Are you required to be licensed as a private Investigator?
Content
CAREER CONNECTION
Building your professional future
CFEs, examine this:
Are you required to be licensed as a private investigator?
o U.S. CFEs need to be licensed as private inves-
findings and assisting in the detection and prevention of fraudl' lhis defini-
tigators (PIs)? The answer
isn t particularly straightforward.
tion includes many elements that are
traditionally associated with investigations, including those specif,cally included in various state statues that
require investigators to be licensed' Each U.S. state, plus the District of Columbia, has a different set of regulations that govern what defines an investigator or private detective. A few states
have no PI regulations at all, but some municipalities vrithin those states have
It
depends on the jurisdiction in which CFEs practice and the tlPes of work
performed. That could incluCe conducting fraud investigations, internal investigations for their employers,
expert witness testimonies, litigation support services or independent white-
collar crime investigations. CFEs that'
practice in more than one jurisdiction may be required to be licensed in some
areas where they issue before
their own regulations that must be ob-
work but not others.
Fraud Magazinehas covered this
("lndependent CFEs Need
to Check Their }urisdictions on PI Licensure Lan'si'by ]ames S. Peet, Ph.D.'
CFE, Januar,v/FebruarY 2012), but we need an update.
iv{an-v CFEs
ifan investigation is to be conducted within city limits. Likewise, each Canadian province has PI licensure requirements, Australia requires PIs to
served be licensed at the state or territory level,
U,S. states and the
District of Columbia'
The statutes can change at any time. Even though a license isnt required
but England and Wales discontinued all
U.K. PI license requirements.
Some jurisdictions that previousl,v
now it doesnt necessarily mean that the jurisdiction wont require it in the near
future. The trend is moving towards required licensing, and states with no such recuirements are the exception rather than the rule.
CFEs will need to research unique
emplovers ^^l^l-, Url ^^ L^L^lr^f rrrrylvlvr lrrLrr ^*-l^.'.. UcildiM +L...i5UtElI assume that onll inoependent CFEs
-
u'ho lvork for private conciucting investigations
had no licensing requirements have rennire rorontlrr -o.co.l hillc thqt rrrill ''-^- -t*^- registration and licensing, and others
have bills pending that could chanse
in private praciice neeci to be licensed. Thati true in most states, but eight states that require PI licensure proride no such exception for employees conducting internai ini'estigations on behalf of their emplovers.
The 2013 Fraud Examiners L[.anual
states, "Fraud
current regulations. States earn fees from licensing PIs, and the regulations also give states the power to discipline and limit what non-sworn 1all'
enforcement personnel can do rthile conducting an investigation.
requirements in each of the jurisdictions in ivhich thev practice to determine if they're required to obtain PI
iicenses. It may be possible to request opilions from the states' attorneys general offices for particular situations. The chart, which will assist you in condiicting,tour o\{n research, is based on
a
eramination is a methodolop tbr resolving fraud allegations tlom inception to disposition. I{ore specificallt, fraud eramination involves obtaining eridence and taking statencnts. \\'riting retrorts. testih ing to
Chart on Fraud-Magazine.com
The detailed chart at Frauci-\fasazi;le-
:iarn reading of the iarv and doesn t
com (available July l) accompai\rn< this column will assist you in resear*ing licensure requiremenls in variou'
::cr-:cie anv legal opinions on specific license requirements in any individual :a-.<. \bu should consult local legal
.,2
FRAUD
MAGMINE
,ULV,, AUGUST 20]
3
FMUD-MAGMINE.COM
counsel to determine the applicability of laws in your jurisdiction.
in Virginia. Virginia state law mandates
that a forensic accountant licensed as a CPA in another state must obtain a PI
license to do work in Virginia, regardless of whether
from PI licensure in various jurisdictions include attorneys, CPAs, government officials, individuals conducting genealogical research, computer
forensics experts, insurance adjusters,
Definitions of an 'investigator'
Although each jurisdiction is different, tlpical examples of statutory definitions ofan investigator that lvould require
licensure include a person investigating:
The identity, habits, conduct,
their home state exempts them from such a requirement ("Prias
expert witnesses and reporters. Most
states exclude someone
vate-investigator licensing emerges
performing an
potential threat to CPAsi' by feff Drew,
investigation on behalf of his or her
movements, whereabouts, transactions, reputation or character of any person or organization.
The credibiliry honesty or in-
Don't wait to be embarrassed on the stand or find yourself charged with a crime. Proactively investigate the necessity of licensure in the jurisdictions in which you practice.
Journal of Accountancy March 5,2013, employer, such as an internal auditor or company detective. However, some
as an ex-
tegrity of witnesses or other persons.
The Iocation, disposition or recovery
http://tinyurl.com/cmffkyq). Ifyou're going to testify
states provide no such exceptions,
of lost or stolen property, missing persons, owners or heirs ofproperty or heirs to estates.
The origin of and responsibility
pert witness or fact witness, be sure that you're either properly licensed within that jurisdiction or specifically exempted from licensure requirements. Otherwise, opposing counsel can accuse you
which means that CFEs conducting fraud investigations for their employers
may require iicenses.
Some states specificaliy exempt a
for libels, losses, accidents, fires, or damages or injuries to persons or
person conducting computer forensic examinations, while other states specifically include them in the definition of
an investigator requiring a PI license.
Each
ofviolating the law during crossexamination, or the judge may choose
properry
The conduct, honesty, efficiency, Ioyalt,v or activities of employees, persons seeking employment, agents,
to disallow your testimony entirely. Either way, your case and professional
reputation could be severely damaged. Requirements for obtaining a PI
license vary by jurisdiction, but most
firm and CFE is responsible
to ensure they're in compliance with the
law, so you need to consuit your legal
or contractors and subcontractors.
The identih or location of persons suspected of crime or n'rongdoing. Evidence (or obtaining of evidence)
counsel. Dont wait to be embarrassed on the stand or find yourselfcharged with
a
require two to three years ofverifiable
experience conducting investigations. Some states require applicants to take
crime. Proactively investigate the neces-
sig of licensure in the jurisdictions in
which vou practice. Obviousl,v, if you're required to have a license, get licensed.
sav
to be used before an-v committee, board of aivard or arbitration. admin-
istratile or iicensing bodi'or officer,
or in preparation for trial ofanl'civil or criminal case.
written test, others have CPE or training requirements and a few states virtually require prior Iaw enforcement experience. Most jurisdictions require
a
It goei ',iihorrt saving (but I'11 it anr.n'av) that CFEs and CPAs
as
that the private investigator or his or her firm be bonded; the amount ofrequired bond varies by jurisdiction and
ranges from $2,500 to $100,000. A few
states allow malpractice
lvho hold themselves out
conduct-
Staring at a felony?
-\iir-oae mar'file a complaint in most :taies that require licensure ofpnvate lnlestigators against an indrr.idual or
ing "forensic investigations" should be
liabiliry insur-
properlv licensed ii their jurisdictions require it. Other key rr.ords that would likelv triqeer hcensure requirement,
depending
ern 'rhe
ance in lieu of
a
bond.
!m
conducting an investigation rrith-
jurisdiction, include:
out a license. Penalties for pra.ticing
Exemptions and exclusions
Jurisdictions have differing exemptions and erclusions from their PI licensing requirements, and some offer no exemptions at all from licensure requirements. Examples of exceptions
con<iucring riocument analvsis; whitecollar crule. iraud or embezzlement
r.iihout a license vary but in a ferv states rhe ;rime is a felonv. In one recent case,
a C.P.\
l:orrdinq forensic accountinq
r^-a-.
\€r-r-r.rs
.
charged with a feionv ibr
investiga!o1s: ibrensic accounting; liiigaaor s::3ii senices: computer ibrel-.i; <-u::.raiion or specific tasks
COI{NNUED ON PAGE 17
i.i.iii;illg
a:r unlicensed investigation
FRAUD MAGAZINE
13
I
FRAUD'S FINER POINTS I Cu'" history applications
ByJoseph
R.
Dervaes, CFE, ACFE Fellow CIA
Raising frauds, not funds
Fraud and abuse in student fundraising activities, part I
his column is the first in a
Program Fund and then conduct a wide
three-part series presenting many scenarios of fraud and
abuse
variety of funciraising activities to fulfill their objectives. Most school departments raise funds with rhe approval of school administrators. Athletic departments raise the highest amounts for
in student fundraising activities.
We begin our discussion by illustrating the different schemes fraud perpetrators
use to obtain funds for personal benefit
foctball, basketball, soccer, baseball
softbali and other sports. Faculty members, with the help of students interested in learning the
from public-sector ciubs and privatesector teams.
Skimming is the fraud of choice
Similar to our discussion in the fanuarylFebruar,v 2013 column, fraud and abuse in all qpes ofstudent fundraising actir.ities is usuall,v a case of simple asset misappropriation. In the ACFEs Fraud
Tree, cash schemes
retail trade, manage these programs in middle schools, high schools, com-
munity colleges and universities. All
generated revenue is public money, which the state audits.
Faculty advisors for public-sector
clubs manage all student fundraising The state of Washington has 294
(part of asset misap-
propriationsj, l\ihich invohre stealing an entilri ii:i-'cis, iall inio three categories: larcenr', iraudulent disbursements and
skimaring. Cash larcenv schemes involve ihe then of funds recorded in the
activities, and the ASB fund treasurers maintain the clubs' accounting records. Facult,v advisors normally skim revenue from event proceeds before they give rnoney to the treasurers for deposit. Disbursement schemes are rare. Faculq' advisors also teach students
school districts. When I managed the
statewide fraud program for the state
auditor's office, there rvas tlpically an
average of about eight schools per year
that suffered a revenue loss ofapproximately USD$6,800 each (USD$54,400 annuaiiy). Tnese iosses pnmarii,v occur when one individuai is responsible for all club revenue n'iih no monitoring bv
managers. Investigators oiten can't find those responsibie because too manv people har.e had access to product
entitr s aiiounting rccor,i:. ln lrauduleni i.iisb'*isenent schernes, an indir-irjuai makes a ciistribution of entin'funds for a iish,-xest iiurrose. Skimming, ihe tnei-l oi lf,bcok iunis, is usuallr. at the
hean ci srudeli tuliraising losses.
horl'to operate school stores and manage other retail sales activities, such as
concession stands and sales of merchandise.
(l'll
discuss these activities in
subsequent columns.) Nfost schools knon they need proper internal controls over both
inventory and monet'.
Public-sector clubs
In mr-slare. \t-ashington, students in public schoois conduct thousands of F.rndralslng aciirities each vear. S.iu,iells .:':li :1;ul:; a,ir rsors in each :ch.rci J:-:::a: -,o;;, ;iubr as a part oi
the Asstr;:a:ec Slucent Bodr' lASB
t
\\hen
er-ternai auciitors determine
product inventort' and revenue, but
there are alwavs some that dont
that a faculn adri-.or s responsible for a specifrc loss anou::, ie or she usualiv
makes restitutioii :o ---:e scrrooi. Schools
properlv manage them. Their negligence discredits all other schoois that
discipline some o: others simplr-
ie-
ncnciuals. but
diiigendr- rtork to achieve financial and educational successes.
resi= >coois rareh-refer these cases io: l:.::<;J::oit bt;ause
FRAUD
MAGAZINE
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;RAUD-\4AGAZiNa CCt'/
the schools normally have been made
an internal-control finding to help
unsecured facility. The school couldnt
whole. Prosecutors also usually dont
accept small-dollar cases because they have more important crimes to pursue. However, when they do prosecute these
cases,
improve future operations. Case No. 2: wandering
cash from student store
determine who stole the revenue because too many people had access to the
concession-stand inventory and money.
convicted fraudsters usually rejail sentences ofless than one year. ceive The information for the case stud-
An external auditor detected unauthorized refunds in the cash receipting
system
Case No. 4: shop wasn't ship'shape
ofa school student store over
for pubiic-sector ciubs cited below comes from audit reports issued by the
ies
four months. Cashiers didnt use cash
register passrvords. The store manager
In an unannounced cash count, an external auditor found that the amount of money on hand at a school's floral, candy and balloon shop didnt
agree
Washington State Auditor's Office (the external auditor for the schools).
Case No. 1: sticky soft drink
with the amount of the revenue
and candy money
Schools often use vending machines
Skimming, the theft of off-book funds, is usually at the heart of student
recorded on the shop's cash register.
Employees cashed personal checks from cash receipts (a poor internal control
fundraising losses.
didn t rnonitor cash register detail tapes to identify and investigate the unsup-
practice), didnt make intact daily deposits with the ASB Fund treasurer and had unlimited access to inventory and funds stored in an unlocked cabinet at the shop. The school didnt use a change
to raise funds. A student in charge of collecting money from machines placed
it in
gave
a
cloth bag without counting it and
it to the ASB Fund cashier who stored it in an unlocked storage cabinet
in the vault. The cashier and student
ported refunds; he only verified that the revenue amount reported on the daily
'cash register activity reports agreed
with
fund at the shop and didnt maintain any merchandise inventory records. The auditor couldnt find the culprit(s) who
stole US$216 because too many people
didnt count this money together, as
they were required to, at the time of the transfer of accountabilit,v for these funds. In addition, the cashier didnt issue a receipt to the student for the amount of monet she receii'eJ and
the amount of money actually deposited
with the ASB Fund treasurer. The external auditor couldn't identify the person(s) responsible for the US$914 loss because too many people operated the cash register and had access to the money.
had access to the inventory and money
in the unsecured facility.
Private-sector teams
Children also conduct fundraising acprimarily tivities in the private sector in athletics. Parents form governing
didnt inciude these ftrnCs in the dailv
bank deposit as she should have. Case No. 3: no concession
-
A faculw advisor routineiv
as-
for this fraud
A iacuiw advisor left an undetermined amount of revenue and the change fund in an unsecured cabinet at the gvmnasiun:s concession stand rather than storing the monev in the school's office safe.
The school then rented the g.vmnasium
bodies for teams and manage fundrais-
signs one studeni to replenish vending
ing activities that almost nobod-v audits,
machine stock and iemove mc'rner', but ideally trto peopie .nouia io tnis
The cashier iaier counted, receipted and deposited the monev into the ASB
including state offices. In fact, no agency in the state of Washington guicies these private groups. Ofcourse, this can spell disaster. The teams' treasurers or managers often misappropriate
Fund bank acco'.int. Hoite-ter. 'rhe external auditor detern:ii:e'i ihat the anount of funds deposlitc ir'a: le:s thai the
expected re\.enue
Lincs bt
io
a
privaie organization for
a
basketball
tournameni. Atter the event, the school
discoveied that almost a1l oithe money
llom inr-enton-
sold
,-.iten skimming for personal beneit De.ause writing checks to themselves they handle all revenue anci maintain
-
-
through the vending nachines.
No one co'.rlci iciertih the person(s) responsib'le ior this loss because
len in the concession stand rvas missrng. The basketbali tournament officials reimbursed the school ibr the known
loss
the teams' accounting records. Paiena-s are rudely awakened n'hen
'ier i:c
cre,i up -ieas::-:.
the teams' bank account-s har e
has been rvasted. Coacir.,--
too manr-peolie had access to the
from the change lund
inr'enton'. and the :-n',)na\-r\'as stoied
Horr'ever. there rtere no school records
-
L'SS172.
and their childrens fuldra:s.:-: ..-,-^':k
in the unlocke,i ral:r<: :n :1e ;:shier's
office vault. The el:e
::.' ..J::,,: :..ueci
proving the amount oiconcessionstand relenue that had been lett in the
and managers can qo to ia:. professional lives are
ruirci.
-:
'-::^:
trRAUD-i''IAGAZjN=
COM
JUIY/AUGUS-|
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FRAUD MA3:'Z
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':
FRAUD'S FINER POINTS
Case history applications
addictive the auction bank account. She returned 90 about USD$8,000 of her own funds to these the auction bank account to try to make A private-sector youth soccer club partial restitution. obligations, rvas to deporshe subject began a new season in debt and The school apparently didn't peralmost bankupt because its former tation to her native country - South treasurer stole more than USD$72,000 Africa. (Source: The News Tribune, form a thorough background investi\!ash., "Ex-treasurer's trial set gation of the volunteer bookkeeper. If - in 14 months. Tacoma, - its entire savings for March 31i' by Steve Maynard, Feb. they did, they would have discovered The clubi board of directors detected 19,2009, and "Pierce Countl', woman that she was in a court diversion this misappropriation of pla,.,er and program for a prior theft. Sentencing admits stealing from soccer ciub," by tournament registration fees when information was not available on this .,A.dam Lvnn, 29, 2009.) June it investigated the reasons the club case. However, perpetrators of similar wasn t able to pay its bilis. A generous benefactor and the local soccer asso- Case No. 2: going once, going twice crimes usually receive sentences of less than a year in jail and restitution ciation loaned cash so the club can get ... fraud at the auction "Bookback on its feet. A voiunteer bookkeeper at a private- ofthe loss amount. (Source: keeper with from charged steaiing Because of its financial woes, the sector school was charged with one club had to eliminate player award count of first-degree theft for allegedly schooll'by Herald staff, The Herald, Everett, Wash., March 12,2005,httpill programs and cancel adult volunteer stealing USD$30,981 in 22 months coaching classes. The current treasur- from a bank account that contained tinlurl.com/d9ktysb.) er said, "We have been on a very tight money from annual fundraising aucLessons learned budget and unable to serve our kids tions. The bookkeeper, 37, was ine of the way we would like to, but we have two people authorized to sign checks Let's review some of the finer points of been able to make ends meetl' for the auction bank account. Normally, tiaud and abuse in student fundraisins activities. The former treasurer, 43, trans- there wouldnt be any reason for the Private sectol governing bodies ferred USD$40,000 from the club's bookkeeper to issue any checks on the and public sector entities should: bank account to her personal bank account because she lvas simply
Case No. 1:
gambling away soccer club funds
her to be treated for her gambling habit and sentenced her to days in jaii. After meeting all of
-
account without authoritli She
withdrawals from the club's hank account at a tocal.rrino wrote 12e unauthorized checks local casinos totaling more than usD$8,000, according to filed by the counn pros*.uting
attornev's
alsomadeunauthorizedATM The school apparently didn't perform a thorough
u-nj-^"' background investigation of the volunteer bookkeeper. to lf they did, they would have discovered that She was in a J
charges
moni-
court diversion program for a prior theft.
office.
The governing boCi.iicrr't
tor club financiai activiii closell beiore the loss, but you can be suie it dces now. At least trvo members reriert
ai the club's bank activitr online. The current
bank statements at meei:::qs. ald
ieast two or three mernbers
ierieri
treasurer, a CPA, also pre:ents n']onthiv cash flow statements and baiance
sheets to the governing
. Establish formal written policies. funcls directlv to anorher school bank account procedures and internal controls for from rlhich disbursements transpired. all student fundraising activities. . Monitor the profitabili-,"- of aii i';l.jTu.o citizens complained that their credit cards rvere charged twice raising events to ensure their finanfor their purchases at the auction. This cial expectations have been met. prompted an inrestigation that uncovFraud examiners must understand ered the losses frorn the auction bank the differences between public-secto: account. Inr-estigaiors found that the clubs and private-sector teams and rhe booReeper didn't transfer any aucfraud scheme of choice for each rrhe:
supposed to rransfer aii the
bodr-.
s.;ill rr.l1 fo 10 counts of first-degree rn a plea bargaining agreemeni ',.-l:h lie county prosecutor. Tire rucqe c:derec
The former trea-surer plEaC*d
tion funds to the schooli disbursement assessing the risk of fraud. account during this period. Instead,
cash rrithdrartals and issued manv check to herself and her personal creditors from
she made numerous unauthorized
FRAUD-lvlAGAZ
Planning for success
Managers must plan for success
when conducting student fundraisns
li!
C3'.'!
-,-i ,I
activities. Part 2 in this series discusses a successfui plan for successful fundraising, which comes from my life experiences dealing
with fraud and abuse in all qpes of student fundraising activities in my state. We will also
the most discuss 'gross profits testing" associatweakness common internal control
-
with retail sales events. There's much more to come. Get ready. r f [/[
ed
Regent Emeritus foseph R. Dervaes, CFE' CIA, ACFE Fellow, is retired after nore than 42 years of government service. Hei presi-
dent emeritus of the ACFE's Pacific Northwest Chapter. His email address is:
j
oeandpe ggydervaes@centLlryel. net.
CAREER CONNECTION, CONTINUED FROM PAGE 13
(such as conciucting employee interviews); and offering court testimony and preparing written reports that may be used in crimi-
nal or civil court or offering referrals for prosecution.
Do yourself a favor
Dr. loseph T. Wells, CFE, CPA, lounCer and Chairman of the ACFE, expressed his opin
ion succinctly in the January/Februarv 2012
article. "lfthere is any chance at all that a state licensing board could vie'lv You a'. holciing out as an investigator, do vourseif a iar-or
-,-) dilu ^-r l:-^-^^-J 5gt llLcll)cu. \{.-..^frL.^^ ul lllL:L ^rldll) .r^r.L^^-1. Jldls lr\:::u)
are
self-funding and activel,v look iar anlone
that can be construed to be uniicensed because it adds to their coffers. lt{oreover. courts or opposing ccunsel can hran: ','t-';
as an
if
unlicensed investigator, voui :asg i"'::l
likely suffer severe damagel'
I
FF*
Beth A. Mohr, CFE, is manaqing
laitilei
of McHard Accounting Consuitine LI-C :: Albuquerque, N.M. Shes a retired S:r l'..':.' police officer and a licensed
;r:r::r
investigator, Her email address is: bmohr@thelv{cHardfi rm con
Building your professional future
CFEs, examine this:
Are you required to be licensed as a private investigator?
o U.S. CFEs need to be licensed as private inves-
findings and assisting in the detection and prevention of fraudl' lhis defini-
tigators (PIs)? The answer
isn t particularly straightforward.
tion includes many elements that are
traditionally associated with investigations, including those specif,cally included in various state statues that
require investigators to be licensed' Each U.S. state, plus the District of Columbia, has a different set of regulations that govern what defines an investigator or private detective. A few states
have no PI regulations at all, but some municipalities vrithin those states have
It
depends on the jurisdiction in which CFEs practice and the tlPes of work
performed. That could incluCe conducting fraud investigations, internal investigations for their employers,
expert witness testimonies, litigation support services or independent white-
collar crime investigations. CFEs that'
practice in more than one jurisdiction may be required to be licensed in some
areas where they issue before
their own regulations that must be ob-
work but not others.
Fraud Magazinehas covered this
("lndependent CFEs Need
to Check Their }urisdictions on PI Licensure Lan'si'by ]ames S. Peet, Ph.D.'
CFE, Januar,v/FebruarY 2012), but we need an update.
iv{an-v CFEs
ifan investigation is to be conducted within city limits. Likewise, each Canadian province has PI licensure requirements, Australia requires PIs to
served be licensed at the state or territory level,
U,S. states and the
District of Columbia'
The statutes can change at any time. Even though a license isnt required
but England and Wales discontinued all
U.K. PI license requirements.
Some jurisdictions that previousl,v
now it doesnt necessarily mean that the jurisdiction wont require it in the near
future. The trend is moving towards required licensing, and states with no such recuirements are the exception rather than the rule.
CFEs will need to research unique
emplovers ^^l^l-, Url ^^ L^L^lr^f rrrrylvlvr lrrLrr ^*-l^.'.. UcildiM +L...i5UtElI assume that onll inoependent CFEs
-
u'ho lvork for private conciucting investigations
had no licensing requirements have rennire rorontlrr -o.co.l hillc thqt rrrill ''-^- -t*^- registration and licensing, and others
have bills pending that could chanse
in private praciice neeci to be licensed. Thati true in most states, but eight states that require PI licensure proride no such exception for employees conducting internai ini'estigations on behalf of their emplovers.
The 2013 Fraud Examiners L[.anual
states, "Fraud
current regulations. States earn fees from licensing PIs, and the regulations also give states the power to discipline and limit what non-sworn 1all'
enforcement personnel can do rthile conducting an investigation.
requirements in each of the jurisdictions in ivhich thev practice to determine if they're required to obtain PI
iicenses. It may be possible to request opilions from the states' attorneys general offices for particular situations. The chart, which will assist you in condiicting,tour o\{n research, is based on
a
eramination is a methodolop tbr resolving fraud allegations tlom inception to disposition. I{ore specificallt, fraud eramination involves obtaining eridence and taking statencnts. \\'riting retrorts. testih ing to
Chart on Fraud-Magazine.com
The detailed chart at Frauci-\fasazi;le-
:iarn reading of the iarv and doesn t
com (available July l) accompai\rn< this column will assist you in resear*ing licensure requiremenls in variou'
::cr-:cie anv legal opinions on specific license requirements in any individual :a-.<. \bu should consult local legal
.,2
FRAUD
MAGMINE
,ULV,, AUGUST 20]
3
FMUD-MAGMINE.COM
counsel to determine the applicability of laws in your jurisdiction.
in Virginia. Virginia state law mandates
that a forensic accountant licensed as a CPA in another state must obtain a PI
license to do work in Virginia, regardless of whether
from PI licensure in various jurisdictions include attorneys, CPAs, government officials, individuals conducting genealogical research, computer
forensics experts, insurance adjusters,
Definitions of an 'investigator'
Although each jurisdiction is different, tlpical examples of statutory definitions ofan investigator that lvould require
licensure include a person investigating:
The identity, habits, conduct,
their home state exempts them from such a requirement ("Prias
expert witnesses and reporters. Most
states exclude someone
vate-investigator licensing emerges
performing an
potential threat to CPAsi' by feff Drew,
investigation on behalf of his or her
movements, whereabouts, transactions, reputation or character of any person or organization.
The credibiliry honesty or in-
Don't wait to be embarrassed on the stand or find yourself charged with a crime. Proactively investigate the necessity of licensure in the jurisdictions in which you practice.
Journal of Accountancy March 5,2013, employer, such as an internal auditor or company detective. However, some
as an ex-
tegrity of witnesses or other persons.
The Iocation, disposition or recovery
http://tinyurl.com/cmffkyq). Ifyou're going to testify
states provide no such exceptions,
of lost or stolen property, missing persons, owners or heirs ofproperty or heirs to estates.
The origin of and responsibility
pert witness or fact witness, be sure that you're either properly licensed within that jurisdiction or specifically exempted from licensure requirements. Otherwise, opposing counsel can accuse you
which means that CFEs conducting fraud investigations for their employers
may require iicenses.
Some states specificaliy exempt a
for libels, losses, accidents, fires, or damages or injuries to persons or
person conducting computer forensic examinations, while other states specifically include them in the definition of
an investigator requiring a PI license.
Each
ofviolating the law during crossexamination, or the judge may choose
properry
The conduct, honesty, efficiency, Ioyalt,v or activities of employees, persons seeking employment, agents,
to disallow your testimony entirely. Either way, your case and professional
reputation could be severely damaged. Requirements for obtaining a PI
license vary by jurisdiction, but most
firm and CFE is responsible
to ensure they're in compliance with the
law, so you need to consuit your legal
or contractors and subcontractors.
The identih or location of persons suspected of crime or n'rongdoing. Evidence (or obtaining of evidence)
counsel. Dont wait to be embarrassed on the stand or find yourselfcharged with
a
require two to three years ofverifiable
experience conducting investigations. Some states require applicants to take
crime. Proactively investigate the neces-
sig of licensure in the jurisdictions in
which vou practice. Obviousl,v, if you're required to have a license, get licensed.
sav
to be used before an-v committee, board of aivard or arbitration. admin-
istratile or iicensing bodi'or officer,
or in preparation for trial ofanl'civil or criminal case.
written test, others have CPE or training requirements and a few states virtually require prior Iaw enforcement experience. Most jurisdictions require
a
It goei ',iihorrt saving (but I'11 it anr.n'av) that CFEs and CPAs
as
that the private investigator or his or her firm be bonded; the amount ofrequired bond varies by jurisdiction and
ranges from $2,500 to $100,000. A few
states allow malpractice
lvho hold themselves out
conduct-
Staring at a felony?
-\iir-oae mar'file a complaint in most :taies that require licensure ofpnvate lnlestigators against an indrr.idual or
ing "forensic investigations" should be
liabiliry insur-
properlv licensed ii their jurisdictions require it. Other key rr.ords that would likelv triqeer hcensure requirement,
depending
ern 'rhe
ance in lieu of
a
bond.
!m
conducting an investigation rrith-
jurisdiction, include:
out a license. Penalties for pra.ticing
Exemptions and exclusions
Jurisdictions have differing exemptions and erclusions from their PI licensing requirements, and some offer no exemptions at all from licensure requirements. Examples of exceptions
con<iucring riocument analvsis; whitecollar crule. iraud or embezzlement
r.iihout a license vary but in a ferv states rhe ;rime is a felonv. In one recent case,
a C.P.\
l:orrdinq forensic accountinq
r^-a-.
\€r-r-r.rs
.
charged with a feionv ibr
investiga!o1s: ibrensic accounting; liiigaaor s::3ii senices: computer ibrel-.i; <-u::.raiion or specific tasks
COI{NNUED ON PAGE 17
i.i.iii;illg
a:r unlicensed investigation
FRAUD MAGAZINE
13
I
FRAUD'S FINER POINTS I Cu'" history applications
ByJoseph
R.
Dervaes, CFE, ACFE Fellow CIA
Raising frauds, not funds
Fraud and abuse in student fundraising activities, part I
his column is the first in a
Program Fund and then conduct a wide
three-part series presenting many scenarios of fraud and
abuse
variety of funciraising activities to fulfill their objectives. Most school departments raise funds with rhe approval of school administrators. Athletic departments raise the highest amounts for
in student fundraising activities.
We begin our discussion by illustrating the different schemes fraud perpetrators
use to obtain funds for personal benefit
foctball, basketball, soccer, baseball
softbali and other sports. Faculty members, with the help of students interested in learning the
from public-sector ciubs and privatesector teams.
Skimming is the fraud of choice
Similar to our discussion in the fanuarylFebruar,v 2013 column, fraud and abuse in all qpes ofstudent fundraising actir.ities is usuall,v a case of simple asset misappropriation. In the ACFEs Fraud
Tree, cash schemes
retail trade, manage these programs in middle schools, high schools, com-
munity colleges and universities. All
generated revenue is public money, which the state audits.
Faculty advisors for public-sector
clubs manage all student fundraising The state of Washington has 294
(part of asset misap-
propriationsj, l\ihich invohre stealing an entilri ii:i-'cis, iall inio three categories: larcenr', iraudulent disbursements and
skimaring. Cash larcenv schemes involve ihe then of funds recorded in the
activities, and the ASB fund treasurers maintain the clubs' accounting records. Facult,v advisors normally skim revenue from event proceeds before they give rnoney to the treasurers for deposit. Disbursement schemes are rare. Faculq' advisors also teach students
school districts. When I managed the
statewide fraud program for the state
auditor's office, there rvas tlpically an
average of about eight schools per year
that suffered a revenue loss ofapproximately USD$6,800 each (USD$54,400 annuaiiy). Tnese iosses pnmarii,v occur when one individuai is responsible for all club revenue n'iih no monitoring bv
managers. Investigators oiten can't find those responsibie because too manv people har.e had access to product
entitr s aiiounting rccor,i:. ln lrauduleni i.iisb'*isenent schernes, an indir-irjuai makes a ciistribution of entin'funds for a iish,-xest iiurrose. Skimming, ihe tnei-l oi lf,bcok iunis, is usuallr. at the
hean ci srudeli tuliraising losses.
horl'to operate school stores and manage other retail sales activities, such as
concession stands and sales of merchandise.
(l'll
discuss these activities in
subsequent columns.) Nfost schools knon they need proper internal controls over both
inventory and monet'.
Public-sector clubs
In mr-slare. \t-ashington, students in public schoois conduct thousands of F.rndralslng aciirities each vear. S.iu,iells .:':li :1;ul:; a,ir rsors in each :ch.rci J:-:::a: -,o;;, ;iubr as a part oi
the Asstr;:a:ec Slucent Bodr' lASB
t
\\hen
er-ternai auciitors determine
product inventort' and revenue, but
there are alwavs some that dont
that a faculn adri-.or s responsible for a specifrc loss anou::, ie or she usualiv
makes restitutioii :o ---:e scrrooi. Schools
properlv manage them. Their negligence discredits all other schoois that
discipline some o: others simplr-
ie-
ncnciuals. but
diiigendr- rtork to achieve financial and educational successes.
resi= >coois rareh-refer these cases io: l:.::<;J::oit bt;ause
FRAUD
MAGAZINE
,uLY,''ArlGUST
2C13
;RAUD-\4AGAZiNa CCt'/
the schools normally have been made
an internal-control finding to help
unsecured facility. The school couldnt
whole. Prosecutors also usually dont
accept small-dollar cases because they have more important crimes to pursue. However, when they do prosecute these
cases,
improve future operations. Case No. 2: wandering
cash from student store
determine who stole the revenue because too many people had access to the
concession-stand inventory and money.
convicted fraudsters usually rejail sentences ofless than one year. ceive The information for the case stud-
An external auditor detected unauthorized refunds in the cash receipting
system
Case No. 4: shop wasn't ship'shape
ofa school student store over
for pubiic-sector ciubs cited below comes from audit reports issued by the
ies
four months. Cashiers didnt use cash
register passrvords. The store manager
In an unannounced cash count, an external auditor found that the amount of money on hand at a school's floral, candy and balloon shop didnt
agree
Washington State Auditor's Office (the external auditor for the schools).
Case No. 1: sticky soft drink
with the amount of the revenue
and candy money
Schools often use vending machines
Skimming, the theft of off-book funds, is usually at the heart of student
recorded on the shop's cash register.
Employees cashed personal checks from cash receipts (a poor internal control
fundraising losses.
didn t rnonitor cash register detail tapes to identify and investigate the unsup-
practice), didnt make intact daily deposits with the ASB Fund treasurer and had unlimited access to inventory and funds stored in an unlocked cabinet at the shop. The school didnt use a change
to raise funds. A student in charge of collecting money from machines placed
it in
gave
a
cloth bag without counting it and
it to the ASB Fund cashier who stored it in an unlocked storage cabinet
in the vault. The cashier and student
ported refunds; he only verified that the revenue amount reported on the daily
'cash register activity reports agreed
with
fund at the shop and didnt maintain any merchandise inventory records. The auditor couldnt find the culprit(s) who
stole US$216 because too many people
didnt count this money together, as
they were required to, at the time of the transfer of accountabilit,v for these funds. In addition, the cashier didnt issue a receipt to the student for the amount of monet she receii'eJ and
the amount of money actually deposited
with the ASB Fund treasurer. The external auditor couldn't identify the person(s) responsible for the US$914 loss because too many people operated the cash register and had access to the money.
had access to the inventory and money
in the unsecured facility.
Private-sector teams
Children also conduct fundraising acprimarily tivities in the private sector in athletics. Parents form governing
didnt inciude these ftrnCs in the dailv
bank deposit as she should have. Case No. 3: no concession
-
A faculw advisor routineiv
as-
for this fraud
A iacuiw advisor left an undetermined amount of revenue and the change fund in an unsecured cabinet at the gvmnasiun:s concession stand rather than storing the monev in the school's office safe.
The school then rented the g.vmnasium
bodies for teams and manage fundrais-
signs one studeni to replenish vending
ing activities that almost nobod-v audits,
machine stock and iemove mc'rner', but ideally trto peopie .nouia io tnis
The cashier iaier counted, receipted and deposited the monev into the ASB
including state offices. In fact, no agency in the state of Washington guicies these private groups. Ofcourse, this can spell disaster. The teams' treasurers or managers often misappropriate
Fund bank acco'.int. Hoite-ter. 'rhe external auditor detern:ii:e'i ihat the anount of funds deposlitc ir'a: le:s thai the
expected re\.enue
Lincs bt
io
a
privaie organization for
a
basketball
tournameni. Atter the event, the school
discoveied that almost a1l oithe money
llom inr-enton-
sold
,-.iten skimming for personal beneit De.ause writing checks to themselves they handle all revenue anci maintain
-
-
through the vending nachines.
No one co'.rlci iciertih the person(s) responsib'le ior this loss because
len in the concession stand rvas missrng. The basketbali tournament officials reimbursed the school ibr the known
loss
the teams' accounting records. Paiena-s are rudely awakened n'hen
'ier i:c
cre,i up -ieas::-:.
the teams' bank account-s har e
has been rvasted. Coacir.,--
too manr-peolie had access to the
from the change lund
inr'enton'. and the :-n',)na\-r\'as stoied
Horr'ever. there rtere no school records
-
L'SS172.
and their childrens fuldra:s.:-: ..-,-^':k
in the unlocke,i ral:r<: :n :1e ;:shier's
office vault. The el:e
::.' ..J::,,: :..ueci
proving the amount oiconcessionstand relenue that had been lett in the
and managers can qo to ia:. professional lives are
ruirci.
-:
'-::^:
trRAUD-i''IAGAZjN=
COM
JUIY/AUGUS-|
2a-i
FRAUD MA3:'Z
\E
':
FRAUD'S FINER POINTS
Case history applications
addictive the auction bank account. She returned 90 about USD$8,000 of her own funds to these the auction bank account to try to make A private-sector youth soccer club partial restitution. obligations, rvas to deporshe subject began a new season in debt and The school apparently didn't peralmost bankupt because its former tation to her native country - South treasurer stole more than USD$72,000 Africa. (Source: The News Tribune, form a thorough background investi\!ash., "Ex-treasurer's trial set gation of the volunteer bookkeeper. If - in 14 months. Tacoma, - its entire savings for March 31i' by Steve Maynard, Feb. they did, they would have discovered The clubi board of directors detected 19,2009, and "Pierce Countl', woman that she was in a court diversion this misappropriation of pla,.,er and program for a prior theft. Sentencing admits stealing from soccer ciub," by tournament registration fees when information was not available on this .,A.dam Lvnn, 29, 2009.) June it investigated the reasons the club case. However, perpetrators of similar wasn t able to pay its bilis. A generous benefactor and the local soccer asso- Case No. 2: going once, going twice crimes usually receive sentences of less than a year in jail and restitution ciation loaned cash so the club can get ... fraud at the auction "Bookback on its feet. A voiunteer bookkeeper at a private- ofthe loss amount. (Source: keeper with from charged steaiing Because of its financial woes, the sector school was charged with one club had to eliminate player award count of first-degree theft for allegedly schooll'by Herald staff, The Herald, Everett, Wash., March 12,2005,httpill programs and cancel adult volunteer stealing USD$30,981 in 22 months coaching classes. The current treasur- from a bank account that contained tinlurl.com/d9ktysb.) er said, "We have been on a very tight money from annual fundraising aucLessons learned budget and unable to serve our kids tions. The bookkeeper, 37, was ine of the way we would like to, but we have two people authorized to sign checks Let's review some of the finer points of been able to make ends meetl' for the auction bank account. Normally, tiaud and abuse in student fundraisins activities. The former treasurer, 43, trans- there wouldnt be any reason for the Private sectol governing bodies ferred USD$40,000 from the club's bookkeeper to issue any checks on the and public sector entities should: bank account to her personal bank account because she lvas simply
Case No. 1:
gambling away soccer club funds
her to be treated for her gambling habit and sentenced her to days in jaii. After meeting all of
-
account without authoritli She
withdrawals from the club's hank account at a tocal.rrino wrote 12e unauthorized checks local casinos totaling more than usD$8,000, according to filed by the counn pros*.uting
attornev's
alsomadeunauthorizedATM The school apparently didn't perform a thorough
u-nj-^"' background investigation of the volunteer bookkeeper. to lf they did, they would have discovered that She was in a J
charges
moni-
court diversion program for a prior theft.
office.
The governing boCi.iicrr't
tor club financiai activiii closell beiore the loss, but you can be suie it dces now. At least trvo members reriert
ai the club's bank activitr online. The current
bank statements at meei:::qs. ald
ieast two or three mernbers
ierieri
treasurer, a CPA, also pre:ents n']onthiv cash flow statements and baiance
sheets to the governing
. Establish formal written policies. funcls directlv to anorher school bank account procedures and internal controls for from rlhich disbursements transpired. all student fundraising activities. . Monitor the profitabili-,"- of aii i';l.jTu.o citizens complained that their credit cards rvere charged twice raising events to ensure their finanfor their purchases at the auction. This cial expectations have been met. prompted an inrestigation that uncovFraud examiners must understand ered the losses frorn the auction bank the differences between public-secto: account. Inr-estigaiors found that the clubs and private-sector teams and rhe booReeper didn't transfer any aucfraud scheme of choice for each rrhe:
supposed to rransfer aii the
bodr-.
s.;ill rr.l1 fo 10 counts of first-degree rn a plea bargaining agreemeni ',.-l:h lie county prosecutor. Tire rucqe c:derec
The former trea-surer plEaC*d
tion funds to the schooli disbursement assessing the risk of fraud. account during this period. Instead,
cash rrithdrartals and issued manv check to herself and her personal creditors from
she made numerous unauthorized
FRAUD-lvlAGAZ
Planning for success
Managers must plan for success
when conducting student fundraisns
li!
C3'.'!
-,-i ,I
activities. Part 2 in this series discusses a successfui plan for successful fundraising, which comes from my life experiences dealing
with fraud and abuse in all qpes of student fundraising activities in my state. We will also
the most discuss 'gross profits testing" associatweakness common internal control
-
with retail sales events. There's much more to come. Get ready. r f [/[
ed
Regent Emeritus foseph R. Dervaes, CFE' CIA, ACFE Fellow, is retired after nore than 42 years of government service. Hei presi-
dent emeritus of the ACFE's Pacific Northwest Chapter. His email address is:
j
oeandpe ggydervaes@centLlryel. net.
CAREER CONNECTION, CONTINUED FROM PAGE 13
(such as conciucting employee interviews); and offering court testimony and preparing written reports that may be used in crimi-
nal or civil court or offering referrals for prosecution.
Do yourself a favor
Dr. loseph T. Wells, CFE, CPA, lounCer and Chairman of the ACFE, expressed his opin
ion succinctly in the January/Februarv 2012
article. "lfthere is any chance at all that a state licensing board could vie'lv You a'. holciing out as an investigator, do vourseif a iar-or
-,-) dilu ^-r l:-^-^^-J 5gt llLcll)cu. \{.-..^frL.^^ ul lllL:L ^rldll) .r^r.L^^-1. Jldls lr\:::u)
are
self-funding and activel,v look iar anlone
that can be construed to be uniicensed because it adds to their coffers. lt{oreover. courts or opposing ccunsel can hran: ','t-';
as an
if
unlicensed investigator, voui :asg i"'::l
likely suffer severe damagel'
I
FF*
Beth A. Mohr, CFE, is manaqing
laitilei
of McHard Accounting Consuitine LI-C :: Albuquerque, N.M. Shes a retired S:r l'..':.' police officer and a licensed
;r:r::r
investigator, Her email address is: bmohr@thelv{cHardfi rm con
