When audits get tough, firms call the cops

"This is your auditor! Open the books! Now, up against the wall! No one move, or I'll call the Securities and Exchange Commission."

Yes, given the news of corporate wrongs, it had to happen: Former cops are being hired by auditors to try to spot fraud. The new green eyeshades – called forensic accountants – are looking for inflated profits, hidden assets, questionable payments, and other corporate shenanigans. They are hunting for what Fed Chairman Alan Greenspan termed "infectious greed." They're almost certainly walking around the hallways at WorldCom, Adelphia, Tyco, Enron, and other companies in the news.

But forget calculators: These investigators are poring over bank statements and scrounging through computers looking for e-mails that may show something bad has happened. Their archaeological research often prompts SEC actions or even criminal probes by district attorneys.

When they call the DA, it's often on a first-name basis, because many of this new breed are former FBI officers, criminal prosecutors, and even retired Canadian Mounties, who have traded in their Smith & Wessons for Palm Pilots.

This extra muscle has received greater exposure as auditors rethink how to better police problems and avoid conflicts of interest. "It's part of the increased emphasis on auditors to be watchdogs," says Erik Skramstad, a partner at PricewaterhouseCoopers in Boston.

From their years in law enforcement, these watchdogs have some unusual qualifications. They are skilled at interview techniques, honed from dealing with "perps" and "sources." Many have had advanced training courses on how to spot information in seemingly innocuous remarks.

"We know how to develop a rapport and develop information," says ex-FBI agent Tom Hughes of Deloitte & Touche in Los Angeles. "We know how to listen to what is being told, when to change the subject, how to develop what the person wants to tell you. It's not that much different from questioning someone about a bank robbery."

Take one of the cases that now involves Stephen Max, former special agent for the IRS's Criminal Investigation Division: An individual who invests in classic cars thinks his business partner is not being straightforward. Mr. Max, now with the West Orange, N.J., firm of Bederson & Co., is checking the books.

The use of retired crime-busters in the accounting profession has been going on for some time. The collapse of the savings-and-loan industry in the mid-'80s resulted in all kinds of investigative litigation. Then, in the 1990s, a healthcare fraud scandal created a demand for Health & Human Services investigators.

Those doing this kind of work say they end up with complicated cases that normal accountants can't tackle. For example, Decision Strategies, an investigative group that hires many former government cops, was hired by the Chilean government to look into kickback charges at Codelco, a government-owned business.

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