FINANCIAL FORENSICS
WHAT IS
FINANCIAL
FORENSICS?
Financial
forensics
is
similar to FORENSIC ACCOUNTING
that
combines
criminal
investigation skills with financial
auditing skills to identify criminal
financial activity such as tax
fraud, money laundering, insider
trading,
scams,
market
manipulation, and other financial
crimes coming from within or
outside of an organization.
https://www.investopedia.com/terms/f/financial-forensics.asp
Two areas of Forensic
Accounting:
Litigation Support
Represents the factual presentation of economic issues
related to existing or pending litigation. In this capacity, the
forensic accountant quantifies damages sustained by
parties involved in legal disputes and can assist in resolving
disputes before they reach the courtroom.
Investigation
The act of determining whether criminal matters such as
employee theft, securities, identity theft, or insurance fraud
have occurred. Investigation may also occur in civil matters.
A forensic accountant may be hired to search for hidden
assets in a divorce case.
https://www.fcpas.org/about-us/what-is-a-forensic-accountant/
Qualifications to be a Forensic
Accountant
 Bachelor’s degree in accounting as well as be a Certified
Public Accountant (CPA)
 Pass the CFF Exam.
The Certified in Financial Forensics (CFF ) Credential is
exclusively granted by the AICPA to qualified CPAs
 Enough knowledge of the audit process, financial systems,
business administration, techniques for analyzing data for
fraud detection and more.
 They must be detail-oriented, good with numbers, have
strong critical thinking skills and be skilled at picking
irregularities out of a pattern.
https://www.topaccountingdegrees.org/faq/what-is-financial-forensics/
What they Investigate?
 Financial records of both individuals and
corporations
 Cases of tax fraud
 Money laundering and other financial criminal
activity
 Family law cases such as child or spousal
support payments
 Gathering and determining information
regarding a bankruptcy
https://www.topaccountingdegrees.org/faq/what-is-financial-forensics/
The Main Steps Of Financial
Forensics Analysis
1.
2.
3.
4.
Data collection
Data preparation
Data analysis
Reporting
https://www.topaccountingdegrees.org/faq/what-is-financial-forensics/
The Main Steps Of Financial
Forensics Analysis
1. Collecting data related to the case they are working.
2. They then organize and prepare the data so it can be
properly analyzed.
3. The forensic accountant goes though that data
carefully to look for any evidence of fraud. They also
may simply be checking to ensure a company’s
financial situation is dire enough to warrant bankruptcy,
find that it is and issue their seal of approval.
4. Lastly, they report their analysis to whomever requested
it. They must have the ability to simplify complex
information for others, such as lawyers, members of a
jury and other investigators, to understand.
https://www.topaccountingdegrees.org/faq/what-is-financial-forensics/
Real World Examples:




Enron Scandal
Enron Corporation was a U.S.-based services company
that was once revered as one of America’s most
innovative companies.
Upon retracing its accounts, forensic accountants
discovered that the company would produce high-cost
assets and falsely claim profits to boost its valuation.
The Securities and Exchange Commission (SEC) began to
investigate after its value began to plummet in the
summer of 2001.
By December that year, the house of cards built by Enron
collapsed and it was forced to file for bankruptcy,
resulting in Congress passing the Sarbanes-Oxley Act to
increase the consequences for defrauding shareholders.
https://online.rider.edu/blog/what-is-forensic-accounting-examples-and-practices/
Real World Examples:
Stanford Financial Group of Companies
 Allen Stanford and James Davis used three companies to
perpetrate another large-scale Ponzi scheme to
misappropriate at least $1.6 billion worth of investor funds.
 Forensic accounting specialists at the SEC discovered
false financial statements that reported investment
income not actually earned. The Securities and
Exchange Commission (SEC) began to investigate after
its value began to plummet in the summer of 2001.
 This is believed to have gone on for nearly a decade,
and analysts believe this is due to a deceptive leadership
team that was willing to go to exorbitant lengths to take
advantage of nearly 30,000 investors worldwide.
https://online.rider.edu/blog/what-is-forensic-accounting-examples-and-practices/
“Forensic accountants inhabit a cloak and dagger
corner of the accounting world. Their job: respond
at a moment’s notice when a client spots trouble –
anything from procurement fraud to a top
executive cooking the books to industrial
espionage.”
– Justin Pope, Associated Press
“You have an external auditor – that’s like a guard
dog. Maybe a bulldog,” he said. “An internal
auditor is a seeing eye dog. A forensic accountant
is a bloodhound.”
–Dr. Larry Crumbly, editor – “Journal of Forensic
Accounting”
References:
• https://www.fcpas.org/about-us/what-is-a-forensicaccountant/
• https://www.topaccountingdegrees.org/faq/what-isfinancial-forensics/
• https://online.rider.edu/blog/what-is-forensic-accountingexamples-and-practices/
https://online.rider.edu/blog/what-is-forensic-accounting-examples-and-practices/