Public protector: integrity defines extraordinary forensic CPA

California CPA, August, 2004 by Jerry Ascierto

"They increased inventory by their standard cost of a drive, which at the time was around $200," Regan says. "And they reduced the cost of goods sold by $200. All as a result of buying 26-cent bricks."

THE WRITING ON THE WALL

Regan says the most satisfying work he does concerns public frauds, companies that act as if they're a money market fund, a precious metals company or a mortgage broker, for instance, to bilk the unsuspecting.

In one such case, Regan took part in an FBI raid of a supposed Bay Area-based precious metals investment firm. "It's like the raids you see in the movies," he says.

"We were there to take the accounting records. But the firm had been tipped off. When I went up the elevator, I could see that something very heavy had just rolled along the carpeting," he says. "And I saw gouges on the wallboard in the hallway."

Regan followed the marks to a computer room, "which didn't have a computer in it," he recalls. After finding the missing computer's back-up tapes, which implicated the precious metals company, one of the players involved confessed that they had dumped the computer in the San Francisco Bay.

HIT MEN AND TABLECLOTHS

Regan also worked on a case with the FBI that involved a contract murder. While investigating a public fraud, one of the three principles of the suspected company died. The FBI suspected an organized crime connection and told Regan to be on the lookout for suspicious invoices.

"We found an invoice, and all it said was 'For Services Rendered, Initial Payment: $25,000. Amount Now Due: $25,000. Project now complete,'" he says. "There was no other description." And sure enough, Regan's work led to the arrest of the hit man.

Then there's the case of a popular San Francisco restaurant with two owners--one that provided the funding and one that managed the restaurant. For the restaurant's first three years, money poured in. But during the next three years, a profit was barely shown.

The managing owner told the investing owner that business was just slow, but the restaurant seemed as busy as ever.

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That's when Regan got involved. "I asked the investing owner whether they changed tablecloths after every meal and had them laundered. He said 'yes,'" Regan says. "I had the laundry records subpoenaed and the waiter checks--the top of a bill that shows what the bill came to--produced. I then created two databases."

For the first three years, the number of waiter checks and laundered table cloths were essentially equal. But for the last three years, Regan found that "there were 600 tableclothes being laundered a week, but only 300 waiter checks." When he confronted the perpetrator with the chart, "the guy basically said, 'Wow, you nailed me.'"

Regan's work in forensic accounting has expanded the profession's vocabulary and broadened the definition of an accountant. But when asked about his career, he's characteristically humble.

"That's just accounting," he says. "Accounting is the history of a company, how it's organized, maintained and kept."