Investigative Auditor Plays Business Sleuth

by Stanley H. Slom

A Philadelphia corporation had entered into an agreement to buy a company. The transaction was completed after an independent accountant gave the company a clean report on its financial statements.

When the corporation took over, its financial people discovered that not everything was as they expected. They had called in the investigative auditing and accounting firm of Campos & Stratis, based here and in New York. After the Campos firm's investigation uncovered irregularities, the corporation sued and received a $1.5 million damage settlement.

"We've often been asked to review work by other accountants," said Chris Campos, 58, the firm's co-founder.

In one instance, the firm even reviewed another accounting firm's review because fraud was suspected. In that instance, a Big 8 firm reviewed the work of a small practitioner in a fraud case.

Campos declined to name the Big 8 firm, but he said that the firm decided that the first CPA hadn't done the necessary review. There weren't any work papers and the Big 8 firm concluded that if the CPA had done the necessary review, he would have uncovered fraud.

"We were called in," said Campos, and "based on our work, we agreed with the Big 8 firm that the first CPA hadn't done the right work, nor had he produced any work papers. But we disagreed with the conclusion. Even if the first accountant had per formed the necessary review, he couldn't have uncovered the irregularities."

Campos & Stratis is only one of a growing number of accounting firms whose primary work is to offer its services in the field of investigative accounting and auditing.

One area of concentration is the measurement of damages relating to insurance claims. In fact, Campos & Stratis clients consist primarily of insurance companies and law firms.

It also does a lot of work related to business interruption claims. A few years ago, when the MGM/Grand Hotel in Las Vegas was closed after a fire, Campos was called in by an insurance company to evaluate the loss of business.

The firm evaluated marketing plans, sales records, budgets, and forecasts. Representatives of Campos & Stratis spent one year on site. Finally, the business interruption element of the case was settled for $60 million.

The firm, consisting of about 120 professionals - including 21 partners in its 19 offices in the U.S., Britain, Canada, Australia and Puerto Rico - also does consulting in various aspects of legal proceedings and on accounting issues for corporations and associations.

It has served as a consultant on such matters as loss of profits, product liability, fraud, franchise termination, mergers and acquisitions, environmental damage (toxic tort), contract disputes, and securities law violations.

Other consultations have dealt with business violations, anti-trust issues, patant and copyright infringements, professional malpractice, arson, trade secrets, personal injuries, subrogation's, and breaches of contract.

In their investigative work, CPAs working for the firm have appeared in hard hats at the bottom of mine shafts and on towers 200 feet high. They have flown over jungles to get to bauxite sites in Jamaica. One partner traveled above the Arctic Circle.

One of its principal areas of investigation is business disruption claims. Campos & Stratis usually does this work for insurance companies. The firm's responsibility is to determine what profits and continuing expenses would have been if there hadn't been an interruption.

Campos cited a case involving faulty construction of a shaft for a salt mine. Before the warranty ran out, the shaft developed a leak and was flooded, making it unsafe.

"We were called in to prepare a claim as to the cost of repairing and shoring up the mine shaft," said Campos. Also included in the claim was loss of profits for the two years it took to make the mine safe for production.

The Campos firm used the mining company's records, as well as those of the Bureau of Mines, and projected the market share loss during the shutdown. The result was a settlement in excess of $10 million.

Campos began his accounting career with Ernst & Whinney, where he earned his CPA. He left the firm in 1969 and set up on his own at the urging of an insurance company. He had developed expertise in insurance claims when a hurricane hit the East Coast and Ernst & Whinney assigned him to evaluate the claims.

"I like the work," he said.

Elia G. Stratis, a co-worker at Ernst & Whinney, joined Campos a few months later. In 1973, their partnership was formed.

Demand for the firm's investigative services by insurance and law firms began to grow in 1975, Campos said From offices in Teaneck and Manhattan, the firm expanded to Boston, Philadelphia and San Francisco, followed by branches in Dallas, Chicago, Atlanta, Denver, Pittsburgh, Los Angeles, Minneapolis? Seattle, and Orange, California.

The firm also maintains offices in London, Melbourne, Montreal, Toronto, and San Juan, Puerto Rico.

There were other firms involved in investigative auditing when Campos & Stratis first opened its doors and others have joined the ranks since. To Campos' knowledge, however, there is only one other national firm.

The range of services offered by the firm is extensive. In the field of fidelity, it often is called in to determine if an employee or partner is stealing funds. In one instance, it found that an employee had buried $8 mil lion worth of checks drawn against the company under such categories as travel and entertainment.

Campos & Stratis also deals with claims related to defective products or product recalls. In one instance, a utility company sued a manufacturer of electrical generator because the generator wasn't always per forming properly.

"It's difficult to measure electrical output over a period of time because it's not constant," explained Campos It varies from one hour to the next, he said, and thus must be measured on a hour-to-hour basis.

The firm's librarian has subscriptions to practically every business trade journal so that the staff can quickly get a feeling for conditions in almost any field.

Through the firm's research center, a computer is hooked up to such services as Nexis, Dow-Jones and Dun & Bradstreet so personnel can get information on almost any company.

An important facet of Campos' service is separating fact from fiction. Sometimes, after much deliberation, a client agrees to settle for 10 percent of a claimed loss. The fiction-or-fact question is whether the legitimate loss was $2 million or $200,000. Campos & Stratis gets paid to come up with a reasonable answer.

Reprinted with permission of ACCOUNTING TODAY. Copyright Lebhar-Friedman, Inc. 425 Park Avenue, New York, NY 10022.

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