A Forensic Accountant

Dan Heath: Chris Ekimoff is a forensic accountant. One day he got a call from a CEO, who had discovered something about the company’s chief financial officer. And it wasn't good.

Chris Ekimoff: It appears that he has been taking money from the business inappropriately, and I'd like to understand how much and how it happened.

Dan Heath: The company had been looking at its payroll numbers and they noticed a discrepancy. The budget for employee salaries and benefits was $3 million.

Chris Ekimoff: And the actual spend that year was $4.5 million. That's a 50% increase over budget, which you don't have to be accountant to know, that's massive. And so the CFO, when questioned about it by the CEO, didn't make up a story. He said, "I've been stealing from the company for three years."

Dan Heath: Okay.

Chris Ekimoff: And so the CEO is gobsmacked, right, like anyone would be. You've trusted this guy. He worked there for something like 15, 17 years.

Dan Heath: Welcome to the show. I'm Dan Heath. This is What It's Like To Be. On each episode, we profile somebody from a different profession. We chase our curiosity about what other people do at work all day, every day, we try to walk in their shoes. Today, we're chatting with a forensic accountant, Chris Ekimoff. We'll hear about a headmaster who stole from his own students. We'll learn about what sorts of clues you look for when you're scouring someone's records for evidence of fraud. And we'll hear how this wary outlook always being on the lookout for people lying or cheating affects your perspective in everyday life. I'm Dan Heath. Stay with us. So what is a forensic accountant exactly?

Chris Ekimoff: So I use the shorthand, an audit or general accounting services are a mile wide and an inch deep. You're not looking at every single transaction, but you're getting a general sense of how appropriate these transactions are. Forensic accounting is the inverse. It is a mile deep but only an inch wide. And that's because you're specifically looking at how are payments being processed in Uganda? Are the right people receiving the appropriate amounts of money? Are we interacting with government officials in compliance with our policy and with international law?

Dan Heath: So to circle back to that CFO, the one who'd been caught embezzling millions of dollars, how did he get away with it? Well, for years he'd been charging personal expenses to the company as travel expenses. But beginning several years ago, Chris told me that was no longer possible.

Chris Ekimoff: The kicker, Dan, was 2020, the global pandemic happened and travel ended. And in that year, he could no longer code those expenses to travel, because as all of us did in that day, you knew if travel expenses were the same as 2019, you're probably skirting a lot of the local laws and issues around COVID. So he actually stopped stealing in 2020 and then in 2021 went back to start stealing again, but knew that the business was still not traveling to the degree they were in '19 and prior. We tracked that activity through and he started coding it as an additional payroll expense.

Dan Heath: Which was partly truthful in his defense, it was an extra payroll expense.

Chris Ekimoff: We could spend in the next hour talking about the tax implications of that issue, right, because he was not reporting that income and the business was not recording that as payroll because it hadn't been done that way for the 10 years prior.

Dan Heath: So when you're brought in on a case like that, there's an anomaly, there's a suspicion of some kind, you're hired to come in. What's the first move? Where do you start?

Chris Ekimoff: Getting as robust a understanding of the circumstance is really where we can be most effective.

Dan Heath: And are you onsite interviewing people or do they send you a pile of documents or how do you first get your head around the situation?

Chris Ekimoff: I think really to break it down, day one CEO calls and says they're embezzling. What does the company do? What is the normal course of business? What industry are they in? What contextual things can I learn through my own research before I ever approach these target of an investigation or start reviewing documents? The second is really working internally with our team, we'll usually staff these projects with a team of folks and most forensic accountants will follow the same. To brainstorm what types of insights are we trying to glean? What is our objective? What hypothesis are we either confirming or refuting and what financial information or other information do we need for that? And some of that too comes from a professional responsibility perspective. Most forensic accountants, or certified public accountants, or certified fraud examiners, and we hold ourselves out to have a certain professional standard about the work that we do.
 
I'm not just going to take Johnny's answer to be like, "No, I'm not embezzling." And then write a report that said Johnny said, no, we're done. We're going to kick the tires a little bit, right? We're going to do some due diligence into the appropriateness of his conduct and what his response might've been to be able to answer that. Then to your question about being on site, sometimes you'll sit across the table from somebody you've known has stolen millions of dollars and you'll do what's called an admissions seeking interview. You gather all your information, the classic cases you interview the suspect last that you think did it so you can have as much information as possible and sit them down and say, "All right, explain this to me. I see a check with your name on it. I see your signature on that check. I see it for $5,000 and I see no business reason for that to happen. Why was this check written and why did you sign it?" And that can be a tough answer.

Dan Heath: And do most people cave in that situation when they realize you've got the evidence or a lot of people still in deny, deny, deny mode?

Chris Ekimoff: Yeah, it depends on the level of sophistication. I've sat across from people who will never admit it, even though we've got an email that they sent that said, "I'm committing a fraud. Ha ha. This company is so dumb." Right? Dude, you wrote this 18 months ago and now you're telling me it didn't happen. So there's always going to be that 5 or 10% that are denying, or think they can get out of it, or think they're smarter than you. But most of these people that admit or were in investigation, sometimes even show a sign of relief. They say, "I've been living under this terrible cloud of stress and deception and lies and I feel so terrible. I'm glad I got caught." And that's not to minimize the punishment. They may go to jail, they may lose their license, or their ability to practice, or their job, but they just want to get out from under this huge albatross that's been over their lives.
 
So in those interviews, and we don't have to get into the techniques of it, but it's really to give them an out to say, "Listen, this happens a lot. We understand. Was this a mistake? Did you think that this was appropriate? It's okay, talk to me about what your thinking was." And that often leads to a better resolution for the company too, to know where they may have missed on a policy, or on a signature, or on an authorization request beyond just someone denying to the Nth degree and not wanting to talk to you.

Dan Heath: What is the interface between what you do and civil or criminal law? When someone does confess in a moment like that, do you refer them to the authorities or is that outside the scope for what you do or how does it work?

Chris Ekimoff: It goes hand in hand. It's not a hundred percent in one direction or another. Like I talked about that embezzlement investigation over a 10 year period for $7 million, we were hired by the legal counsel for the business. So their attorneys are considering, are we going to be able to recover any of this money? Short answer is really no, because he spent most of it on travel. You're not going to get a flight back or a private jet expense back from the private jet company. But they consider and advise the company on what a recovery might be in terms of theft or embezzlement. They talk about the message they want to send to other employees or other businesses out there that they're not going to put up with fraud, whether it's $5 or 500,000.
 As well as, listen, the cost of litigation and bringing things to court is not zero. So if you're not going to get a big recovery from someone and you're going to have to pay attorneys a lot of money to try the case, it might not be a good idea to file criminal or civil charges because it's really a zero sum or a cost benefit analysis. It's not in the company's favor.

Dan Heath: And is there a tendency of companies like with hacks for instance, a lot of companies won't disclose hacks because they're afraid it's going to surface their lack of good IT policy. Do you sometimes encounter companies that want to sweep fraud under the rug because they don't want people to know how bad their controls were?

Chris Ekimoff: Yeah, and I'll say that too. One of he areas we see that a lot is in non-for-profit area because their business, for lack of a better phrase, is based on reputation. We're doing good work to meet our mission, whether that's to serve underprivileged communities or provide food for those in situational issues or house survivors of domestic violence. Being an organization that can't keep their own shop in order can really hurt grants, donations, things like that. And again, we're not saying that these companies are purposefully lying to people about what happened, but they're less likely to report that to the news or maybe bring a criminal or civil action because some of the reputational harm might weigh into there as well.

Dan Heath: Looking back, what's the engagement that you've felt most emotionally engaged with?

Chris Ekimoff: So I've done some work for attorneys who represent higher education institutions. And it must have been four or five years ago now, one of the attorneys down in the southeast part of the US was representing a day school, a private school for kids in elementary and high school, at which the headmaster stole, God, I'll put a number on it, somewhere in the low seven figures. This is a school where tuition's about 15, $20,000 a year for these kids, ended up walking away with more than a million dollars, and denied all aspects of the front.

Dan Heath: Oh my God.

Chris Ekimoff: And that to me really rung true because it was taking a legitimate service for people of means, attempting to better themselves to learn and grow and walking away from it. This was not taken from a multi-billion dollar corporation, it's a rounding error. This closed the school.

Dan Heath: Oh wow.

Chris Ekimoff: And so our work was really to understand what they could reclaim from the individual, what they could recover from an insurance policy against a fraud loss, and really try to be as efficient and effective because the school does not have the wherewithal to have a multi-year investigation. They're not going to be able to pay attorneys and accountants forever, so how do we do this quickly? How do we do it meaningfully and how do we get to a result that's going to help these kids recover some of the money they paid for this school that no longer exists to get them back on their feet and maybe to another school or to another situation? So there's times that you can get, emotionally attached isn't the right way to say it, but I feel more connected to the work when I can see the obvious good it may do if we get to a good answer.

Dan Heath: And in a situation like that, is there any way to claw back some of that money from the person who absconded with it?

Chris Ekimoff: There is, right, that's why the civil and criminal court system exists in those examples. I think that he had funded a lifestyle probably with about 50% of it that he took, but also improved a home that he lived in. And so that home, it could be sold at auction or he could give that up, and those monies could be distributed to some of the victims there and back to the school administration. So that's one of those cases too, where the investigation as a fact witness is really important. John took a $1,000 check from the school. He wrote it to himself from the checking account, that same day he paid $1,000 to a contractor who was building his new kitchen. One of the things we did in the embezzlement case was look at the payments made to the college funds of the embezzler of his children. And it was very clear that his payroll check donated $50 or $100, whatever the number was to each of his kids' college funds.
 
But then his embezzlement led to thousands more being put in there. And so we got into a pretty aggressive discussion with the opposing attorney representing him saying this money was not just his regular salary funding his kids' college, this was stolen funds. And we had to make a decision about whether to go after innocent kids' college funds to see if we could help reclaim some of the debt that amounted from the embezzlement.

Dan Heath: Dumb question, but why do you have to establish where people spent the ill-gotten gains? Isn't it enough that they just took more than they were supposed to take from the company? Even if they gave it to charity, it would still be a criminal or civil violation, wouldn't it?

Chris Ekimoff: Yeah. I'll give you the worst answer ever, it all depends, facts and circumstances based. But in certain cases, and I had the benefit I guess, and it's a little bit of a macabre benefit of working on the Madoff matter, right? So Bernie Madoff-

Dan Heath: Oh wow.

Chris Ekimoff: ... obviously famous Ponzi schemer.

Dan Heath: That's got to be like the Everest of forensic accounting. No?

Chris Ekimoff: I say that, but also, this is a multi-billion dollar case. It's very hard to find a forensic accountant who didn't work in some facet of the Madoff case, whether it was-

Dan Heath: Is that right?

Chris Ekimoff: ... going to be for the trustee, or some of the individuals who lost money, or some of the feeder funds, or hedge funds that were involved. So thousands and thousands of people have worked on the matter generally. And it was one of those interesting issues, I worked for a firm where an individual was picked as the expert witness over the bankruptcy. And so his job was to talk about the way money was spent. And they had to prove in court that it was a Ponzi scheme. They had to literally write 125 page report that said, these are all the reasons it's a Ponzi scheme, even though Bernie had already admitted to it. And the reason was the legal mechanics around it being claimed a Ponzi scheme had to be accepted in court, and you couldn't just take the admission of a known wire and thief.

Dan Heath: So has this work changed the way that you see people or see organizations?

Chris Ekimoff: It's hard to say. I am so jaded. I think about it the same way you think about an emergency room doctor. An emergency room doctor might look at someone who comes in with severe shoulder injury and not even blink. I think that I've learned a lot about people and about trust, in that there's a lot of statistics out there from the Association of Certified Fraud Examiners and other organizations that study these things to say that the most trusted individuals are often the ones who are found to be taking money in situations where fraud's identified.

Dan Heath: Oh God, really? Is that true?

Chris Ekimoff: Well, it's a debate between controls and oversight. If you've got a person that you trust implicitly, you don't check every little thing they do until something major happens, right? Like that CFO. The CEO trusted him for a dozen years before he was in a position to steal from the company, and then after he started wanting to get out over his skis and live a more lavish lifestyle, that trust trumped oversight in terms of how travel and entertainment expense was being utilized. So those things happen.

Dan Heath: That's got to mess with your mind. Do you have this loop in your brain now when you start to really trust someone, you're like, wait a minute, is this the highest risk person in my life?

Chris Ekimoff: Yeah. For me, it's a personal choice too. My wife and I manage a checkbook like any married couple do, and there's sometimes a raised eyebrow about a specific expense or something like that. But to me, it's much more about educating that individual when they call and they go, no, no, no way Sharon could have done this. And you go, well, I've met 11 Sharon's in the past 10 years and they've all done it. So let's go in with open eyes and think about this from an objective perspective and let's check Sharon's work and make sure she's signing off, and getting appropriate approval, and letting you know when something's out of whack or out of budget.

Dan Heath: Is there any way to scope like the incidents of fraud? Based on your experience, what's the likelihood that any company out there is experiencing something that you could interpret as fraud right now? What would you guess?

Chris Ekimoff: The answer is, yes. So the Association of Certified Fraud Examiners I mentioned a minute ago, they are an international body of anti-fraud professionals that both certify folks like me as certified fraud examiners through a test and through training and things like that, as well as conduct studies and solicit responses from certified fraud examiners and people in the market. And they're running statistic is that top line revenue of a business, 5% of that can be attributed to fraud loss.

Dan Heath: You're kidding, 5%.

Chris Ekimoff: Yeah. So if your business makes $10 million, 5% of that, you can, somewhere in those expenses, somewhere in the operations of the business, or you're missing out on 5% of revenue is being siphoned off by fraudulent things. And that's everything from people inappropriately recording their time and saying they worked more than they did to adding an extra travel meal to their expense report, even though they weren't technically traveling that day. So it's not the Bernie Madoff's or the Enron scandals are 5% of the world. It's really those kind of cases that 5% of revenue is really the benchmark that you can measure yourself against. Now, I work with clients all day that are very adamant that there's no fraud going on, and they're probably right to a material degree, especially if it's a mom and pop business with six people.
 It's a lot harder to create an avenue for fraud there. Not that it doesn't happen, but compared to some of the large multinational organizations, there's people trimming on the edges and coloring outside the lines pretty regularly, not to a material extent, but that is happening out there. As we speak right now, someone is being fraudulent out in the world.

Dan Heath: I was curious, how many layers of suspicion do you need in a typical situation. like If someone hands you customer invoices or receipts, do you take that at face value or is there immediately a loop in your head that's like, I wonder if this is a real invoice or a real receipt? How much verification do you typically have to do?

Chris Ekimoff: It depends on the circumstance, of course, but I like to say it's an iterative process. If you give me 11 random invoices from 2022 and they all follow a standard format from a specific business, they all have very detailed amounts and descriptions on them, and the numbers and dates of them do not lend themselves to any type of manipulation. We talk about sequential numbering. If I pick 11 random invoices from business A and they're numbered 101 to 112, and they happen throughout the year, my question is how is this business still open if you're the only one that they're sending invoices to? So if you don't pick up on anything like that, you're going to feel differently about that invoice in that business than you are if you see something that looks like a logo that, Dan, I don't know how you are at art, but maybe you or I could draw on Microsoft Paint.
 That's going to lead me to make a different conclusion about the value of that information. Or if they're following a non-standard format, if the description lines go from being very detailed to very general or they shift on the page. Can I explain that or can I not?

Dan Heath: I love this. These are such great little screens that you've picked up over the years.

Chris Ekimoff: I'll talk about a little case we had a couple of years ago where an individual who's an IT professional at a business was using the IT budget to buy himself things, all kinds of stuff from convenience stores and Target and Walmart and all those kind of things. But he would go online and what he would do is he would screenshot the line item from an invoice from a computer parts supplier Best Buy, whomever that said HDMI cable one unit, and he would paste that over the real line item that he purchased. The problem was he did that and he didn't change anything else about that invoice. So we would get an invoice from Walmart that listed all of these HDMI cords that he had bought, but of the six lines on them, they all had insanely different prices. Like he bought one HDMI cord from Walmart on that day for $640. He bought another one for $6. He bought a third one for $1,400.
 
Obviously that's an extreme example, but he was trying to get it approved through the expense system, and all the expense system did was look at is this dollar within our budget? Which the answer was, unfortunately, yes. And do the descriptions on a spot check match what we think they did? Of course. And so that's a computerized system. It did not go through and evaluate the appropriate pricing of every HDMI cable purchase. We ended up finding out that he was buying himself a lot of clothing and shoes and electronics and all these things, but saying they were all HDMI cables [inaudible 00:20:08].

Dan Heath: He had acquired over 780 HDMI cables.

Chris Ekimoff: That's right, for $8.5 dollars, whatever the number was, over the period, just he's got a whole closet full of very expensive HDMI cable. So your question was how many layers do you have to go down, it definitely does depend. There's times where we will specifically disclaim in our reports, we did not validate the veracity of this information. I got a report from the bank that said that they paid $11 on Thursday. I did not drive to the bank and ask them where the $11 was. I assumed that the bank provided me with legitimate information. They're a third party, they have no reason to lie to me, we're going to explain that in our report.

Dan Heath: Would you recommend this field to a young person?

Chris Ekimoff: I would. I've learned over the years that there are people who are naturally good at a variety of different things. One of my best friends is a healthcare auditor in Pittsburgh, and he loves seeing the same client every year, doing very similar work every year, same type of audit work. Not that that's boring or repetitive in any means, but having those longstanding relationships with clients. I have friends who work as accountants in-house and they write the same report every month, every year for a dozen years. That's not something that-

Dan Heath: I'm sensing a need for variety in your personality.

Chris Ekimoff: That's where I'm at, right? I'm one of those people who, I like to tell the story, I was on a huge litigation matter between creator of telecommunication services, satellites in a federal agency. And I learned more about satellites than probably anybody, but Dave Matthews knows about, pause for laughter.

Dan Heath: I love it. Dad jokes are always welcome on the show.

Chris Ekimoff: You got it. And I have not worked on a satellite case since. So I can watch a report of what Elon Musk has put into the sky and know a little bit more about it than I did 10 years ago, but I'm not going from satellite case to satellite case. And I like getting that view of different industries, different services, different types of circumstance, and learning from them and maybe filing that away is a memory or is a lesson to learn on a future case. But if I were to be always looking at just one type of issue, I think that I would kind of lose it a little bit and that's just my natural preference. So if you're asking about recommendations, I would ask people to look inside themselves and say, are you okay with getting yelled at by a different client every week, 52 weeks a year?

Dan Heath: Pure variety.

Chris Ekimoff: If the answer's close to yes. Yeah, maybe think about it, where if you'd rather be yelled at by one client every year, maybe you look a little bit more towards my friend.

Dan Heath: This is not for you.

Chris Ekimoff: Yeah.

Dan Heath: So Chris, on the show, we always end with a lightning round of questions for our guests. So let me fire away here. What is a word or phrase that only someone from your profession would be likely to know, and what does it mean?

Chris Ekimoff: Well, I'm going to broaden the definition of profession. So I'm going to say those who work in the litigation or fraud investigation space, so attorneys you're welcome in as well. The word is scienter, Dan. Do you know what scienter is?

Dan Heath: Scienter, no.

Chris Ekimoff: Scienter is the legal term for a fraudulent intent. So scienter is often what you have to prove in a court of law so that a judge or a jury can determine if this was fraud or not. So writing yourself a $5,000 check by accident, again, we can make that argument-

Dan Heath: As one does.

Chris Ekimoff: That's it. It has happened, I'm sure somewhere, nothing in the world is new. Versus purposefully writing yourself a $5,000 check to steal from the company, to enrich yourself, to make the down payment on your yacht, proving that scienter, that knowledge of that fraudulent intent has a legal element to it versus negligence is another legal concept of maybe not overtly performing an act or omitting an act that creates an issue, but just comes by happenstance or by you neglecting something.

Dan Heath: So our HDMI cable friend, boocoo scienter.

Chris Ekimoff: Yes, it was quite clear from the documents that he was maybe a little lazy in copying the same HDMI screenshot over and over again, but did not have much to say about his fraudulent intent after he was approached.

Dan Heath: All right, question two, who is the most famous forensic accountant, whether real or fictional?

Chris Ekimoff: The answer is both real and fictional. And the gentleman who got me involved or interested in forensic accounting is a gentleman named Frank Wilson. Dan, do you know who Frank Wilson is?

Dan Heath: No. No. Tell me about Frank.

Chris Ekimoff: Frank Wilson is one of the folks on Elliot Ness' team who helped capture the famous Al Capone on tax fraud. So if you remember the movie from the late eighties, the Untouchables starring-

Dan Heath: Of course.

Chris Ekimoff: ... one young Kevin Costner. I saw that movie early in my career and just the idea that there was this type of law enforcement service or law enforcement adjacent activity related to accounting really got me excited. So I'm sure folks will say, Ben Affleck-

Dan Heath: I love that you were fixated on the accountant in that movie.

Chris Ekimoff: Exactly. Yeah. There's a lot of other stuff going on it. And Sean Connery's great. Most people would probably say Ben Affleck's character in The Accountant is probably more famous now, after that action movie came out a few years ago, but I always go back to Frank Wilson as a driving force in my career.

Dan Heath: Oh, that's true. The Ben Affleck character was a forensic accountant, wasn't he?

Chris Ekimoff: Yeah. And that movie is 100% accurate, if you only focus on the scene where he's in the conference room checking the numbers. All the other stuff I have not seen in my career in terms of gun ranges, and flying vehicles, and everything else going on.

Dan Heath: Yeah, you all are basically Navy Seals with calculators, right?

Chris Ekimoff: Sure, yes. Yeah, that's right. And sometimes I get tired standing up, but that's a different story.

Dan Heath: Okay, question three, what phrase or sentence strikes fear in the heart of forensic accountants?

Chris Ekimoff: "Oh, here's something I should have given you at the beginning of the investigation."

Dan Heath: Has someone said that to you before?

Chris Ekimoff: When I hear that from a client, I just know I'm in for a world to herd, right? There's some assumption that we missed or some document that we didn't know about that maybe we went down path A and we should have gone down path C, had we known that, we would've done a lot of things differently. So that's something where all things being equal, we'll get to the right answer, but that's one of those where, all right, we got to start all over again and reframe what we're doing.

Dan Heath: Chris Ekimoff is a forensic accountant and co-host of the Insecurities podcast, which explores the wild world of securities regulation and enforcement. We'll put a link to it in the show notes. And I'm a subscriber myself, by the way. I could have talked to Chris for three hours. I'm totally fascinated by what he does. And what I kept thinking about after we talked was the point he made about how it's usually the most trusted individuals who are the ones most responsible for fraudulent activity, not because trusted people are more likely to be criminals, which would be insane, but because trusted people are the only people with the access and the wherewithal to pull off the crimes. And then because that one trusted person in a hundred or a thousand abuses their trust and commits fraud, the rest of us stop getting trusted preemptively.
 
So all of this compliance activity springs up around us, the controls and the oversight and the red tape, and it makes everybody's life a little bit more frustrating. It's sort of like how drugstore started locking up the razor blades because they were expensive and easy to steal, and then because one bad apple in a thousand might've tried to steal the razorblades, the other 999 of us have a guaranteed more annoying shopping experience. And I think the same thing is true with financial controls. It's like a tax we all have to pay because of people like our friend, the HDMI cable bandit, but at least we've got people like Chris out there tracking them down one by one. You got to love a profession where you can use your math skills to fight crime. And folks, that's what it's like to be a forensic accountant.

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The show is produced by Matt Purdy. I’m Dan Heath. Take care.