FINANCIAL SERVICES : Accounting Firm Carves Out a Niche in Reviewing Records

Like pathologists carving up a cadaver, a small Santa Ana accounting firm hopes to cash in on a little-known but growing and lucrative area of accounting that carves up past deals to find out what really happened.

Sparks & Nelson, a firm with six certified public accountants, is focusing its small office on what is called forensic accounting. But the firm is not alone.

“Forensic accounting is like the ‘Quincy’ of the bean-counting profession,” said David S. Hanson, partner in charge of litigation support services in the Newport Beach office of Coopers & Lybrand. “It’s somewhat sexy and unique, and every case is different. And, because of the nature of what you do, there’s more money in it.”

Forensic accounting, usually aimed at helping lawyers prove their cases, refers to situations where there is sketchy data, incomplete financial documents or even deliberately falsified information.

The forensic accountant reconstructs transactions, verifies and discovers information and generally tries to provide the missing pieces, Hanson said.

“Any good CPA with a good background and good concept of business practices could be a good forensic accountant,” he said. “But in terms of textbooks or programs, it doesn’t exist. It’s not something that’s taught in college. It’s basically a body of knowledge one gains through work.”

The Big 6 accounting firms, as well as most large accounting firms, have forensic accountants as part of their litigation support services departments. Such services have been a growing part of the accounting industry for more than a decade.

Sparks & Nelson, though, is devoting most of its manpower to forensic accounting. Partner John Nelson, for instance, has looked into a company’s records to find out if one of its partners was cheating another. He found that his client wasn’t cheated, but he discovered a loan on which his client was due interest.

For a businessman permanently injured in a fall, the accounting firm reviewed the man’s tax returns and other information to estimate what his future income would have been and then provided expert testimony on the man’s expected loss for being unable to work.

That sort of help is the bread-and-butter of forensic accounting and litigation support, Hanson said.