While many companies are struggling through the current recession, accounting firms that are involved in litigation and fraud-related services are seeing their business begin to pick up.

"When times are good, people get greedy," says Patrick Braley, senior manager in CPA firm Bennett Thrasher's dispute resolution and forensics practice. "When times are bad, people get desperate."

Braley and Mark Zyla, managing director of valuation practice at Acuitas, who focuses on litigation, says they noticed activity began picking up last summer when the economic slowdown intensified.

"I expected it to increase further as we go along," Zyla adds. He says the industry typically sees an increase in litigation during an economic downturn. For example, "Deals go bad and there's an accounting issue, or a discrepancy on how something is measured that impacts the acquisition price, so we get involved."

Braley agrees. "Given the financial pressures that individuals and companies are feeling in this economy, I think these things will continue to come out of the woodwork."

Occupational fraud schemes typically take an average of two years before they are detected, according to the Association of Certified Fraud Examiners. Small businesses are especially vulnerable to occupational fraud, the study says.

Braley and Zyla say it's too soon to provide statistics on how much forensic accounting and dispute resolution have increased in recent months. Braley did note that during the first week of 2009 - the beginning of the busy tax and audit season - Bennett Thrasher was already investigating two reports of employee fraud.

"What we are seeing is that as financial results get smaller, companies are more concerned about where every dollar is going," Braley says. "Maybe when times are good you don't worry about it as much. But now you may need every single dollar you can get your hands on, so the magnifying glass comes out."

Braley says his group is most often called in to investigate suspected fraud by legal counsel. The two primary ways fraud is detected are by accident or by a whistleblower, he adds.

People are "looking for any angle they can take to get their hands on more funds," he says. "Bad economic times are when the financial pressures start kicking in. They may have credit card debt or they may be going through a divorce.

Fraud happens more often at companies that "do not have good segregation of duties," Braley continues. "If the person collecting the cash received from customers is also making the deposits and reconciling the bank accounts, then maybe money is going out the door. Or, if the person cutting the check and the one approving the check is the same person, then there is no control around making sure cash is not going for non-business purposes. These things are always prone to happen in areas where they are not well monitored."

One area of particular risk is post-acquisition earn-out agreements, Braley says. When one company purchases another, sellers may have an opportunity to receive additional cash if certain financial results are achieved going forward. When the market tightens and growth declines, earn-out thresholds become more difficult to achieve, making it an area susceptible to fraud. If the seller continues to work for the company, they have reason to inflate financial results for personal gain. However, if the buyer controls the books, there is reason to make the financial results look worse than reality.

Another area is construction contracts, which commonly include provisions that call for saved costs to be passed on the customer. If the actual cost of materials decreases, the contract says these savings reduce the overall cost of the project for the customer. When questions arise over whether the contractor is passing along those savings, a CPA is commonly brought in to review their records.

"Construction companies are hurting and many are running out of money," Braley says. "There may be agreements dating back two-to-four years covering cost savings. There are some customers who suspect that, since materials costs have gone down, those savings should come back to them."

Companies also feel pressure from investors, banks, boards and owners to meet financial expectations, which become more difficult to achieve when the economy is suffering, Braley notes. As a result, key financial metrics that the outside world is watching become higher fraud risk areas - especially as a company's financial results start to fall closer to benchmark levels.

One area where Zyla expects to see an increase in forensic accounting activity is mark-to-market accounting. "I think we'll see a growing trend as fair value measurements become fully implemented this year," he says, "and the economic downturn will bring greater involvement." He says mark-to-market could impact such situations as shareholder lawsuits and post-merger disputes.

Situations related to employment are also common. "An employee may have an interest in the company, such as options or shares," Zyla says. "When that employee is let go, there can be a dispute about value of the person's interest. Forensic accounting gets involved to measure and value that interest."

Braley says that while companies are looking at cost-cutting measures, this is also a good time to review internal control structures. Such steps could also be considered a preventative cost-savings measure, he adds.

He says experts refer to the "fraud triangle" - three conditions that are usually present when fraud occurs. Those include opportunity, pressure and attitude. "Opportunity simply means there is not enough control around preventing you from doing something." He says pressure can come from one's personal financial situation, or from inside the company with pressure to make financial targets. The third is an attitude and ability to rationalize fraud.

"Most of the time, people that commit fraud are not like the crooks and criminals you see on TV who look like criminals -- they look like you or me," he says. "About 99 percent of the time, they wouldn't do it. Fraud occurs when that perfect storm of opportunity, pressure and rationalization is there."

The economic downturn increases those pressures, Braley adds. Thus, "forensic accountants are recession-proof."