Greater Scrutiny Creates Room For Specialists, Boutique Firms
By AMANDA BRONSTAD
The ongoing scrutiny of corporate America has been downright profitable for forensic accountants.
Once limited to solving the math problems of divorce and corporate lawyers, these specialists increasingly have been called on to conduct internal investigations, restatement tallies and white-collar criminal defense support.
Firms with forensic accounting practices have been able to make up some of the consulting work lost to Sarbanes-Oxley reforms, which aim to limit conflicts of interest between auditors and their public company clients.
"This is an interesting way for the accounting firms to move from consulting work into something else that's lucrative," said David Siegel, managing partner of Irell & Manella LLP. "The costs of audit services have certainly gone up. When you have an investigation leading to audit and restatement, that's a huge increase."
Many forensic accountants work for the Big Four accounting firms. Others work at small boutiques and at government agencies, which have employed forensic accountants for decades. The government, in fact, plays a large role in training the profession.
It can be a lucrative part of any private practice. One forensic accountant, David Nolte, a principal at boutique firm Fulcrum Financial Inquiry LLP in L.A., said Big Four firms would not even consider a project of less than $100,000. His firm, which handles projects as small as $10,000 apiece, charges an average rate of $200 an hour, about $50 to $100 per hour less than the fees at Big Four, he said.
Michael Spindler, a partner in charge of dispute consulting and forensic and investigative services at Deloitte & Touche LLP's L.A. office, insists the differences are less.
"It's not unusual for us to have a project that's $25,000," he said. "And our rates are fairly comparable to law firm rates and to boutique firms."
The costs depend on several factors. Are company executives cooperating in an investigation? How well did they keep records? Are those records computerized? Did people purposely hide records? How far back did the wrongdoing occur?
Much of it boils down to labor.
"How many documents are you going to have to pile through and how organized or messed up are they?" said Thomas Neches, an independent forensic accountant in L.A. and adjunct professor at Loyola Law School.
When faced with shareholder lawsuits, many large companies prefer that Big Four firms compile a financial defense because they may have already scrutinized the books for a restatement, said Siegel of Irell & Manella.
Another factor is resources. The Big Four firms may be best equipped to handle the most complicated cases, said Spindler. In the past year, the firm's L.A. office has almost doubled the number of forensic accountants on its staff, as audit committees request investigations of more whistleblower allegations or a board's concerns.
At the same time, size works against Big Four firms when they must turn down litigation work because they already represent both sides. "It is fairly common to have a conflict and turn down a project," Spindler said.
As a result, several boutique shops have gained new clients. Some sell general litigation services. Others have a niche in divorces, white-collar criminal defense or personal injury cases.
Paul Murphy, a partner at O'Neill & Sun LLP, said many boutique shops offer "equally good" services as Big Four firms at a lower rate. Still, fewer than a dozen boutique firms can claim they are significant players, Nolte said.
"There are a lot of firms that think they can do this," he said. "But there aren't that many firms that have really made a business out of it."
Not all forensic accountants work for accounting firms, either.
At the FBI, 70 of 660 L.A. agents are hired through a specialized accounting program, and many others have accounting backgrounds, said Cheryl Mimura, an FBI spokeswoman in L.A.
Bruce Kitagawa, a former Internal Revenue Service fraud investigator now at Miod and Co. LLP CPAs in Mission Hills, said many federal agencies serve as training grounds for forensic accountants. He said federal agents have a strong background in tax fraud and money laundering that can be applied to accounting investigations.
L.A.'s Bloodhounds: Below are a few local forensic accountants who have gained prominence over the years.
Cohen Mowrey & Miskei
Former Gursey Schneider star left to hook up with fellow forensic accountants Stephen Cohen and William Scott Mowrey to form entertainment-related shop Work on long-running "Winnie the Pooh" case was tossed out after judge determined that Miskei's independent report was too biased in favor of Disney A client, "Quantum Leap" producer Deborah Pratt, won an $2.4 million arbitration award against Miskei and his former firm after they failed to ferret out assets of her ex-husband, "Magnum P.I." creator Donald Bellisario.
Gursey Schneider & Co.
Former president of the California Society of Certified Public Accountants, considered the dean of forensic accounting in divorce arena Set out to be businessman, but became CPA after graduating with accounting degree from UCLA... Became a go-to guy for lawyers with whom he shared offices during the early part of his career Moved into divorce arena after the Family Law Act of 1970 established community property laws and a need to sniff out hidden assets.
Deloitte & Touche
Big Four Accountancy
L.A.-based lieutenant of firm's "global leader," Joe Anastasi, oversees a staff of 50 from downtown office Has doubled staff in L.A. over the last three years and will likely add another 20 people by next year Longtime client Mattel uses firm to on various investigations, including reconstructing records lost during a fire at the toymaker's Thailand factory.
Stern Hill & Gregory
His Woodland Hills practice is big local player in the niche specialty of investigating insurance claims Became a CPA as a "fluke" while studying for his MBA at Cal State L.A. "Plain vanilla" accountant switched after hooking up with forensic accountant Milton Stern in the mid-1980s Hates the term forensic accounting: "I use a phrase 'investigative accounting' because forensics is associated with death and divorce," he says. "We handle none of those."
For reprint and licensing requests for this article, CLICK HERE.