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Playing the numbers

From finding fraud to calculating damage, forensic accountants are in great demand

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A longtime soap manufacturer in southern New Jersey decided to invest in some new machinery a few years back. Business was good, but company executives thought production could run a little faster.

As soon as the new equipment was installed, the soap started coming out black and gray, with a toxic smell. There was no salvaging anything.

It was a mess, and it came with a cost.

When the company decided to file suit in the matter, it had to determine just how high that cost was. Company executives ran the numbers on their own — and then they called in David Glusman, a forensic accountant, to make sure those numbers were right.

"The question posed to me was what did they lose? Or, the other way of putting it, what would their profits have been but for the fact that this soap came out bad?" said Glusman, partner in charge of the Philadelphia office of Roseland-based Marcum Accountants and Advisors. "And the first thing I have to say is, 'Your number doesn't appear to be right.'"

The company had made a significant mistake in its calculations, claiming it was owned much more than it really was. That may seem as if Glusman did the soap company a disservice — maybe they could get more cash out of the equipment manufacturer — but it's quite the opposite, he said.

When you go to court, you want to make sure your ducks, every last one of them, are in a very nice, very neat row, he said. That's how you win cases — or even better, force them to settle.

"You've always got to do the right thing," he said. "You only get a chance to do this kind of work wrong once."

That's because, in the type of work Glusman does, huge amounts of money are at stake for the companies that hire him.

If you thought accountants just do tax returns, you don't truly understand the profession. Accountants seemingly are involved in every aspect of a company.

RELATED: Why accounting is cool: These days, the profession is about much more than doing taxes and crunching numbers

And there's perhaps no better example than forensic accountants, who deal with a wide array of cases, from fraud investigations and prevention work, to damage calculations, business valuations and compliance issues. That can range from smaller matters, in the $10,000 range, to multimillion projects.

The forensic practice at Sobel & Co, a CPA firm in Livingston is monitoring for fraud, waste and abuse in the construction of One World Trade Center.

Cohn Reznick, a national firm with a strong presence in New Jersey, is working with the trustee in the Bernie Madoff case.

"It's a little bit sexier because you can talk about cases where people go to jail," said Kevin Clancy, a forensic accountant and managing partner of Cohn Reznick in Edison. "It's only a matter of time before they come out with a 'CSI' that's based on financial fraud because there's so much of it."

There's certainly nothing new about that.

Darryl Neier, a former investigator with the Morris County Prosecutor's Office, built the fraud and forensics practice at Sobel & Co. from the ground up over the past decade, after a career spent investigating white-collar crime in one of the most affluent counties in the state. He said the first known case of an accountant testifying in court dates back to the 1600s.

As the financial and legal systems have evolved — and become more and more complex — that has made more work for the people who do what Neier does. So much so that, last year, Sobel acquired the Tenari Economic Group, which specializes in calculating economic damages in cases involving personal injury or wrongful termination.

"The practice has ballooned beyond what I thought it could," Neier said. "Now we're able to branch out and do some other areas that we're looking at."

The same is true at Cohn Reznick, where the fraud and forensics practice constitutes about $20 to $25 million a year in revenue.

"It's the most profitable business within the firm, and most firms, that is the case," Clancy said.

Part of that is because the field is relatively immune to economic pressures.

In the years immediately following the recession, business was good because of all the bankruptcy work that emerged. Now that the country is in recovery mode, more deals are being done, so forensic accountants have switched to more transactional advisory work, Clancy said.

"It's kind of a natural hedge," he said.

And that work is not limited to the financial industries. Clancy said the forensic team at Cohn Reznick does a lot of work in health care, with multiple distressed hospital cases going on right now.

"Health care is a huge spend," he said. "So wherever you see a lot of money being spent, you also see a lot of potential fraud issues, as well."

Even the meat industry — beef, chicken, pork, turkey — has been big for the forensic practice at Cohn Reznick, Clancy added. Every time corn prices go up, the cost of operating chicken farms rises. That causes some to file for bankruptcy, no matter what the economy is doing.

"It doesn't take much to unhinge things sometimes," Clancy said.

The stability of the work, combined with the excitement, has made fraud and forensics a rapidly growing practice area at many CPA firms. Universities are following suit. Fairleigh Dickinson University, which has one of the strongest accounting programs in the state, offers an 18-credit, six-course certificate in forensic accounting.

"The growth is there for young people," said Neier, of Sobel.

"Fraud is never going away. If someone wants to misappropriate funds, they're going to," he added. "Unfortunately, New Jersey is a target-rich environment. It's amazing what we find out there."

E-mail to: maryj@njbiz.com
On Twitter: @mjohns422

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