What do you get when you combine CSI Miami with a reality TV called Who Wants to be an Accountant? Although it has little to do with dead bodies and murder mysteries, there is plenty of excitement to be had in the world of forensic accounting. Welcome to the most exciting boring job ever!
The Forensic Accountant
Episode I – Tacky Tyco Tycoon
Beginning in June 2002, accountants at Tyco International began questioning the accounting decisions of the company's board of directors. Specifically, they wanted to know if CEO, Dennis Kozlowski was receiving improper benefits at the board's request. As the investigation deepened, forensic accountants uncovered a startling pattern of financial abuse by Kozlowski and Tyco's Chief Financial Officer, Mark Schwartz. Before the carnage was complete, forensic accountants would uncover more than $600 million in grand larceny, securities fraud and enterprise corruption by the company's top officials.
The list of Kozlowski's eye-popping benefits could fill a book. Among them were an $18-million Fifth Avenue duplex filled with more than $11 million in art and antiques. The company's board of directors wrote it off as a "corporate apartment." Then there was the home in Boca Raton, Florida, paid for with an interest-free, $19-million loan from Tyco to Kozlowski. Tyco's board of directors eventually forgave the loan as part of a "special bonus" program, even kicking in an additional $13 million for the income taxes. In total, Kozlowski received more than $135-million in improper benefits including payments for real estate, charitable contributions and personal expenses. Investigators concluded that Kozlowski and Schwartz had used criminal accounting practices to conceal the company's debt from the public, profiting more than $430 million from inflated stock prices between 1995 and 2002. And then there was the 2.1 million dollar birthday party for Kozlowski's wife. Turns out most of it was paid for by the company's shareholders, and it became a key piece of evidence during Kozlowski's prosecution.
But perhaps the greatest irony of the Tyco scandal was how it all began. In 2002, Irwin Nack, an investigator with the New York Banking Department, noticed something odd. In less than a week, a New York art dealer, Alexander Apsis, had received numerous multi-million dollar money transfers. As soon as the cash hit Apsis' account, it was immediately wired to an offshore account. Nack checked the origin of the transfers and discovered that they were coming from a Tyco account in Pittsburgh. Nack suspected money laundering and contacted the Manhattan District Attorney's office. The DA's office suspected something else -- tax evasion.
Forensic accountants began analyzing Kozlowski's financial records and determined that the transfers were part of an elaborate scheme to evade New York sales taxes. By purchasing art for his New York apartment from an in-state dealer, Kozlowski would have been obligated to pay sales taxes. But by purchasing the art through an out-of-state account, Kozlowski was attempting to create the appearance of an interstate transaction, immune to local sales taxes. By orchestrating the fraudulent interstate transactions, Kozlowski had successfully evaded more than $1 million in New York sales taxes. The DA's office assigned an eight-person team to investigate additional criminal activity by Kozlowski and other company officials. As the investigation continued, the full breadth of the Kozlowski's deception came to light. Eventually both Kozlowski and Schwartz were sentenced to 8 1/3 to 25 years in prison for their actions. And they were ordered to pay a combined $239 million in fines and restitution to the company and its shareholders.
And so concludes the sordid tale of a conspiracy undone by forensic accounting. With relentless dedication and a little intuition, forensic accountants uncovered one of the greatest white-collar crimes in modern history. So if you thought forensic accounting was just a boring job for number-crunching nerds, perhaps it's time to reconsider. Because it might just be the most exciting boring job ever!