Ep. 87: Jason Pierce - Where'd the money go? Auditing, Forensic Accounting, and Business Valuation

Contact Jason Pierce: https://www.linkedin.com/in/jasonrpierce/
About Jason Pierce: https://edelsteincpa.com/our-team/jason-r-pierce/
Forensic Accounting Video, "Does my balance sheet balance?": https://edelsteincpa.com/does-my-balance-sheet-balance/

FULL EPISODE TRANSCRIPT
Adam: (00:00)
 Welcome back to episode 87 of Count Me In, IMA's podcast about all things affecting the accounting and finance world. This is your host Adam Larson, and I'm excited to introduce you to our featured guest, Jason Pierce. Jason is a partner with the firm Edelstein and Company in Boston, Massachusetts, where he specializes in financial forensics and business valuations. In this episode, he talks with my co-host Mitch, about how a background in audit lends itself nicely to forensic accounting and business valuations. He also explains how the emergence of data and data analytics has played a major role in his job today. To hear more about fraud forensics and financial valuations, keep listening for upcoming conversation.

Mitch: (00:45)
So, Jason, I know you have a very interesting background and I'd like to start this conversation with you just kind of explaining how you started off in your accounting career.

Jason: (01:01)
Yeah, thanks Mitchell. So I'm a military brat, which means we bounced around the country, from place to place, which I also think kind of helps with fill in with this, forensic accounting stuff which we'll talk about in a little bit just from looking at things as an outsider, but where we landed when I graduated from high school and college was an in Tennessee. And so after I graduated, I was looking at, at the time, going through another year of school due to the 150 hours necessary to get my CPA. But meanwhile, my dad had shipped off to Alaska and I would go visit in the summers and see how awesome the summers were up there. And it just kind of drew me up to that place. Those of you who have been there, know exactly what I'm talking about. So after, after graduation, then I moved up to Alaska, started working at a small CPA firm up there, and I did specialize in auditing for about 10 years before I jumped into this forensic accounting and business valuation area.

Mitch: (02:10)
So how exactly does auditing turn into forensic accounting and your business valuation?

Jason: (02:16)
Yeah, for me, it was, it was overtime, you know, so if somebody would have asked me in college, like what would I be doing today? You know, forensic, accounting side of things. I wouldn't even have known what that was. So, so just for the listeners, let's defined forensic accounting. The easy definition of that is really the art and science of investigating people and money. Or I think a lot of the misconception is, is just kind of chasing the money. But once you figure out the people's side, then the money side becomes easier to figure out. So there is a relationship between the two. But so how it happened for me was, as I said, being a staff auditor in Alaska meant a lot of trips out to the rural communities, which we call the Bush, right, where there's no road system and, but I'd be out there and every now and then there would be a situation where the records are gone, the former managers are gone or that the city administrator, what have you and so those audit then turned into a forensic investigation. And, sometimes that meant just kind of figuring out what the heck happened. And it also, sometimes it meant like people made off with some money. And so we had to just kind of figure out, what we call like pick and shovel sort of methodology is understanding what happened and when, and how that translates to the financial statements at the end of the day.

Mitch: (03:48)
So, with that in mind, you know, can you kind of tell us what it means to have a forensic mindset and how you were able to kind of apply some of, you know, your auditing and accounting background into what you were doing with forensics?

Jason: (04:00)
Yeah. You know, it's interesting with the, with the forensic mindset compared to what one would traditionally think of as an auditor, that in an audit you're looking for matching. So like uniformity, consistency, you know, does, does the check or purchase order or invoice agree from the date, the payee or the vendor, the amount and the expense or whatever account code do all those match with what's going through the general ledger. And so on the surface, you have this forensic or the audit mindset where you're digging through the general ledger, making sure that the financial statements agree in all material respects and all that good stuff, but what the difference is from a forensic side of things is you're looking for differences. In other words, whereas on one hand, we're looking for that uniformity where on a forensic side, we're looking for, let's say there's a $2,000 dual signing  check limit where in other words, if there's two check issued for more than say $2,000, it requires dual check signers, but lo and behold, there's a lot of checks for $1900. In other words, if we're looking at things where we have the ability to look to see if is there round numbers, is there what we call like, there's a technique called Benford's law, where you could look to see from the placement of the digits in whatever sort of metric you're looking at, there should be some uniformity to it. And without getting into that there's ways where you can test from a risk based approach to identify like the nice round numbers, or there's a lot of checks that start with say threes and that's disproportionate to what would be expected. So there's ways to look things from a forensic perspective, that are different from say a traditional audit mindset where you're just grabbing 40 to 60 cash disbursements and kind of checking those against the general ledger.

Mitch: (06:16)
So now you have these two different mindsets and you've got experience with both, but today I know you do a lot of work on business valuation. So how do auditing and forensic accounting mesh and ultimately allow you to come up with these business valuations.

Jason: (06:34)
Yea well, surprisingly or not surprisingly, there's a lot of accountants that are in this field. And I think primarily is because we know how things flow through the general ledger. We're also detail oriented folks, and I think that...