Certified Public Accountant and Certified Fraud Examiner Mike Rosten also used to go by another title: Private Investigator.  In some states, s are required to also become credentialed as a private investigator in order to perform  investigative work, so Rosten became licensed in the State of Texas in approximately 2000, a few years before moving to Las Vegas. The additional licensing and training as a private investigator has proved useful to Rosten during his 17-year career as a forensic accountant.

Magnifying glass

Both private investigators and fraud examiners must pay close attention to detail as they sort through mountains of data to identify documents and other information that is considered credible. Such information, whether incriminating or vindicating, will be useful to the courts, management, law enforcement or other users.  They also must perform background checks and follow the trail of a possible perpetrator. However, the fraud examiner operates in the business world and applies those same investigative skills primarily to financial data and associated records, whether to commercial disputes involving breach of contract, breach of fiduciary duty, alter ego considerations, etc., or to domestic disputes.

Rosten recently answered a few questions about his work as a private investigator.

Mike Rosten

Mike Rosten, CPA, CFE

 

What influenced you to become an accountant and certified fraud examiner?

I like to make order from the chaos that often is inherent with tracking down fraud. Substantive analysis of documents, background investigation, and sifting through details can seem tedious to some but I find it very rewarding and worth the effort when we find the piece of evidence that completes the puzzle.

 

How long were you a Private Eye in Texas?                

About four years. I didn’t keep up the designation once I moved to Nevada, but the investigative mind set remains the same.  CPAs in Nevada are exempt from private investigator licensing.

 

Were there any particularly interesting cases that you worked on?

A few assignments stand out in retrospect:Pursuant to a court-order, I was retained to determine amounts due between two Texas-based construction companies with interlocking boards of directors and ownership interests.  After combing through detailed accounting records, we issued a lengthy report stating our findings and conclusions.  That work product allowed counsel for the parties to fully resolve the dispute.

Another interesting case involved covert surveillance at a nightclub that paid rent, potentially based on a percentage of their business. The landlord suspected they were not reporting their true revenue in order to pay less in rent, so this assignment included physical observation procedures to document the number of patrons and corresponding cover-charges collected each night.  This was supplemented by daily deposit analyses from cash register close-out paperwork and funds tracing among bank accounts, including a variety of separate bank accounts established to process differing credit cards.

In a classic private investigator job, I was hired to investigate a personal injury and business lost profits from an alleged automobile accident. Using financial analysis and independent investigative techniques, it was determined that alleged losses were inflated through the shifting of business transactions among related multi-national businesses, which involved an overseas manufacturing plant. 

 

How did being a private investigator make you a better fraud examiner?

As a former private investigator, I bring a robust investigative mentality to forensic accounting and fraud investigation assignments starting with the background research stage of cases. This research has allowed me to be more effective in conducting investigations.   It also helped me learn to detect behavioral clues in potential fraudsters – there are often visual and verbal red flags that can help uncover an employee’s illegal behavior. My time as a private investigator was memorable and helpful in my overall career – in fact, I still carry my ID card (inactive) in my wallet as a reminder of the type of work I am doing every day.

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2014 ACFE Fraud Report: $3.7 Trillion in Global Fraud Last Year

Fraud is everywhere and unfortunately no business or entity is immune from it.  Having an understanding of the cost of fraud and the potential impact it may have on a business helps owners take the necessary measures to help prevent fraud.  The Association of Certified Fraud Examiners has just published their “2014 Report to the Nations on Occupational Fraud and Abuse. In this publication they have undertaken extensive research into the costs and trends related to fraud.  Here are just some of the findings:

  • Survey participants estimated that the typical organization loses 5% of revenues each year to fraud. If applied to the 2013 estimated Gross World Product, this translates to a potential projected global fraud loss of nearly $3.7 trillion.
  • The median loss caused by the frauds in our study was $145,000. Additionally, 22% of the cases involved losses of at least $1 million.
  • The median duration — the amount of time from when the fraud commenced until it was detected — for the fraud cases reported to us was 18 months.
  • Occupational frauds can be classified into three primary categories: asset misappropriations, corruption and financial statement fraud. Of these, asset misappropriations are the most common, occurring in 85% of the cases in our study, as well as the least costly, causing a median loss of $130,000. In contrast, only 9% of cases involved financial statement fraud, but those cases had the greatest financial impact, with a median loss of $1 million. Corruption schemes fell in the middle in terms of both frequency (37% of cases) and median loss ($200,000).
  • Many cases involve more than one category of occupational fraud. Approximately 30% of the schemes in our study included two or more of the three primary forms of occupational fraud.
  • Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud.
  • Organizations with hotlines were much more likely to catch fraud by a tip, which our data shows is the most effective way to detect fraud. These organizations also experienced frauds that were 41% less costly, and they detected frauds 50% more quickly.
  • The smallest organizations tend to suffer disproportionately large losses due to occupational fraud. Additionally, the specific fraud risks faced by small businesses differ from those faced by larger organizations, with certain categories of fraud being much more prominent at small entities than at their larger counterparts.
  • The banking and financial services, government and public administration, and manufacturing industries continue to have the greatest number of cases reported in our research, while the mining, real estate, and oil and gas industries had the largest reported median losses.
  • The presence of anti-fraud controls is associated with reduced fraud losses and shorter fraud duration. Fraud schemes that occurred at victim organizations that had implemented any of several common anti-fraud controls were significantly less costly and were detected much more quickly than frauds at organizations lacking these controls.

    Continue reading about all of the ACFE findings at  http://www.acfe.com/rttn-summary.aspx.

Mike Rosten on Financial Fridays Radio

Our guests on this week’s Financial Fridays included Clare K. Levison and Stan The Annuity Man. Mike Rosten, CPA, CFE was the guest host for Scott Taylor.

Clare K. Levison is a certified public accountant and national financial literacy spokesperson for the American Institute of Certified Public Accountants (AICPA). She has appeared on major radio and television networks across the country and has served as a member of the Virginia Society of Certified Public Accountants (VSCPA) Board of Directors. She was named one of the 2010 Top Five CPAs Under Thirty-Five by the VSCPA. Clare has more than a decade of corporate accounting experience and is also an active volunteer, serving as PTA president, Girl Scout leader, and Sunday school teacher. She lives in Blacksburg, Virginia, with her husband and two daughters.

Stan The Annuity Man a.k.a. Stan Haithcock, is a nationally recognized expert on annuities known for his transparency, honesty, and endless research. He has spoken at every major financial trade show in the United States. He is rigorously independent, representing all major carriers that meet his uncompromisingly high standards. With a financial background that spans some of the major wirehouse organizations such as Dean Witter, Morgan Stanley, Paine Webber and UBS, Stan brings to his clients an informed clarity and “insider” wisdom that makes him extra careful and cognizant of risks and how to avoid them. In 2005, when Stan became Stan The Annuity Man he determined that each client deserved his undivided personal attention and that his mission was to become a trusted member of each client’s “Financial Team.”  That meant he would be known for fly-to-your-home coast-to-coast service. Today Stan does indeed have clients nationwide. Stan and his wife, Christine, reside in Ponte Vedra Beach, Florida with their two daughters and their Shih-tzu, Cutie the Wonder Dog.

If you have any questions about anything discussed on the show, or if you would like to be a guest, please contact Financial Fridays host Scott Taylor at staylor@pbtk.com or 702-384-1120. Scott W. Taylor’s tax practice focuses on services for a wide range of clients including real estate partnerships, limited liability companies, large and small closely-held corporations and not-for-profit organizations. He started with PBTK in 1992 and was made a Shareholder in January 2005. In addition to his tax work, he also provides services for business consulting, deal structuring, receivership and litigation support services.