Areas of Practice for
Forensic Auditors and
Fraud Detection
Experts
CA. Indresh Palan
ACA, FAFD(ICAI), UGC-NET, M.Com
Forensic Auditing and Fraud Detection
“The world has enough for everyone's need, but not enough for
everyone's greed.”
― MAHATMA GANDHI
Climb
the
Ladder
and
Reach
Pace is Yours
OPPORTUNITIES
AHEAD
the
Sky!
Why we need to learn Forensic
Accounting/Auditing?

Economic crime remains a fundamental fact of life for every
segment of the global business community and is a persistent
threat to business and business processes

Fraud is a major concern among companies, regulators,
shareholders, and law enforcement agencies across the globe

Cybercrime continues to remain a tough challenge for
organizations. Over the years there has been a significant increase
in the number of cybercrime attacks prompting organizations to stay
alert, seek means to fight cybercrime threats
Forensic Auditors

1.
2.
3.
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Forensic Auditors are hired either
to look in to alleged or actual fraudulent activities
to assist in prevention of such activities.
In law matters accounting, auditing and investigative skills
used for forensic accounting.
There are three main sections – litigation, investigation and
solution of the dispute.
Forensic Auditors

The professionals in these fields are called Forensic
Accountants
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Forensic Auditors use professional accounting, law,
finance and investigation related techniques to
evaluate the validity of any activity. Forensic
Accountants are the experienced auditors who
protect the accounts of an organization and stop
any type of fraud
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The first line of defense against any cyber threat is
increasing perception and awareness of cybercrimes
What Does a Forensic
Accountant Do?

Forensic accountants are trained to look beyond the
numbers and deal with the business realities of situations

Analysis, interpretation, summarization and the
presentation of complex financial and business related
issues are prominent features of the profession

A forensic accountant will also be familiar with legal
concepts and procedures

Public practice or insurance companies, banks, police
forces and government agencies are major employers
of forensic accountants
Accounting fraud
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Financial statements are a fundamental barometer of a
business
Accounting fraud includes misleading or falsely prepared
financial statements can deceive banks, lessors, vendors, and
investors into risky or misguided decisions
Due to the use of financial statements and financial data
throughout business operations, this kind of economic crime
impacts a variety of business processes
Accounting fraud has consistently been one of the major crimes
reported in all the survey
Global
Economic
Crime
Key Highlights from the U.S.

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
Survey,
As per above report more than 1 in 3 organization impacted by
economic crime
Economic crime continues to remain in the forefront of corporate
concern, posing a threat to fundamental business processes
45% of organizations in the U.S. suffered from some type of fraud in
the past two years, more than the global average of 37%.
57% of U.S. respondents indicated their organizations pursued
opportunities in markets with high levels of corruption risk within the
past 24 months, versus 38% of global respondents
2014:
Most internal frauds are now perpetrated by middle
management
Particulars
2011
Number of Frauds by Middle Management
2014
45%
54%
Number of frauds committed by Junior Staff
50%
31%
Detecting Fraud
Fraud at U.S. organizations initially detected by external measures
or by accident
15%
32%
Particulars
Economic crime is committed
External Actors
45%
Internal Actors
50%
Evolution of reported rate of economic crime
(GECS)
Year of survey release-Reported Global Fraud Rate
100
75
% of all respondents
About the survey
5,128 respondents from 99
countries
50
25
43
37
45
43
30
34
37
0
2001 2003 2005 2007 2009 2011 2014
Source: The 2001 through 2014 Global
Economic Crime Survey (PWC)
Cybercrime survey report 2014, KPMG in India
Engineering 4%
Manufacturing 5%
12
4 5
14
Electronics 8%
8
10
FMCG 10%
Telecom & communications 12%
12
15
20
Source: Cybercrime survey report 2014,
KPMG in India
Financial services 20%
Automobile 15%
Information technology 14%
Chemicals & pharmaceuticals 12%
Cybercrime survey report 2014, KPMG in India
Cybercrime

In a digital age, internet users and governments face increased risks of
becoming the targets of cyber attacks

As cyber criminals continue to develop and advance their techniques

Criminals focusing less on theft of financial information and more on
business espionage and accessing government information

To fight fast-spreading cybercrime, businesses and governments must
collaborate globally to develop an effective model that can control the threat
Threat perception of Cybercrime in India

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Cybercrime is not strictly speaking a technology problem. It is a strategy
problem, a human problem and a process problem. After all, organisations are
not being attacked by computers, but by the people
Cybercrime has seen an increase in frequency in India at Individual and
corporate level
Distinctly, about 51 per cent perceive themselves to be an easy target for
cyber attacks due to the nature of their business. Out of these 51 per cent,
about 68 percent respondents claim that they monitor their cybercrime threats
on a daily basis
The first line of defense against any cyber threat is increasing
perception and awareness of cybercrimes
Impact of cybercrime in India
Impact of cybercrime in India
80
60
40
20
0
45 48 43
48
27
18
30
16
Damages/Loss
THE DAMAGE
Whether financial or collateral, the stakes and the costs are very high
 Economic loss is not the only concern that companies face when
combating fraud
• Damage to employee morale, corporate and brand reputation, and
business relations as some of the most severe nonfinancial impacts of
economic crime Access to money
• Access to customer confidential information
• Disruption of production and business processes
• Loss of Mental Peace
• Harassment
People commit Fraud
Why?
FRAUD-TRIANGLE
.
The Fraud Triangle
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Motive
gambling addiction,
a mistress,
living beyond their means,
desire to inflict damage, etc.
Rationalization
“I believe I’m underpaid,”
“I believe I’m overworked,”
“My company earns too much.” etc.
Opportunity
Opportunity usually results as a flaw in the company’s internal
control system.
This internal control flaw provides the
chance to steal company assets.
One bookkeeper receiving customer payments and paying
vendors, therefore it would be much easier to cover up the
fraud by “cooking the books.”
Profile of cyber attackers
Internal sources
External sources
Disgruntled employees
Cyber terrorists
defacement)
Managed services personnel
Professional hackers/hacking crime
syndicates)
(focussed
on
Malicious personnel (focussed on Novice hackers
industrial/
commercial espionage)
Many of the incidents are not publicly known and have not been
reported by the media
The Financial Services (FS) sector: Overall key findings

Root cause of most cyber attacks is monetary/ financial gain

45% of Financial Services organisations have suffered economic
crime compared to only 34% across all other industries

1 in 5 internally perpetrated frauds still involve senior
management, though the majority of such fraud tends to be
committed by junior staff or middle management.

The sector remains a key target for criminals, and asset misappropriation is still the primary type of reported economic crime

Cybercrime, bribery and corruption appear to be increasingly
common in the sector
PwC’s seventh Global Economic Crime Survey
The Financial Services (FS) sector: Overall key findings:

Money laundering remains a hot topic in the FS sector, where it
is almost five times more likely to occur than in other industries

Almost 30% believed that the most severe impact is reputational

Whistleblowing mechanisms appear to be more prevalent than before, however doubts
remain over their effectiveness
PwC’s seventh Global Economic Crime Survey
Top 5 types of economic crime experienced by
the FS sector
80%
60%
40%
20%
0%
67%
67%
39%
38%
24%
24%
26%
21%
16%
20%
2014-FS
2011-FS
.
Financial Forensic Engagements
Financial forensic engagements may fall into several
categories
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Economic damages calculations
Post-acquisition disputes such as breaches of warranties
Bankruptcy, insolvency, and reorganization
Securities fraud-stock fraud and investment fraud
Business valuation
Computer forensics/e-discovery.
Tax fraud
Religious fraud
419 fraud
Financial forensic engagements may fall into several
categories
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Banking fraud
Benefit fraud, committing fraud to get government benefits
Counterfeiting of currency, documents or valuable goods
Creation of false companies
False advertising
False billing
Forgery of documents or signatures
Health fraud
Identity theft
Lottery fraud
Financial forensic engagements may fall into several
categories
Forensic accountants are also engaged in marital and family law of analyzing
lifestyle for spousal support purposes determining income available for child
support and equitable distribution
Forensic accountants, investigative accountants or expert accountants may be
involved in recovering proceeds of crime and in relation to confiscation
proceedings concerning actual or assumed proceeds of crime or money
laundering
The List is endless.....
Detecting fraud
Methods of fraud detection
fall into one of three
categories
Corporate Controls
Corporate Culture
Beyond Corporate
Control
RED FLAGS
The most common behavioral red flags displayed by
perpetrators
Living beyond one’s means or
Experiencing financial difficulties
SARADHA SCAM RED FLAGS
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Saradha installment plans with tenure varying from 12 to 60 months where
minimum investment is Rs100 and ranging from Rs.10,000 to 1,00,000
Opened as many as 200 new companies to create more cross-holdings
Investors had options to either opt for land/flat or get the refund where returns
varied from 12 to 24%
The land/flat allotted to the investors are not pre-determined or identified.
Investors had no control on the scheme and the property
Like all Ponzi schemes, Saradha Group promised astronomical returns in
fanciful but credible investments
As much as 25–40% of the deposit was returned to these agents as
commissions and lucrative gifts to quickly build up a wide agent pyramid
To keep ahead of regulators, the group used a nexus of companies to launder
money
Why do so many FRAUDS keep
happening ?
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Human Greed for High Returns
Lack of proper Investment Avenues (especially small investors)
General awareness missing in general public
Inaction of Law enforcing authorities / Laws without teeth, fraudsters daring
the system to catch them.
Low conviction rate even when the frauds are detected.
Whether it is bank fraud, insurance fraud, ecommerce fraud, or any
other type of fraud, two points are very clear
First
Second
• The first is the importance of detecting
fraud as quickly as possible so that
criminals can be stopped before too much
damage
• As business processes become faster and
more automated, the time margins for
detecting fraud are becoming narrower and
increasing the call for real time solutions.
What Forensic Auditors JOB?

A major responsibility of Forensic Accountant is to investigate fraud and collect
evidence for civil and criminal trials

In the vast majority of cases, the evidence is in digital format residing in the
computerized system

As a result essential knowledge and skills for forensic accounts include
systematic approaches to acquiring, cataloging, and presenting computerized
and digital data in a manner sufficient to meet the rigorous standards that
courts require for admissibility in evidentiary proceedings

Digital data exits in many different types of systems,
accounting information systems in business environments.

Forensic Accountants are in unique position to investigate frauds in
computerized accounting systems.
and especially in
37
Career Path for Forensic Auditors
Forensic Accounting Services Defined
 Forensic
accounting services include dispute resolution, litigation
support, bankruptcy support, and fraud and special investigations,
among many other services.
 Forensic accounting services utilize the practitioner’s specialized
accounting, auditing, economic, tax, and other skills to perform a
number of consulting activities.
 The provision of forensic accounting services often requires the
practitioner to serve as an expert or fact witness, depending on the
assignment.
Career Path for Forensic Auditors
Financial forensic engagements may fall into several
categories Economic damages calculations, whether suffered
through tort or breach of contract
 Post-acquisition disputes such as breaches of
warranties
 Bankruptcy, insolvency, and reorganization
 Securities fraud
 Due Diligence
 Business valuation and
 Computer forensics/e-discovery
Career opportunities
for Forensic Auditors
Potential places of employment within the country:
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The Financial Intelligence Unit (FIU),
Serious Fraud Investigation Office (SFIO),
Economic Offence Wing (EOW)
The Department of Defences,
Law enforcement
Banking Sectors
Insurance Corporations
Private practice
INTERNATIONAL Opportunity
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the FBI and the CIA)
the Government Accountability Office (GAO)
World Bank
International Monetary Fund and
Enforcement Agencies
Major corporations
Small and mid-size businesses
The nonprofit sector
Banking, brokerage, insurance and other financial-services industries
Private practice
List goes on…………………
Career opportunities
 Fraud
for Forensic Auditors
Preventive approach will create more job
opportunities
Thank You
CA Indresh Palan
9702043750
indresh.palan@gmail.com