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Investigating Economic Crime - Could You be a Forensic Accountant?

Author: Daisy Downes

Economic crime cost Irish business more than €2 billion last year according to a recently published report by RSM Robson Rhodes, and the true cost could be even higher as the report only highlights 'known' losses to business. In addition, Irish companies spent a further €500 million seeking to prevent and combat the problem. Daisy Downes spoke to Forensic Services Manager, Patrick D’Arcy. Patrick D'Arcy, says businesses need to take the risks posed by economic fraud more seriously and to put in place effective systems and controls to identify risk areas, implement safeguards, and ultimately to take action against perpetrators to recover the losses incurred. “The €2bn cost to business is staggering and could be just the tip of the iceberg. Economic crime is not just a concern for business - ultimately it costs us all”. Mr D’Arcy, who began his career with An Garda Siochana before qualifying with the then Coopers & Lybrand in 1994, has worked with both the Garda Bureau of Fraud Investigation and with the Competition Authority’s Cartel Division. Recently appointed Forensic Services Manager with RSM Robson Rhodes, he has 21 years of investigative experience to draw on in his new role. He believes awareness of economic crime and education are critically important: “Ultimately, to be successful in fighting economic crime, companies need to educate themselves on the problem and put this issue higher up on the boardroom agenda.” REPORTING CULTURE Mr D’Arcy is also concerned about the culture of non-reporting in Ireland. Very few companies are prepared to share information about economic crime incidents. While recently introduced legislation requires company auditors to report all forms of economic crime to the Gardai, the research conducted by RSM Robson Rhodes indicates a general lack of awareness in companies of this legal requirement. The recently published Economic Crime Report shows nearly 43% of Irish respondents don’t inform their external auditors of instances of economic crime and on average only 31% inform their industry regulators. Companies are also reluctant to report economic crime to the Gardai. The main reason for this is attributed to fear about the impact of negative publicity on their reputation / brand, supplier relationships, and shareholder equity. More awareness, education, discussion of economic crime within industry forums and closer collaboration between industry bodies and consumers have an important role to play in tackling the problem, Mr D’Arcy believes. ROLE OF THE FORENSIC ACCOUNTANT Forensic accounting is not just about number-crunching but involves a large element of psychology and good people skills, Mr D’Arcy says. “The Forensic accountant’s role is to come along and look at and examine a set of accounts and the prime books of entry for unusual entries ...It’s not that you have to go through every single entry. Transactions that seem to be out of sync or unusual create an element of doubt and questions have to be answered. Some of it is a sort of innate sixth sense in accountancy - in terms of your perception that there is wrong doing going on. “I’ve been involved in a number of investigations where people have indicated that they think they have been defrauded by €20,000 and their main concern is to find out who did it and how they did it. And you have to come back and tell them that the real figure is €225,000 and it’s your best friend, your fellow director on the board who has been doing it for the last three years.”

Sometimes it’s the person that is closest to you in business that you should be watching the most. “The difficulty is that where there is an element of trust and a relationship built up some people will tend to abuse it and that is how frauds are occurring. And inevitably the fraudster will turn around and will have a justification from their point of view ‘Well I work here 12 hours a day and I only get paid for 8, so that’s why I took €400,000 over the last five years’. So books on forensic accounting written over the years invariably identify the same personality traits: the individual doesn’t take any holidays, never leaves the desk, is first in and last out of the office in the evening”. “Most fraudsters when they are apprehended or their crime has been discovered will try to legitimise it. They will tell you right up to the last day, to the commencement of a court hearing, ‘You don’t understand what was happening. You’d have to know what was happening ...’. The whole thing is self-justification.” PSYCHOLOGY People skills and psychology are therefore an important part of the forensic accountant’s toolkit, but so too are knowledge of civil and criminal court procedures, and good presentation skills. “In the Gardai, you develop strong people skills probably for the wrong reason. You tend to look at the bad side of everything straight away. You are more a pessimist than an optimist.”.

Forensic accountants try to be altruists. They try to bring a remedy to every situation ... One of the advantages of my background is that you can be in forensic accounting for a number of years but you won’t have had the experience of court preparation and the court practical ... you can generate plenty of reports but the whole idea of presentation in civil cases to the judge and jury, or in criminal cases in relation to that expert evidence is fundamental to the role of the forensic accountants. “If you have a small company where there are two or three directors and they have been defrauded by one of their fellow directors, the difficulty for them is that they have to fund the costs, they have to come along and provide all the services to identify and quantify the damage and they have to go through the whole process of the criminal case and then the civil recovery of funds. Meanwhile the suspect ultimately is convicted by the court. He has all the benefits - free legal aid, the right to silence, etc. ... At the end of the day, the victims often get more satisfaction from the word ‘Guilty’ than from anything else.” Asked if forensic accounting is always reactive, Mr D’Arcy agrees that it is: “Clients are usually trying to prove that something has happened so it tends to be reactive rather than proactive. What we are trying to do is to get out there and try to prevent it - to put in controls before things happen. A lot of businesses don’t properly understand the risks they are trying to manage. That would be a key issue - helping people identify risks and what they can do to try to protect themselves and their business against those risks.”

For more on the RSM Robson Rhodes Economic Crime Survey visit www.rsmi.ie.

Investigating Economic Crime - Could You be a Forensic Accountant?

Author: Daisy Downes

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