My Turn: Forensic accountant Darryl Neier

by Greg Saitz/The Star-Ledger

Tuesday March 25, 2008, 6:40 AM

Former Newark Mayor Sharpe James is accused of improperly billing the city for personal expenses. A Colts Neck man was recently convicted of creating a fruit and vegetable wholesale firm to bilk suppliers. And a Gladstone resident, who ran one of worlds biggest commodities brokerages, pleaded guilty to federal charges alleging he hid firm losses from auditors and investors.

Theres no shortage of financial fraud these days. Sooner or later, however, its discovered. Darryl Neier has spent years investigating economic crimes, first as a detective with the Morris County Prosecutors Office and now at the Livingston accounting firm Sobel, where hes in charge of the 10-person forensic accounting and litigation support group.

He talked with Star-Ledger reporter Greg Saitz in his office recently about financial fraud, the reasons behind it and the surge in popularity of forensic accounting to help discover such activity.

I GREW UP in East Hanover. I always was involved in public service. At 15, I was a junior member of the East Hanover First Aid Squad, went through many years of training with them. I always knew that I wanted to help, I wanted to do something in my life that I was going to be able to change one life. When youre younger, youre very idealistic about what that change is going to be.

I got a criminal justice degree and then I started doing very reactive type work. I was involved with the first FBI violent crime task force, arresting fugitives. When I became a supervisor and then a detective sergeant, initially, it was in the fugitive unit.

Ultimately, I went into the white-collar crime and political corruption area. It was at that point where I couldnt tell you the difference between an income statement and a balance sheet. I went back for a second bachelors degree in accounting.

ONE CASE IN PARTICULAR was a very large misappropriation from Drew University and at the time was the largest economic crime involving an institution of higher learning. It was that case that really opened my eyes more towards the accounting industry and the fact that there were people who were doing this on the private side.

I received a call, it was a holiday weekend, the phone rang at 4 oclock in the afternoon. No good can come from answering a phone call at 4 oclock in the afternoon on a holiday weekend. But I did, and it happened to be the external counsel from Drew University. They had an issue that couldnt wait and they needed to come over at that point and discuss it with me.

They came over and they laid out this scenario where the chief financial officer of Drew University happened to be in the controllers office and saw a credit card bill sitting there and opened up the credit card bill statement. He noticed there was a charge on the credit card statement for a chandelier.

Well, would it be unusual for Drew University to purchase a chandelier? No. They were going through a massive construction and capital program, they had a fire back then and one of their buildings had a lot of damage.

HOWEVER, THE CREDIT CARDS were only issued to a number of people. The controller had one. Her name was Torrales. Well, they go through purchase orders and requisitions and they have an account with Capitol Lighting, where this thing was purchased.

They gave me some preliminary information and through the use of database searches and public records searches, at the end of the day, we knew that the chandelier that was purchased by the controller was also shipped down to Florida. Drew University does not have a campus in Florida. By the time everybody got to my place, we knew that it was shipped to a condo in Florida belonging to the controller.

When you look at someone whos brazen enough to do a credit card fraud, theyre also doing other things, and that was our fear. So, we immediately started looking at the different aspects of what she did. And this investigation lasted probably about six months.

We stopped counting, because of records being damaged in the fire and some other issues, at over $1 million in misappropriation. And she was doing everything from setting up fictitious students and refunds and the credit card fraud. All kinds of things.

FORENSIC ACCOUNTING IS probably one of the fastest growing niche areas in any accounting firm, national or regional. There are courses offered specifically on forensic accounting. To make a forensic accountant, you need a solid accounting background and the audit background is so, so important. You need a solid investigative background and you need to understand legal elements. Those three things really mold a forensic accountant.

Being able to talk to people, being able to look someone in the eye and know whether or not theyre being honest with you. When I initially will speak to someone, I want to speak to someone in their environment, where they work. I want to look around their office or their cubicle. I want to see how they dress. I want to think about lifestyle.

The numbers are the numbers are the numbers. Its how you get behind those numbers and how youre trained to look at those numbers and what really made those up. How is this occurring and why is this occurring becomes very, very important.

ACCORDING TO the certified fraud examiners that do a study every couple of years, they estimate that fraud in this country is over the $600 billion mark -- $600 billion is larger than the Gross Domestic Product of some small nations. And that takes into account all types of economic crime.

Ever wonder why in the beginning of September, when you go to your supply room to look for pads and pencils, and theres nothing there? Because schools going to start. People taking pads and pens and paper, is that an economic crime? Yeah, it is.

The owners of the business or the company purchased those things to be used during the course of a business. Youre talking things as simple as that that affects the bottom line of a company, to financial statement fraud, and everything in between. Someone is ultimately paying for this so-called victimless crime.

A LOT of the economic crimes were investigating, whether its for Fortune 500 companies or for a closely held business, these scams, these schemes have been around since the beginning of time.

One of my hobbies is I collect old books and magazines on fraud. I have books and magazines back to the 1800s and early 1900s and the same types of things that were looking at today, they were looking at back in the late 1800s and the 1920s. Its the same thing with a different twist. Theres only so many ways you can misappropriate funds from a company.

So whats different today? Technology, how you try to hide it, what you do. An old auditing trick would be if you received a copy of an invoice instead of the original invoice. Well, now, everything is e-mailed or things are created on computers. So the computer has just accelerated what they can do and what how people can hide an economic crime.

PEOPLE THAT COMMIT economic crime, and again going back to the 20s and the 30s, there was a theory developed called the fraud triangle. And if you look at the fraud triangle, theres opportunity at the top and then rationalization and pressure at each end of the fraud triangle.

When you look at economic crime, you have to have opportunity at the top. People have to have an opportunity to commit an economic crime. Pressure, on the other hand, is why are you committing this? Why are you doing an economic crime? The pressure could be financial.

We live in an I-want-it-now society. It could be an abuse problem, whether its a substance abuse, a gambling problem.

We had an engagement a number of years ago for a regional school system and they had someone who Ill call grandma, because she looked like everybodys grandma, she misappropriated hundreds of thousands of dollars because her addiction was Home Shopping Network. She had every piece of garbage jewelry that you could buy.

And then rationalization, and that gets back to people are born good. You have to rationalize in your head, why am I doing it?

WHEN WE ARE brought in on engagements to look at economic crime, were thinking about the fraud triangle, were thinking about motive and why are they doing it. Because its not only important for us to ferret out the fraud, but its also important for us to make recommendations to our clients, to attorneys, to whoever were working for about what controls can you put in place, what things can you do to manage this issue.

Youre never, ever, ever going to stop fraud. If someone wants to misappropriate funds, theyre going to find a way to do it. But what you need to do in business is you need to come up with the proper controls and the proper things in place to mitigate how much or can we find it.

People that commit economic crimes rely on the inability of auditors and management to find it. Otherwise, why do it?

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