Investigator uncovers financial wrongdoing
By the time Edward Nagel arrives at the crime scene, the perpetrator usually has done his or her best to wipe clean any traces of the incident.
Incriminating evidence? There’s a good chance it’s been disposed of and the lawbreaker has covered his tracks. Or at least he thinks he has.
Witnesses? That’s for crime shows. Usually, you won’t find anyone willing to testify, so putting together a case means rolling up your sleeves, opening the books and indulging in the painstaking and time-consuming “legwork” – make that paperwork – that can crack a case wide open.
Nagel, you see, wears no badge but he is an investigator with a CPA following his name. He’s a gumshoe in a slick suit whose bailiwick is the grimy underworld inhabited by miscreants who pilfer the company cash box, sometimes to the tune of tens of thousands, even hundreds of thousands of dollars.
Nagel is a forensic accountant, a license designation that acknowledges his special skill in uncovering corporate fraud, misappropriation of funds and general wrongdoing that other accountants and corporate officers might overlook.
His profession is true to the real meaning of the word “forensic,” which contrary to the impression repeated in numerous crime shows, does not necessarily entail bloodstained victims and walls riddled with bullet holes.
Forensic, in the context in which he operates, simply refers to something suitable for court, he said.
He has been called to testify as an expert witness, but that is an infrequent occurrence, if not entirely rare.
“When it comes to fraud, most of the cases tend to settle before they get to court,” he explained.
When he is called onto a case, his task is to find out where the money went. And when he’s done so, the cases are usually resolved internally.
Clients would rather get their money back and give the perpetrator the bum’s rush out the door than attract unwanted publicity. Non-profits and for-profit corporations simply don’t want exposure of the shortfalls in their internal mechanisms for preventing wrongdoing, Nagel, 41, said.
Nagel, a chartered professional accountant (CPA), has been working as a forensic accountant since 1998. He started at Arthur Andersen and left to work in a boutique firm. He started his own practice, nagel + associates, in October 2009.
The father of two youngsters in a Jewish day school, he’s also on the executive committee and the board of Technion Canada, which supports the Haifa-based university.
As to his business, he said, “Most of the cases I’m involved with are fraud-related and they’re mostly corporate fraud.”
Typically, a CEO, CFO, board member or their legal counsel will bring him on board after concerns have been raised over financial irregularities.
They’re worried one of the company’s officers is finagling funds or altering financial statements to cover up a fraud, he said.
Small firms that employ a general manager often deal in cash and it can be easy for someone to “dabble in the books.” Larger companies usually are subject to more complex schemes. It could be a case where a CFO was skimming money from the firm by setting up a fictitious vendor and writing cheques to them, creating a “ghost employee” and paying them, or padding expenses.
Another aspect of corporate crime occurs when management falsifies financial reporting to lower costs or inflate revenues. If the employee’s compensation includes a bonus, they can personally profit from that sort of misdeed, he said.
Sometimes the fraud is intentional. Other times, the perp stumbles into it. It can start with something as apparently innocuous as padding expenses like restaurant bills and taxi receipts.
The employee may stumble into a loophole in a corporation’s internal controls and then seek to exploit it, he said.
But, there are telltale signs that suggest corporate gonifs fit a profile. That person could be a long-term employee who rarely takes vacations, never asks for help on the job, gets angry when people do help, works late and on weekends, lives beyond his means and has an addiction, whether to gambling, alcohol or drugs.
People might steal thinking it’s a temporary thing – they’ll replace the money in short order. Others resent the success of colleagues and feel they should be the one with the expensive home or car.
On one occasion he cited, the search of a corporate officer’s computer revealed a document that he created and then converted into a fake invoice to bill the company. The employee was terminated after he returned the $200,000 he had taken, Nagel said.
In another case – one he wasn’t involved in – a long-serving Hamilton city employee stole more than $1 million over nine years. It happened despite internal cash-handling protocols. Commenting on the case, Nagel said a 2012 report found that worldwide, average occupational fraud lasts about 18 months before being uncovered, and that 20 per cent of all private and public workplace fraud exceeded $1 million.
It’s estimated that companies lose as much as five per cent of their revenues to fraud, he added.
Cracking a case requires an intense attention to detail. That can mean searching a computer for incriminating data, checking payroll registers, comparing an employee’s overtime claims to his schedule or even his security pass, he said.
“It’s a lot of roll-your-sleeves up, looking for trends, anomalous transactions that occur at year end or at the end of a quarter” when bonuses are calculated, he said.
Kind of dry stuff – not even an overnight stakeout drinking lukewarm coffee to speak of.
Still, solving a case or setting up a system to prevent further thefts is gratifying.
“There’s satisfaction in putting together the story, to be able to substantiate the allegations,” Nagel said.