June 20, 2013
David Glusman, Advisory Services Partner & Frank Rudewicz, New England Regional Leader, Forensics Practice Group, Interviewed in Metropolitan Corporate Counsel "To Catch A Thief: Forensic Experts Weigh in on the Fraudster Profile
Editor: What are the types of corporate fraud that exist, and which are the most common?
Glusman: There's no limit to the types of corporate fraud people can come up with, including Ponzi-like schemes in which a corporation creates fictitious sales and builds on them. But many of the frauds we see involve fictitious employees (sometimes referred to as "ghosts") and fictitious vendors. A perpetrator can create a company and start making modest payments for non-existent services and goods. Those are the sort of "plain vanilla" situations we run into.
Contract-related fraud might include accounting and financial fraud, with the books being cooked. Let's say I'm an employee who will receive a bonus based on meeting certain criteria – for example, if I hit $10 million in sales in my division this quarter, I will receive a $10,000 bonus. So, if I'm running along at a rate of $9.5 million, knowing I need only half a million dollars in sales, I can create false contracts, invoices and shipping documents. In recent years, technology has made the creation of fake documents much easier.
Rudewicz: The prevalence of certain kinds of fraud is industry-specific. With public projects, we see more in the way of fictitious employees and of extending fraud through the bidding and contractual process. In smaller companies, fraud tends to center around cash – cash schemes, asset misappropriation schemes and check tampering. At lending organizations, we see a lot of asset-based lending fraud involving misappropriations and deviations in inventory accounts, so that a perpetrator can receive monies from his/her lending institution.
Editor: When fraud cases come to litigation, in what capacity do you serve? Do you serve as expert witnesses?
Rudewicz: Yes, frequently. On the investigative side, I have been called on to conduct an independent review such as a proof of loss investigation, either as an independent for the policyholder to certify that there was a loss, or for the insurance company on whether to pay out the claim. In litigation, I have testified as a subject matter expert in a number of different matters.
Glusman: Most of us at Marcum LLP don't represent one side or the other. I have worked on behalf of an insurance company, trying to show that a fraud that may in fact have existed didn't result in the loss that was reported – or to show that the fraud was discovered much earlier and should have been reported at that time – and that denying coverage is appropriate. We don't opine on the legal aspects, only the facts.
In the case I described earlier, we were prepared to testify, and the government called me as a witness in the criminal case, almost two years from the time I finished the work. I knew the perpetrator had been arrested, but nobody from the government kept me informed of the upcoming trial. Then out of nowhere, on a Friday afternoon I received a call from the an FBI agent in Philadelphia regarding a subpoena being sent by fax for a trial that Monday. I'd never been contacted about it, and, as a result, the other side believed I wouldn't be appearing at trial. Sunday afternoon, the U.S. attorney on the case called to tell me I wouldn’t be needed at trial. The defense had been assuming they would get an acquittal because I was the only one who could tie up all of the records as evidence, but once they learned I was showing up, they took a plea.
Every once in awhile, a case settles just before the expert testifies. We all like to think it's because they're scared of us, but we know that it's the forensic accounting piece. The testimony I would have given – while some parts would have put people to sleep – would ultimately place all four sides of the box around the perpetrator. And Marcum has a whole team of people like us around the country.
When we testify on fraud, we also present our experts on data integrity, who will testify that the data being introduced comes from the company computers as they existed at that time. As forensic accountants, we will say that the data shows these transactions clearly were in the books and records of the company, and that there were other transactions that the perpetrators were likely trying to hide.