Forensic Accounting: The High Paying Part-Time Business

Fifteen years ago a client who has since passed away had a complaint. He explained his uncle had died and the family was having a difficult time finding his money. The family knew his uncle had money, but he hid it everywhere, kept no records and refused to reveal his secrets to anyone.

The family decided to hire a forensic accountant who took six months to find around $280,000. My client’s complaint was they knew the uncle had a lot more than $280,000, but had no idea where to start looking.

This was during the my early days as a hedge fund manager. The hedge fund didn’t buy stocks or businesses; we bought charge-off receivables and collected on the debt.

When banks have bad loans on the books they sell them for a fraction of the face value. (Banks never really lose. It blows the mind how they every have financial trouble. It takes a new level of stupid to fail as a bank.) Once we took possession of the accounts we sent our legal teams around the country to locate and collect, even in court if necessary. (I authorized over 22,000 suits over the years. Yeah, I was one of those a-holes. But I was good at it. Stick with me here. This is all going to work to your advantage this time.)

Running the type of hedge fund I did (I eventually was hired to run two) provided me with the resources, connections and experience in finding people and their hidden stash. Finding money is something I got really good at.

My client was awed when I started to explain how I would have handled the case versus the forensic account they hired. In 30 seconds I gave them one piece of advice and found over $300,000 more than the forensic account they hired did in six months. Before I was done we collected seven figures of cash from around the United States and even found an account with serious cash tucked away in Ireland.

The family promptly hired me.




Finding Money as a Side Gig

This is a story of finding stuff no one else can. Most side gigs people pick up in retirement earn a modest income. A forensic accountant can earn six figures part-time without breaking a sweat. With the story above in hand we will walk through the simple process of finding old or lost accounts for people.

The resources in this short post will be enough to find the vast majority of assets. To get the fine edge in your performance I will share some resources at the end.

A forensic accountant doesn’t need to be a CPA, enrolled agent or attorney to do the job. In fact, the best people at this are as far away from these professional designations as you can get. This is a job you can do on your laptop in your BVDs without any problem. (I recommend putting on your shorts when meeting with the client.)

The pay is excellent. $300 an hour and up is common in this field. Some forensic accounts change a percentage of what they find while others charge by the hour. People are reluctant to go the percentage route because they all think you’ll find a gazillion dollars and they don’t want to share. Fine! That’ll be $300 per hour, plus expenses. Oh, and I need a $5,000 retainer. Are we having fun yet?

Who Are the Clients?

Over the years I hunted down lost treasures for estates on a regular basis. However, some of my best clients (repeat clients even) are insurance companies looking for answers on an embezzlement claim. Business owners have hired me to do the same. Attorneys sometimes hire my forensic services also. I never had to testify in court on one of these cases, but it wouldn’t bother me if I had to.




The fun cases revolve around helping a family find the belongings of a deceased loved one. For them it is like finding an unknown insurance policy. (I have found a few unknown life insurance policies as well though the insurance companies are much better today than two decades ago at knowing when one of their policy holders is pushing up daises.)

The ugly cases—the ones that also pay very well—involve businesses. Money goes missing or the business owner can’t figure out why business is so good and she is still losing her tail. Hint: The most valued and trusted employee, close friend or family member is the embezzler the majority of the time. I could tell stories.

For several years a local insurance company called me in on any case over a certain value. I reviewed a lot of books back then and it kept the doors open over the summer when tax work was slow. I also liked the work. The down side is you are not a loved visitor when you stop by the business. They know your job is to hang someone. (And I always kept a new rope in the truck for just such an occasion.)

Finding the Goodies

Back to our story. My client knew there was more money. I casually mentioned pulling a transcript from the IRS. This will show any 1099-DIVs and 1099-INTs issued to the person in question. Banks are required to issues 1099s when the amount is $10 or greater. For some crazy reason the forensic accountant they hired never took this step. My client was instantly $300,000 richer and I was hired with a generous retainer.

I now need to introduce you to skip tracing. Skip tracing is a process of finding the whereabouts of an individual. An impure use of the word also includes searching for all the assets, including income sources like a job, of a person or business.

Here’s my bill.

Skip tracers generally hunt for debtors or fugitives. We are interested in debtors. In our example we are not looking for debts. But if you have someone who owes you money you want to find their assets and income sources. This is highly beneficial talent if you are searching for a deceased person’s stuff.

The best skip tracers come from the wrong side of the track. Some are clean cut, but in my experience the ones who are really good at it have tattoos and are rough around the edges. These people know how to find a body no matter how deeply dug in. Perhaps from personal experience.

You can learn skip tracing yourself, but there is a short cut. Go to your local debt collection agency and hire their best skip tracer and let’em loose. It’s your way of spreading the side gig economy around. (You are only hiring the skip tracer for the job, not full-time employment.)

Most attorneys already have resources to do this also. But we are not technically looking for the person; we are looking for the goods. Our skip tracer has another skill we need.

If you are serious about a side gig as a forensic accountant you will need LexisNexis. LexisNexis is a powerhouse of personal information. Once you see this thing you will be scared. They know things about you and everyone else you didn’t think anyone knew. In your search for lost accounts they will bring a deluge of results.

LexisNexis is expensive. If you are friendly with a collection agency you can usually hire them to do the LexisNexis search for you. There is so much information it is good to have someone familiar with the platform help you acquire and interpret all the information you get. A deep drill down will uncover just about anything the mark ever did since the first computerized records began and even a fair amount of stuff from before the Computer Age.

An IRS transcript and a LexisNexis search will be 99% of your job. If you suspect the client has money in another country (my client did) you use the same procedures in that country. Western Europe is as straight forward as the U.S. and Canada. Just find a debt collector in the target country and expand from there.

It doesn’t take long to uncover virtually every asset. There are some costs so you need to remind your client of this upfront.

The Problems with Embezzlement

Finding malfeasance can be trickier. In these instances you are not always looking for assets or hidden account (though that frequently is part of your job description later), you are looking for accounting irregularities. We are usually not talking about an accountant cooking the books. The issue is either money stolen (which could be the accountant) or stolen merchandise.

The issues tend to be complex here and if you don’t have an accounting background you will need to at least have a fundamental understanding of the accounting process.

Misappropriation of funds generally sticks out like a sore thumb in the accounting records. What you are looking for is a discrepancy between revenue and certain expenses. For example, a restaurant will have a cost of goods sold within a relatively narrow range depending on the type of restaurant compared to sales. Payroll also falls within a certain parameter or revenue, COGS and tips.

The issues become too complex for a short blog post. Here is the take-away. There is always a relationship between items in the financial statements. Deviation of these ratios (between sales and COGS or sales to wages as an example) is a telltale sign of something wrong.

The timing of the deviations frequently correlates with the hiring of the instigator. You will always review multiple years of records looking for inconsistencies, i.e. COGS changing significantly from one year to the next. Most of my work is done on an embezzlement case before I even get out of my chair and visit the establishment.

The easiest way to see this is with an example. This is a real client with a restaurant.

My office manger one day came to my office concerned about the client in question. She couldn’t understand why the client had growing sales but was going broke. A 30 second review of the financials and I knew an employee was embezzling. The cost of goods sold was waaaay out of whack for a restaurant of any kind and I could see the progression.




My first thought was a waitress was guilty. The client was brought in and I questioned her about the waitresses and how they handled money. It was quickly apparent a waitress wasn’t the culprit. Waitresses had few opportunities alone with the cash in this establishment.

I started to question the business owner about other employees. When we reached the cashier she said it couldn’t be her as it was her close friend of decades. The search was over. The friend did it.

It wasn’t a guarantee at this point, but I knew where this was headed. The business owner did not have cameras. I told her to inform the employees her accountant was concerned about embezzlement and demanded cameras be placed in the building. The cashier quit on the spot. Uh-huh.

We weren’t done. The ratios between COGS, sales, and waitress payroll and tips was still off even after accounting for the embezzled funds. I suspected more than few cases of steaks and seafood were wandering out the back door of the kitchen. Fed up, I had the client place cameras at the kitchen doorway leading to the parking lot without informing employees. A week later the entire kitchen staff was fired.

The sad end to this story is that the restaurant did not survive the assault. The damage was too great. We caught the malfeasance relatively early even though we weren’t hired to do that job. But the business owner stalled, certain her friends were innocent. The wound was too deep and the victim died. And all the jobs along with a great restaurant were gone. I still kick myself for not insisting more action be taken sooner.

Resources

In 2,000 words I actually gave you a good template for a basic forensic accounting side gig. You will find more than the average accountant for sure with these methods. If you want to hone your skills to a fine edge I recommend you continue your training. Your local technical college may have courses on the topic. There are also plenty of seminars and conferences, of course. Look for conferences specifically for collection agencies. They are the masters at finding assets. Or, you can start with some really good books on the subject. The books can get pricey, but these are the books used in colleges many times and the books are cheaper than college itself. One gig can pay for the whole thing and more.

Forensic Accounting for Dummies (This is the lowest cost basic education on the subject you can get and also a good place to start if you are new to the game.)

Below is a selection of high quality books on forensic accounting. These books are high quality and cost a bit more. They are worth it if you are serious about forensic accounting as a side gig and tax deductible if you are in the business.

Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations

Forensic Accounting and Fraud Examination

Forensic Accounting and Fraud Investigations for Non-Experts

The Forensic Accounting Desktop: A Practical Guide to Financial Investigation and Analysis for Family Lawyers

Forensic Accounting and Fraud Examination (Irwin Accounting)

I hope this article and resources are an awesome opportunity for you to earn a nice income in a side gig or even as a career.

And remember, no matter where you are, no matter where you go, I will find you.

And you stuff, too. So pay your bill so you don’t end up a client of my hedge fund. (Hint: I sold out the two funds a few years back so you are probably safe. Probably.)



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Keith Schroeder

19 Comments

  1. Mrs. Picky Pincher on August 16, 2017 at 8:16 am

    Wowza! My mom was an accountant and she definitely cleaned up just by doing books. I’m sure something more specialized like forensic accounting would be pretty profitable. I think this is doable in many fields, too–find a niche specialty you excel in that’s in demand.

  2. Church on August 16, 2017 at 9:03 am

    You smell that, Keith? That is the smell of my wheels turning, thanks to this post.

    I’ve been wondering how to leverage years of auditing experience for more than just Corporate and Personal Finance.

    I am actually going to look into this a bit as a side gig.

  3. Working Optional on August 16, 2017 at 9:11 am

    Impressive – never realized this niche existed and that it was so lucrative! Agree w/. Mrs. Picky Pincher that finding a narrow but lucrative niche in any industry – especially one where you can have business clients – would be key.

  4. The Money Commando on August 16, 2017 at 4:44 pm

    Keith – have you ever used Bedford’s Law (https://en.wikipedia.org/wiki/Benford%27s_law) when investigating suspected embezzlement? If you’re not familiar with it, it’s an observation that natural numbers are not random. Rather, the first digit of a number is much more likely to be a 1 than a 9. In fact, a 1 is the first digit of a number 30% of the time and a 9 is the first digit just 5% of the time. If numbers were random you’d expect each digit 1-9 to be the first number 11.1% of the time.

    My understanding is that this can be used in forensic accounting because when somebody is cooking the books their made-up numbers will be more random an less likely to conform to Bedford’s Law. This provides a clue as to where the malfeasance is occurring.

  5. Mr. FWP on August 17, 2017 at 3:32 am

    Wow, Keith: can’t thank you enough! I may begin this almost immediately, as I have some relevant experience. I had never considered how else it might be used, though, until this post.

    It is unbelievable, almost, how much info is out there about individuals. What’s crazier is there’s even more than what places like Lexis have. I’m definitely going to look into this…

  6. Mrs. Frugal N on August 17, 2017 at 5:39 am

    Thanks for a great informative article Keith! You’ve really got me thinking with this one. Wondering how imperative is it to have an accounting background though? I’m an auditor in the risk department for a mortgage lender and seem to have a knack for finding errors, discrepancies, etc. (I love LexusNexis!) However I have no accounting background outside of a couple college courses years ago. This sounds very intriguing but wondering if I need to beef up my accounting skills as part of my prep/training!

    • Keith Schroeder on August 17, 2017 at 7:48 am

      Mrs. Frugal N, an accounting background isn’t necessary. You do need to be familiar with the accounting process if you are examining books for embezzlement. The side gig of helping people find lost assets doesn’t require any accounting knowledge. Your basic understanding of how accounting is enough to get the job done.

      I hope this clarifies because I did see other comments with similar questions and even some emails. You do NOT have to be a CPA or have massive accounting skills to do this job. That is why it makes for such an awesome side gig.

      • Mrs. Frugal N on August 18, 2017 at 11:51 am

        Thanks for the clarification Keith!

  7. Chris on August 19, 2017 at 11:54 am

    Intriguing idea. Can you be more specific about the specific Lexis Nexis product that’s needed to do this? Also, any advice on getting your first paying client? Market to estate planning attorneys?

    • Keith Schroeder on August 19, 2017 at 7:05 pm

      For NexusLexus it is best to play around to start. If you sign up for Lexus they help you with your early searches so you keep buying their service since you pay when you search.

      Marketing can/should be multipronged. Talking to estate attorneys is a start, but many may have in-house abilities. Instead of going for the big accounts consider accounting firms or tax preparation offices. They almost certainly have clients in need of this service, but never consider the work because they don’t know how. My first forensic work came from a client who complained. After that I leveraged my knowledge.

      Another marketing idea I think would work very well is offering to speak between services at local churches. Mostly, keep your eyes open. These opportunities are everywhere once you start listening.

  8. Michelle at SavingsandSangria on August 21, 2017 at 11:49 am

    This is such an informative post, Keith! I can attest to the money to be made in forensic account . I invoiced over a million dollars in a single year back in 2014 to help an Indian Tribe track their property tax dollars to the US government and the corresponding taxpayer service expenses. For those with the skill and the interest, it’s a great field!

    • Keith Schroeder on August 21, 2017 at 7:40 pm

      Michelle, that is fantastic. There are plenty of unique opportunities in this field.

      • Nate on August 31, 2017 at 3:35 pm

        Keith I must ask. What is your background and how did you get involved in this industry?

        • Keith Schroeder on August 31, 2017 at 8:56 pm

          I covered your question in great detail throughout this blog and post, Nate. The short version is I am an enrolled agent (licensed tax professional) and clients needed help so I learned. I was then involved in the charge-off receivables industry for several years where I learned how to find just about anything on anyone. The rest is experience. The long version requires you to read more of the blog. There is a lot to tell.

  9. The Frugal Humanist on August 21, 2017 at 5:34 pm

    That sounds like an interesting side hustle, Keith!
    Thanks for laying it all out and sharing without turning the info into an “i will teach you how to…” ebook 😉

  10. Kristen Cunningham on August 21, 2017 at 6:24 pm

    Thanks so much for your article!!! It was fascinating. So much great info. I’m definitely gonna look into this!

  11. […] I cover more of the accounting issues on my blog in this article. […]

  12. W J Second on October 7, 2017 at 7:50 am

    Fascinating stuff. Thanks for the details, as just this week I’m faced with being executrix of my brother’s will except all there appears to be is one trust. The point of his trust is there won’t be probate so I am hoping to avoid hiring an attorney. I’m going to use your blog’s info and find a top-notch collection agency who can help with LexisNexis.

  13. Respite | The Wealthy Accountant on October 20, 2017 at 7:52 am

    […] long hours with few days off eventually takes a toll. Recently I wrote about forensic accounting. In that post I mentioned the most likely person to commit fraud against a company. The malefactor […]

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