FORENSIC ACCOUNTING- Accounting Information Systems

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Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

FORENSIC ACCOUNTING

Corporate fraud is on the rise. Fraud is deception, deliberately practiced in order to secure unfair
or unlawful gain. Companies today do not just face risks from internal fraud but also from
external criminals who are technologically savvy. The important role forensic accounting plays
in minimizing financial losses through fraud are fast gaining ground.
Forensic Accounting has existed for many years.
With the growing complexity of the business environment and the growing number of business
related investigations, Forensic Accounting professionals are increasingly asked to assist in the
investigation of financial and business related issues.
I.
What is Forensic Accounting?
The integration of accounting, auditing and investigative skills yields the speciality known as
Forensic Accounting.
"Forensic” means belonging to, used in or suitable to courts of judicature or to public discussion
and debate."
"Forensic Accounting" provides an accounting analysis that is suitable to the court which will
form the basis for discussion, debate and ultimately dispute resolution.
It encompasses both Litigation Support and Investigative Accounting.
II.

What is Litigation Support?

Litigation Support provides assistance of an accounting nature in a matter involving existing or
pending litigation.

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

It deals primarily with issues related to the quantification of economic damages. A typical
litigation support assignment would be calculating the economic loss resulting from a breach of
contract.
III.

What is Investigative Accounting?

Investigative Accounting is often associated with investigations of criminal matters. A typical
investigative accounting assignment would be an investigation of employee theft. Other
examples include securities fraud, insurance fraud, kickbacks and proceeds of crime
investigations.
IV.

Who are Forensic Accountants?

Forensic accountants are professionals who use a unique blend of education and experience to
apply accounting, auditing, and investigative skills to uncover truth, form legal opinions, and
assist in investigations.
Forensic accountants may be involved in both litigation support (providing assistance on a given
case, primarily related to the calculation or estimation of economic damages and related issues)
and investigative accounting (looking into illegal activities).
Almost every scientific and technical field has a forensic application. A forensic examination
refers to that part of a professional’s practice that is carried out to provide an expert opinion.
To be a forensic accountant you need to have the ability to:
 pay attention to the smallest detail;
 analyze data thoroughly;
 think creatively;
 possess common business sense;
 be proficient with a computer and; have excellent communication skills;
 A “sixth sense” that can be used to reconstruct details of past accounting transactions is
also beneficial;
 A photographic memory helps when trying to visualise and reconstruct these past events.
As forensic accountants you may be working in areas such as:
 investigations, both criminal and civil;
 preparation and review of evidence;
 preparation of expert reports;
 affidavits and proof of evidence;
 giving oral evidence in court;
 expert determination, arbitration, mediation or alternative;
 dispute resolution
V.

What would be a typical approach to a Forensic Accounting assignment?

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

Each forensic accounting assignment is unique. Accordingly, the actual approach adopted and
the procedures performed will be specific to it. However, in general, many Forensic Accounting
assignments will include the steps detailed below.
Meet with the client
It is helpful to meet with the client to obtain an understanding of the important facts, players and
issues at hand.
Perform a conflict check
A conflict check should be carried out as soon as the relevant parties are established.
Perform an initial investigation
It is often useful to carry out a preliminary investigation prior to the development of a detailed
plan of action. This will allow subsequent planning to be based upon a more complete
understanding of the issues.
Develop an Action Plan
This plan will take into account the knowledge gained by meeting with the client and carrying
out the initial investigation and will set out the objectives to be achieved and the methodology to
be utilized to accomplish them.
Obtain the relevant evidence
Depending on the nature of the case this may involve locating documents, economic information,
assets, a person or company, another expert or proof of the occurrence of an event.
Perform the analysis
The actual analysis performed will be dependent upon the nature of the assignment and may
involve:
 calculating economic damages;
 summarizing a large number of transactions;
 performing a tracing of assets;
 performing present value calculations utilizing appropriate discount rates;
 performing a regression or sensitivity analysis;
 utilizing a computerized application such as a spread sheet, data base or computer model;
and
 utilizing charts and graphics to explain the analysis.
Prepare the report
Often a report will be prepared which may include sections on the nature of the assignment,
scope of the investigation, approach utilized, limitations of scope and findings and/or
opinions. The report will include schedules and graphics necessary to properly support and
explain the findings.
VI.

Benefits of the CFE Credential

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

The CFE credential provides Forensic Accountants with the technical knowledge necessary to
perform effective investigations. In contrast to auditors, who typically take a more consistent and
standardized approach to their work, Forensic Accountants must determine which areas, people
or functions of the organization require their attention. Because fraud is usually hidden, this
process can be difficult and time consuming.
The CFE credential ensures Forensic Accountants have advanced knowledge of typical fraud
schemes and data analysis techniques so that they can perform investigations efficiently and
strategically.
The ACFE’s global salary study found that CFEs earn a 22 percent income premium over their
peers without the credential, which demonstrates the value employers place on the credential.
The study also provides valuable information and comparisons helpful to all anti-fraud
professionals in benchmarking their compensation levels and career growth. The training, fraud
resources and continuing education provided by the ACFE will help in any stage of your career
path. Refer to the Compensation section below for more information about the compensation
ranges for Forensic Accountants.
VII.

Education

A bachelor’s or master’s degree in forensic accounting, accounting, finance or a related field is
required for forensic accountants. Additional education in criminal justice or law enforcement is
a plus. Many companies encourage obtaining the Certified Fraud Examiner (CFE), Certified
Public Accountant (CPA), and/or Chartered Accountant (CA).
VIII. CURRENT NEWS
Forensic accounting ( Journal of Accountancy)
JUNE 2013
The AICPA has made available to members an online guide detailing which states and cities
require CPAs practicing forensic accounting to be licensed as a private investigator (P.I.).
More than 40 states have enacted laws requiring P.I.s to buy a license to operate in their state.
Most of those regulations have gone into effect during the past five years, according to research
done by the AICPA Forensic & Valuation Services (FVS) Section.
Based on feedback from AICPA members, the FVS Section believes many CPAs are unaware
that they might be breaking state laws regarding P.I. licensing. Penalties for operating as a P.I.
without a license vary, but in some states it is a felony.

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

To spread the word to the CPA community, the FVS Section is making available to AICPA
members an online matrix designed to help CPAs determine whether the tasks they perform in
their practice require them to obtain a P.I.’s license in the states and/or cities in which they do
business. The matrix of P.I. licensing requirements for CPAs, available at tinyurl.com/cft822j,
previously had been available only to FVS members.
While the scope and complexity of P.I.-licensing laws and statutes vary nationwide, they all
impose licensing requirements on individuals participating in activities associated with private
investigations. Because forensic accountants conduct research- and document-based
investigations, they often fall under the purview of these laws. In addition, some CPAs
specializing in information technology perform work, such as digging for information in
computer files, that could require them to register as P.I.s.
The requirements for obtaining a P.I. license, like the penalties for failing to do so, vary greatly
by state. In some states, the statutes specifically exempt forensic CPAs from the licensing
mandate. In other states, including Virginia, the P.I.-license exemption is extended only to CPAs
based in that state.

Forensic Accounting Is Hot Job( ABC News)
April 10
By Catherine Valenti
With a virtual media cottage industry blooming on the corpse of bankrupt Enron and its
complicated array of alleged financial shenanigans, could it be just a matter of time before some
television executive plots a new drama starring … forensic accountants?
You can almost hear the pitch now: "It's like Quincy, only with balance sheets instead of
cadavers!"
OK, maybe you won't see droves of shows portraying financial detectives wooing beautiful
women aboard a boat à la the opening montage from the '70s NBC hit about a medical examiner
named Quincy, starring Jack Klugman.
But forensic accountants are becoming the rising stars of their profession as more and more
companies seek to avoid becoming the next Enron.
Like detectives in green eye shades, forensic accountants bring a healthy dose of suspicion to
their jobs, along with a willingness to look beyond normal channels to get to the bottom of a
situation. Forensic accountants might have to do everything from sorting through computer files
to detecting falsified records. In short, anything that can help detect financial wrongdoing.
Crumbley, P.I.
One example is Larry Crumbley, an accounting professor at Louisiana State University in Baton
Rouge and editor of the Journal of Forensic Accounting. Crumbley started working in the field in
the late '80s and has been called upon as an expert witness in trials over the years.

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

A specialist in the oil and gas industry, Crumbley's testimony has sometimes been used to prove
whether or not a company is really a Ponzi scheme in disguise; that is, an investment swindle in
which early investors are paid off with funds raised by later investors.
And many of the cases in which forensic accountants get involved, says Crumbley, are civil suits
in which one side is trying to assess how much money the other side has.
"You can have a divorce and one of the partners tries to hide their assets, and the attorney will
hire a forensic accountant to come in and try to find the assets," he explains.
Crumbley has also written 12 novels chronicling the adventures of forensic accountants that he
uses to teach forensic accounting methods in his classes. His latest novel, entitled The Big "R":
An Internal Auditing Action Adventure, tells the story of a certified internal auditor, a forensic
accountant and an FBI agent who work together to find serial killers that strike at baseball parks.
The novel "mixes baseball, auditing, serial killers, fraud, risks, chemical and biological agents,
and scuba diving to get a better way of learning internal auditing," reads the blurb on Crumbley's
Web site.
(Continue reading at the site included on the source page. ABC News)

FBI Forensic Accountants Following the Money
03/09/12
Accountants have been woven into the fabric of the FBI since its creation in the summer of 1908,
when a dozen bank examiners were included among the original force of 34 investigators. Today,
around 15 percent of agents employed by the Bureau qualify as special agent accountants.
Non-agent accounting positions at the FBI date back to the early 1970s, when we created a cadre
of accounting technicians to help agents working increasingly complex financial cases. During
the savings and loan crisis of the 1980s and 1990s, the FBI’s ability to address complex,
sophisticated financial investigations was elevated further with the addition of financial analysts
to our ranks.
Post-9/11, the criminal landscape changed again with large-scale corporate frauds and a
multitude of other complex financial schemes. And once again, we adapted by adding new
resources and skills. One key element was the 2009 creation of a standardized, professional
investigative support position known as a forensic accountant.
At the FBI, our forensic accountants conduct the financial investigative portion of complex
cases across a wide variety of Bureau programs—investigating terrorists, spies, and
criminals of all kinds who are involved in financial wrongdoing. Through their work,
forensic accountants contribute to the FBI’s intelligence cycle. They testify to their findings in
court. And they keep up to date with FBI policies and procedures, federal rules of evidence,
grand jury procedures, and national security protocols.

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

Responsibilities of FBI forensic accountants include:








Conducting thorough forensic financial analysis of business and personal
records and developing financial profiles of individuals or groups identified as
participating in suspicious or illegal activity;
Participating in gathering evidence and preparing search warrants/affidavits
associated with financial analysis;
Accompanying case agents on interviews of subjects and key witnesses in
secure and non-confrontational settings;
Identifying and tracing funding sources and interrelated transactions;
Compiling findings and conclusions into financial investigative reports; and
Meeting with prosecuting attorneys to discuss strategies and other litigation
support functions and testifying when needed as fact or expert witnesses in
judicial proceedings.

FBI-centric training. On top of the extensive accounting qualifications they bring to the job
(see sidebar), FBI forensic accountants take a six-week training course that focuses on Bureau
programs and systems, available investigative resources, financial investigative topics and
techniques, legal training, and expert witness testifying techniques.
Forensic accountants are located in every FBI field office. Larger offices might have one or more
forensic accountant squads composed of both forensic accountants and financial analysts, while
smaller offices might just have one or two forensic accountants. Then there’s our Forensic
Accountant Support Team (think SWAT for accountants), based out of our Washington, D.C.
Headquarters, that responds quickly—either in person or often electronically—to significant,
high-profile investigations anywhere in the country involving large amounts of financial data.
FBI forensic accountants have been involved in a number of major cases over the past couple of
years, including a $200 million Medicare fraud case involving two Florida corporations, the
largest hedge fund insider trading scheme in history, and a $200 million fraud by executives of
an Indiana financial company.
If you’re interested in a career as an FBI forensic accountant, check the www.fbijobs.gov website
periodically for open positions.

SOURCES
forensicaccounting.com
http://crfaphilippines.org/education/forensic-accounting
http://science.howstuffworks.com/forensic-accounting.htm
http://abcnews.go.com/Business/forensic-accounting-hot-job
http://www.fbi.gov/news/stories/2012/march/forensic-accountants_030912

Charlene E. Matubis BSA-III
Accounting Information Systems

February 11, 2014
Dr. William Baltazar, CPA, MBA

Further Readings
http://www.journalofaccountancy.com/Issues/2013/Jun/Forensic-accounting.htm
Books
   Forensic Accounting Investigative Practices: Tools and Tricks for Uncovering and
Reporting the Truth Author/Moderator: Robert K. Minniti, CPA, CFE, CrFA, CVA,
CFF, MBAPublisher: AICPA
 Applicable Professional Standards: Financial Forensic Accounting Series
Author/Moderator: Greg Regan, MBA, CPA, CFF, Hemming Morse, Inc.
Publisher: Other
   Forensic Accounting: Fraudulent Reporting - Explore Forensic Techniques to
Recognize FraudAuthor/Moderator: Michael Connelley, CFE, CPA
Publisher: AICPA
   Bankruptcy: Financial Forensic Accounting Series
Publisher: Other

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