The problem is a familiar one, but the solution is new.
Laurie Holtz, of the Miami-based firm Rachlin Cohen & Holtz, related a recent case of the Florida Insurance Department taking on a viatical scam.
"The state secured information, but didn't know what to do with it," he said. "We retrieved some 800 e-mails that a company thought they had deleted from their computers. In effect, we were able to retrieve records of a company that they believed they had destroyed and, consequently, the results destroyed them."
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The phenomenon is computer forensics - the application of computer investigation and analysis techniques in the interests of determining potential legal evidence that might be sought in a wide range of computer crime or misuse, including theft of trade secrets, destruction of intellectual property and fraud. Computer specialists can draw on an array of methods for discovering data that reside in a computer, or recovering deleted, encrypted or damaged file information.
Few people today know how to do it and many don't really understand it. Yet it is vital in today's forensics. The bottom line is that computer forensics gives the accountant the ability to retrieve things in an astounding way.
New force on the block
Statistics and reports show that organizations suffer tremendous costs as a result of occupational fraud and abuse, a widespread problem that affects practically every organization, regardless of size, location or industry.
Small businesses suffer disproportionately large losses due to occupational fraud and abuse. According to the Association of Certified Fraud Examiners' 2004 Report to the Nation on Occupational Fraud, the median cost experienced by small businesses was $98,000.
The loss caused by occupational fraud is directly related to the position of the perpetrator. Frauds committed by owners and executives caused a median loss of $900,000, which was six times higher than the losses caused by managers, and 14 times higher than the losses caused by employees.
The most cost-effective way to deal with fraud is to prevent it. According to a recent ACFE study, once an organization has been defrauded, it is unlikely to recover its losses. The median recovery among victim organizations in the study was only 20 percent of the original loss. Almost 40 percent of victims recovered nothing at all.
Computer forensics itself is a relatively new area. In fact, according to Holtz, in the past six years, "it has gone from zero to an incredible number today."
Jonathan Bobb, a partner in the Chicago-based accounting firm of McGovern & Greene, agreed. "I started doing computer forensics about four years ago as part of our fraud investigations. Back then, I spent around 10 to 20 percent of my time with general forensics, versus combing through papers trying to unravel paper trails. Now, I spend 100 percent of my time performing computer forensic investigations and electronic discovery. It is presently a stand-alone service offered by our firm, in addition to our regular forensic accounting practice."
