al capone
Investigation: History of Forensic Accounting
Al Capone, a name that has been infamous for many decades, was never convicted for any of the criminal activities normally associated with mobsters. The courts never caught him for assaults, murders, robbery’s etc, but rather he was jailed for what seems to be such a small crime in comparison: tax evasion. Back in the early 1900’s, the IRS Special Intelligence Unit was formed primarily to combat employee crime. An accountant by the name of Elmer Irey, the head of the IRS and the US Treasury Enforcement Branch, was a key component in pursuing Capone for his tax crimes. Irey was essentially America’s first well known forensic accountant. He and his team were named “the silent investigators”, due to their superior investigative and analytical skills which in the end cracked Capone’s financial scandals.
This profession has not been around for long. In Al Capone’s time, there was no designated position for this type of work. The line of work, however, is nothing new, as there were people dealing with “employee” crime thousands of years ago. Back in the 3300 and 3500 BC, the world’s first accountants, or scribes, can be found in Mesopotamia and Egypt. These “accountants” recorded commercial transactions onto damp clay tablets or papyrus. Fast forward to the 19th century, Scotland introduces the first official chartered accounting profession. It started out as a profession where legal work accounted for a large portion of an accountant’s job. However, by the early 20th century, chartered accountants expanded their services to a much wider field and court appearances shrank relative to the size of their business. As one can see, forensic accounting is not a new and exciting field in accounting; rather it is a return to where accounting had all started.
Value of a Forensic Accountant
In the 1950’s and 1960’s, Atlantic Acceptance was one of Canada’s leading financial firms. It had 105 small loans offices and 35 sales finance offices across the country. The company collapsed in June of 1965 with $150 million of receivables still outstanding. Introduce Tedd Avey, a pioneer of forensic accounting in Canada, recalling the scandal:
“Atlantic Acceptance was one of the first cases in which forensic accountants were used to present evidence in a Canadian court,” he says. “The enormous complexity of the financial documents — dozens of companies were either implicated or impacted — made the situation difficult for people to grasp. But the forensic accountants were able to take a roomful of complicated financial documents and boil them down. The evidence came to life through a series of charts and simple explanations.”
Without these scientific-minded accountants, such breakthroughs in the case would have been improbable. Being able to scientifically sort through complex accounting documents is not a skill many people have, and must go a lot of training [next page]