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Tuesday, Sep 26, 2023




Staff Reporter

The investigation and prevention of corporate crime is suddenly becoming big business so much so that law and accounting firms are flocking to compete with private investigators for the job of solving L.A.’s white-collar crimes.

It’s clearly a big market. The estimated cost of U.S. economic crime, which can range from employees writing themselves checks to the theft of high-tech trade secrets, was $114 billion in 1991 and is projected to be $200 billion by the year 2000, said Bruce Kelton, director of the fraud & forensic accounting/investigative services group at Deloitte & Touche LLP in downtown L.A.

Employee fraud alone now accounts for an estimated $40 billion in losses to American companies each year, said Kelton.

Kelton points to three primary reasons for the growth of corporate fraud: Middle management has been downsized, resulting in fewer controls on a company’s finances; people are facing increasing economic pressures; and improved technology allows perpetrators to pull off more-sophisticated schemes.

Conducting internal corporate investigations has become a bigger part of the business in recent years at private investigation firm Kroll Associates, said Western Region Managing Director Thomas Crowley who says most corporate fraud originates in a company’s purchasing department.

“More than 50 percent of all corporate fraud can be attributed to a company’s relationship to its vendors,” said Crowley.

Oftentimes, employees will set up fictitious intermediary companies and then funnel their employer’s products through the shell, taking a cut of a bumped-up price, Crowley said.

Another area that has become a booming business for investigators is tracking down thieves who steal trade secrets and intellectual property, said Crowley. This can range, he said, from employees stealing customer mailing lists to a company’s own manufacturing contractor stamping out counterfeit products at night after making legitimate ones during the day.

To investigate such activities, many accounting firms have formed special fraud investigation groups. Some firms hire former law enforcement officials such as FBI, secret service and IRS agents to staff these groups, or they form alliances with private investigators. These investigators bring with them skills such as interviewing potential witnesses and surveillance.

Accountants themselves have become so involved in the field that the American Institute of CPAs is for the first time creating guidelines for accountants who engage in fraud investigations, said Ron Durkin with the L.A.-based accounting firm Neilson Elggren Durkin & Co., who is a member of the AICPA’s litigation services committee.

“The first people that companies faced with corporate fraud think to contact are their accountants or auditors,” said Deloitte & Touche’s Kelton.

Attorneys are also getting into the act in a bigger way than ever before, claiming that their investigative skills are perfect for cracking corporate fraud cases.

James Asperger, who formerly worked for the U.S. Attorney’s Office, is now using his skills to conduct internal corporate investigations as a partner at O’Melveny & Myers.

Asperger said the business of conducting corporate investigations has increased for lawyers because of the growing number of government investigations into allegations of fraud.

“Companies are becoming more aggressive in trying to identify potential problems themselves before the government steps in,” said Asperger.

Attorneys doing this type of work are generally former federal prosecutors familiar with the justice system, he said.

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