FORENSIC
ACCOUNTING
THE HOTTEST JOBS
For College Grads
FORENSIC ACCOUNTANT
Combines accounting, auditing and investigative skills: $30,000-$150,000
LOGISTICS MANAGER
Plan, implement and control flow of goods or services: $35,000-$118,000
CORPORATE LIBRARIAN
More companies need specialists to manage information: $37,000-$93,000
EMERGING MEDIA SPECIALIST
Managers in Web content and online marketing need communication skills and tech savvy:
$26,500-$100,000
PHYSICAL THERAPIST
Aging baby boomers will drive the increasing need: $34,600-$74,000
INFORMATION SECURITY
Workers plan, implement and support network security: $47,000-$122,000
FORENSIC ACCOUNTING
 FORENSIC:
 Refers to items used in debate or argument.
 In commerce or business, things forensic are generally
those things that relate to a legal forum or court.
 ACCOUNTING:
 “The language of business”.
 Quantifying data for financial purposes;
accounting refers to many activities that relate to
financial accounts.
WHAT IS FORENSIC ACCOUNTING?
 Forensic accounting refers to:
 The use of accounting for legal purposes.
 The use of intelligence-gathering techniques and
accounting to develop information and opinion for use by
attorneys involved in civil litigation and give trial testimony
if called upon.
 Identifying, recording, settling, extracting, sorting,
reporting, and verifying past financial data or other
accounting activities for settling prospective legal disputes
or using such past financial data for projecting future
financial data to settle legal disputes.
FORENSIC AUDIT V. FINANCIAL AUDIT
 Financial audit is generally a sampling activity that
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does not look at every transaction.
A financial audit relies heavily on a company’s internal
control system.
An auditor expresses an opinion as to whether or not
the financial statements are presented in conformity
with GAAP.
Forensic audit looks at the detail of a specific aspect of
the records.
Forensic accountant usually brought in when fraud is
suspected.
BACKGROUND
 Before financial statements were audited by an
independent auditor, the courts were often the only
place where challenges were made and accounting
experts were brought in to give testimony on the
disputes in question.
 In North America, forensic accounting can be traced
back as far as 1817 to Meyer v. Sefton, a Canadian case,
that allowed an ‘expert witness’ to testify in court.
FAMOUS FORENSIC CASE
or
HOW AN ACCOUNTANT NABBED AL CAPONE
 Al Capone, bootlegger and gangster, seemed to be
impossible to arrest and convict on any crime.
 Although he made millions from his illegal activities,
he had never filed a tax return.
 The IRS ushered forensic accounting into the modern
age in the US when they went after Al Capone.
 An IRS agent from the Special Intelligence Unit found
enough evidence to convict Capone of income tax
evasion.
 Capone received an 11 year sentence.
FORENSIC ACCOUNTING COMES OF
AGE
 In the 40s and 50s, Forensic accountant becomes an
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investigative accountant, not just an expert witness.
During WWII, FBI employed 500 agents who were
accountants.
In the 60s, J. Edgar Hoover emphasized fraud
detection.
Today, there are more than 600 FBI agents with
accounting backgrounds.
The Financial Crimes Section investigates money
laundering, internet crimes, financial institution fraud
and other economic crimes.
WHAT DO FORENSIC
ACCOUNTANTS DO??
 Investigate occupational fraud and abuse.
 Investigate fraudulent financial reporting.
 Serve as a litigation services specialist and expert
witness.
 Trace assets in bankruptcy or divorce cases.
 Consulting.
 Work for government agencies such as IRS, FBI, SEC,
law enforcement agencies, corporate security
specialists.
Occupational Fraud and Abuse
 Losses from occupational fraud and abuse has been
estimated to run in the billions.
 Many cases are never reported.
 Actual cost unknown.
 Difficult to discover because it’s an inside job.
 When fraud is suspected, the forensic accountant may
be called in to investigate.
Fraudulent Financial Reporting
 In the 80s, Crazy Eddie’s.
 In 2001 and 2002, several major financial statement
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frauds resulting in billions of dollars of loss.
Adelphia: Rigas family defrauded the company out of
3.1 billion.
Enron:
more than $1 billion.
Merck:
$12.4 billion
Bristol-Myers Squibb: $1.5 billion.
WorldCom:
$3.8 billion.
Prison time for many of the perpetrators.
Typical White-Collar Criminal
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Likely to be married
Member of a church
Educated beyond high school
No arrest record
Age range from teens to older than 60
Socially conforming
Employment tenure from 1 to 20 years
Acts alone 70% of the time
Bottom Line: Given the right pressures, opportunities and
rationalizations, many people are capable of committing
crime.
GOVERNMENTAL FORENSIC
ACCOUNTANTS
 Most common: IRS agents.
 Look for unreported income or disallowable expenses.
 Techniques include income reconstruction and “follow
the money trail”.
 DEA, FBI, CIA and other governmental agencies use
forensics accountants also.
 Treasury department agents work hand-in-hand with
the DEA. They carry a badge and pack iron.
 Who better to “follow the money” than an accountant?
COMPUTER FORENSICS
 Analysis of electronic data and residual data for the
purposes of discovery, legal preservation,
authentication, reconstruction, and presentation to
solve or aid in solving technology-based crimes.
 Most financial fraud involves a computer.
 Forensic accountant needs to be technologically savvy!
 May employ services of a tech person to assist in
investigation.
CYBERCRIMES
 Fraudulent spam
 Financial frauds
 Unauthorized access
 Industrial espionage
 Illegal use of encryption
 Cyberstalking
 Denial of service
 Damaging networks or computers
 Illegal use of resources obtained from hacking
activities.
CYBERCRIME STATUTES
 International law: No international laws per se, each
country responsible for its own legislation. Many
countries have no such laws on the books.
US Federal Legislation
 See:
http://www.usdoj.gov/criminal/cybercrime/cclaws.html.
 These laws: outlaw “counterfeit” access devices that are
used for fraudulent purposes; deal with fraud in
connection with computers, communication lines,
interception of electronic communications, etc.
 USA Patriot Act, passed in 2001, strengthened US cyber
laws and expanded cybercrime definitions. Under the
Patriot Act, an activity covered by the law is considered a
crime if it causes a loss exceeding $5000, impairment of
medical records, harm to a person or a threat to public
safety.
STATE LEGISLATION
 Unique to each state.
 Arkansas Code Sections 5-41-203 and 5-41-206 cover
computer related crimes.
KSAs FOR FIGHTING CIBERCRIME
 KSAs: knowledge, skills and abilities.
 Ability to build an internet audit trail.
 Skills needed to collect “usable” courtroom electronic
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evidence.
Basic understanding of the information that can be
collected from various computer logs.
Ability to place a valuation on incurred losses.
Technical familiarity with the internet, web servers,
firewalls, attack methodologies, security procedures, and
penetration testing.
Understanding of legal protocols to prevent employee
rights violations.
ROLL OF FORENSIC ACCOUNTANT
 When fraud is suspected, may be called in to
investigate.
 Gathers evidence.
 May interview witnesses.
 Determines suspects.
 Estimates losses.
 Serves as expert witness.
 CANNOT AND DOES NOT HAVE AUTHORITY TO
ACT AS LAW ENFORCEMENT OFFICER UNLESS
HE/SHE IS A LAW ENFORCEMENT OFFICER.
KNOWLEDGE BASE
 Obviously, need strong background in accounting.
 Investigative auditing.
 Law, legal system, courts and courtroom procedures.
 Criminology, criminal law and criminal procedure.
 Computer skills, including computer auditing.
 Oral and written communication skills.
SUGGESTED COURSES
 Major accounting courses.
 Financial statement analysis course.
 Taxation and business law.
 Technical writing.
 Criminology.
 Computer forensics.
 Psychology
 Business ethics.
 Business valuation.