickBooks, but most accounting programs have them). Stay informed.

Cash disbursements: When your bookkeeper is the only one able to disburse money and reconcile the bank statement, ensure that bank statements and cancelled checks are delivered to you – preferably to your home – and reviewed before providing them to your bookkeeper.

Debit or credit card purchases: Your bookkeeper is likely paying these bills. Don’t give them authority to increase limits or request additional cards. Place daily and monthly limits on cards and monitor them regularly. Receipts should be submitted and reviewed before the bill is paid.

Fraud is an unfortunate but all too real component of conducting business. By staying vigilant, segregating financial duties and verifying your employee’s actions, you can protect your business from embezzlement.