Ferraro, Gina GINA FERRARO - Northern Illinois University

Ferraro, Gina
,
11082
NORTHERN ILLINOIS UNIVERSITY
"Forensic Accounting:
Turning CPAs Into Private Eyes"
A Thesis Submitted to the
University Honors Program
In Partial Fulfillment of the
Requirements of the Baccalaureate Degree
With University Honors
Department of Accountancy
by
GINA FERRARO
DeKalb, Illinois
May
9, 1998
HONORS
THESIS ABSTRACT
THESIS SUBMISSION FORM
AUTHOR:
THESIS
Gina Ferraro
TITLE:
ADVISOR:
~Forensic Accounting:
Private Eyes"
Stephen Casper
DISCIPLINE:
PUBLISHED:
COPIES
ABSTRACT
ADVISOR'S
Accountancy
PAGE LENGTH:
28
Turning
BIBLIOGRAPHY:
Yes
CPAs
Into
DEPT:
Accountancy
YEAR:
1998
ILLUSTRATED:
No
No
AVAILABLE:
(100-200
Hard Copy
words)
:
Forensic accounting
is the integration
of accounting,
auditing, and investigative
skills.
This discipline has
gained immense popularity
in recent years.
In fact, this
field is expanding so rapidly that the number of qualified
individuals
in this area is not meeting its demand for job
opportunities.
Perhaps this dilemma can be solved by making
current and future accounting professionals
more aware of
their chances for advancement
into this relatively new
field.
Throughout
this paper, I discuss the reasons for the
increased need for forensic accountants.
Before examining
the job opportunities
available in this field, I also
outline the necessary
skills and qualifications
of these
individuals,
including personal qualities, professional
skills, educational
backgrounds,
and employment experiences.
I give a description
of the duties of a forensic accountant
throughout
an investigation
- beginning with recognizing the
problem and ending with testifying as an expert witness in
court.
I conclude my research with a review of a number of
case studies and an examination
of the methodologies
used by
the accountants
to solve these investigations.
Student
Name:
Approved
By:
Department
Date:
of:
Capstone
Outline
I. Introduction
A.
My personal interest in forensic accounting
B.
Focus of this research paper
II. Overview
of forensic
accounting
A.
Definition of forensic accounting
B.
Forensic accounting vs. fraud auditing
III. Growth
of forensic
accounting
A.
Recent increase of white-collar crimes
B.
SAS No. 82
C.
Underlying factors for increasing fraud
IV. Skills and qualifications of a forensic accountant
A.
Personal qualities
B.
Professional skills
C.
Educational and employment backgrounds
V. Job opportunities
A.
B.
Private companies
1.
Kroll
Associates,
2.
The Abacus
Group,
Inc.
LTD.
Public firms
1.
Ernst
&
Young,
2.
Shore
&
Azimov, P.C.
LLP
VI. Role of a forensic accountant
A.
Prevention of fraud
INTRODUCTION
MY PERSONAL
INTEREST
The process
was a rather
ranging
IN
FORENSIC
of choosing
interest
that
I came across
in my mind
until
always
and watching
murder
mysteries
that my skeptical
numerous
seemed
enjoyed
None
to spark much
of
of an
on the area of forensic
reading
suspense
on television.
nature
paper
sources
to the Internet.
I decided
I have
for this research
I searched
journals
accounting.
jokes
a topic
long one for me.
from accounting
the ideas
ACCOUNTING
novels
My family
and keen problem
solving
skills would one day lead me to be a private investigator.
As I began researching the topic of forensic accounting,
realized
that
opportunity
this very
for me to follow.
paper
as a tool
FOCUS
OF THIS
for learning
RESEARCH
This research
forensic
likely
I plan
about
to use this
will begin
including
with
a broad
its recent
and its differences
as compared
auditing.
I will
the personal
also analyze
and qualifications
accountant,
as well
this area.
I will
research
this area of accounting.
popularity
skills
career
PAPER
paper
accounting,
could be a potential
I
needed
increase
of
in
to fraud
and professional
to be a forensic
as the job opportunities
also discuss
overview
the typical
available
ln
case assignments
2
on which
forensic
accountants
work.
Also,
I will
study
duties that are performed by this type of accountant.
the
I
will conclude with a review of a number of case studies and
examine
the methodologies
used by the accountants
to solve
the investigations.
OVERVIEW
OF FORENSIC
DEFINITION
ACCOUNTING
OF FORENSIC
Simply
defined,
of accounting,
ACCOUNTING
forensic
auditing,
is defined
to, used
in, or suitable
discussions
accounting
application
forensic
of financial
accounting
accountants
FORENSIC
ACCOUNTING
facts
the relation
completed
to public
and Lindquist
toward
or to
in the
and
to legal problems.
of the work
VS.
of judicature
is geared
The word
as "belonging
The term forensic
with
evidence
is subject
(Bologna
to courts
deals
skills.
Dictionary
and debate."
of law, the quality
to trial
by Webster's
profession
is the integration
and investigative
forensic
public
accounting
Since
use in a court
by forensic
scrutiny
if the matter
42).
FRAUD AUDITING
Forensic accountants are called in to investigate
complaints
arising
in criminal
matters,
civil
litigation,
goes
4
the last two to three decades, which may be due to the
increase
collar
in white-collar
crimes
political
include
and union
employee
theft,
involves
a low-paid
embezzling
altering
stock
computer-related
leaders,
revenue
bookkeeper
and expenses
fraud
As a result,
on reliable
fraud,
Whether
at a local
manager
to improve
bankers,
White-
bribing
padding,
the situation
restaurant
of a corporation
is widespread
company
committed.
expense-account
or a senior
performance,
depend
being
and embezzlement.
money
to detect.
crimes
their
and often
investors,
financial
company's
difficult
and others
statements
who
are
increasingly quick to bring lawsuits naming auditors as
partly
responsible
for the effects
of fraud.
"There
are too
many ex-auditors out there who are CFOs and know how audits
are performed,
avoid
so they
detection,"
New York
know how to establish
said Dan Goldwasser,
law firm of Vedder,
(Demery
23)
SAS NO.
82
Price,
fraud
an attorney
Kaufmann,
that
can
at the
Kammalz,
& Day
.
It has become necessary for audits to be performed with
a greater
consideration
for potential
fraud.
In February
1997, the final form of the new SAS No. 82, Consideration of
Fraud
in a Financial
Statement
Audit,
was released.
This
5
new standard requires that each and every audit must be
carefully planned to identify material misstatements
caused
by fraud but is not directed to the detection of fraudulent
activity
itself.
SAS No.
increase,
the auditor's
auditor's
responsibility
of materiality
of financial
82 clarifies,
responsibility
is still
and reasonable
statements
but does not
to detect
framed
obtain
The
by the key concepts
assurance.
must
fraud.
Thus,
reasonable
the auditor
assurance
that the statements are free of material misstatements,
whether caused by error or fraud.
SAS No. 82 requires the
auditor to specifically assess the risk of material
misstatement
every
risk
of the financial
audit.
factors
This
relating
misappropriation
procedures
standard
statements
asks the auditor
to fraudulent
of assets
to be performed
due to fraud in
when
financial
designing
(Mancino
to consider
reporting
and
the audit
32-33).
"Rather
than
just pull an audit program off the shelf, an audit now must
be risk-driven,"
Auditing
Standards
said Jim Gerson,
Board
task
a member
force
of the AI CPA
that drafted
SAS No.
The establishment of this new standard will contribute
further to the need for forensic accountants
(Demery 22) .
82.
6
UNDERLYING FACTORS FOR INCREASING
As white-collar
FRAUD
crime rates continue to skyrocket, the
need for investigative accountants will also increase.
Research
studies
factors
surrounding
Peat Marwick's
private
companies
had over
larger
62
fraud
that
were
is likely
that
thought
the research
with
KPMG
public
and
of respondents
At least
of fraud,
affected
In 1996,
largest
in the last year.
of respondents
Although
1,000
56 percent
four occurrences
problem.
to find the underlying
in fraud.
of Canada's
revealed
organizations
percent
conducted
the increase
survey
had experienced
those
have been
half
of
and some of the
hundreds
of cases.
fraud was an increasing
reveals
the CEOs who responded
these
statistics,
to the surveys
it
were
not aware of all instances of fraud taking place in their
companies.
Therefore,
situation
(Zier
is probably
it may be concluded
worse
than these
that
numbers
the actual
indicate
18).
Forensic
of fraud
accountants
to the economic
that poor
corporate
management
controls
the recession
experiencing
attribute
recession.
ethics
contribute
is the major
corporate
for advancement
among
within
They also
employees
to fraud.
cause
downsizing
their
the high number
indicated
and weak
Without
of the increase.
and reduced
companies,
of cases
a doubt,
After
opportunity
staff may now feel a
7
decreased
level
opportunities
for raises
turn to illegal
management
methods
control
and upper-level
considered
against
within
in fraud
(Zier
of financing
their
aspect
weakening
This breakdown
the company's
financial
behind
Weak
of middle
been
defense
the
of the values
in ethics
to steal
some
lifestyles.
of a company's
reason
fewer
rewards,
traditionally
The final
individuals
With
of the cutbacks
who have
is a general
our society.
exaggerate
financial
important
fraud.
employer.
and other
is the result
the most
and more
to their
managers,
internal
increase
more
of loyalty
from their
position,
is allowing
employers
without
or
remorse
19).
SKILLS
AND QUALIFICATIONS
PERSONAL
OF A FORENSIC
ACCOUNTANT
QUALITIES
In order
to be a successful
forensic
accountant,
an
individual needs to possess a specific set of personal
qualities.
·
curiosity
These
-
qualities
The desire
include:
to find out what
has taken
place
in a given set of circumstances
·
perseverance
-
The ability to push forward even when the
circumstances do not appear to substantiate the
particular
issue being
investigated
8
·
creativity
otherwise
-
be a normal
alternative
·
The ability to step out of what would
confidence
in your
business
situation
and consider
interpretations
-
The ability
findings
to believe
both
so that you can endure
in yourself
in court
and
under
cross-examination
·
common sense
-
The ability
to maintain
The ability
to balance
a "real-world"
perspective
.
independence
conflicting
opinions about the same piece of documentation
·
physical
fitness
and long nights
and the trial
PROFESSIONAL
-
of investigation,
itself
equally
as important
personal
qualities.
skills
(Bologna
are also certain
A solid
to withstand
the long days
preparation
and Lindquist
for trial,
48)
SKILLS
There
·
The ability
foundation
-
knowledge
to possess
These
It is important
skills
of accounting
that
skills
that are
as the above mentioned
include:
in technical
to be able to identify
accurately.
professional
accounting
forensic
standards
and financial
accountants
and principles
legal matters
quickly
and
have
in order
9
.
Good
-
judgment
This is needed in order to have the
ability to quickly prioritize significant financial
issues and develop a plan of action for the
investigation.
evaluating
This
the scope
type of evidence
.
Excellent
oral,
are necessary
co-workers,
skill
is also necessary
of the investigation
when
and also what
to gather.
written,
in order
clients,
and interpersonal
to effectively
skills
communicate
and in the courtroom.
These
-
These
with
skills
are all needed when directing staff, obtaining
information,
·
Investigative
individual
evidence,
behavior
Broad
-
abilities
has the ability
information,
.
and presenting
possess
findings.
It is important that an
to assimilate
a knowledge
and also understand
large
volumes
of law and the rules
psychological
skills
-
A forensic
accountant
to be willing to consider all alternatives,
and criminal
also needs
scrutinize
the fine details and at the same time see the overall
EDUCATIONAL
Since
practices,
of
theories.
thinking
picture
of
(Bologna and Lindquist 49).
AND EMPLOYMENT
an extensive
and standards
BACKGROUNDS
knowledge
of the principles,
of the accounting
profession
is
10
required
of a forensic
a college
general,
degree,
education
principles,
practices,
college
However,
that would
forensic
to be coupled
in order
attitude,
demeanor.
of Certified
of Internal
Fraud
workshops
previously
in forensic
that should
mind-set,
be gained
in
in the career
skills,
and a
of a
a
professional
the National
on fraud
forensic
firms
in financial
practice.
accountants
individuals
Association
investigations
50).
experience
are no junior
such as
CPA societies,
who are in this area of accounting
into private
as if only
Organizations,
and state
and conferences
received
venturing
accounting
programs
assistance
Auditors,
Examiners,
and Lindquist
Those
suitable
of the
Training in this specific area is provided by
the Institute
(Bologna
or internal
of the profession.
degree
associations.
with
also hire
have
auditing
Therefore,
in this
accounting
accountants.
that
It may seem
backgrounds
several
FBI agents,
before
it seems
field.
However,
former
-
continuing
the technical
a curious
several professional
sponsor
with
have
in accounting
to keep abreast
some skills
include
should
accounting
and standards
be of great
accountant
skeptical
there
of experience
are few, if any, college
accounting.
an individual
tax, and public
This needs
professional
There
a solid base
management,
auditing.
accountant,
are
forensic
lawyers,
and
11
computer
experts.
experience
is only
The forensic
accountant's
will be of tremendous
through
accountants
necessary
working
on various
to become
with
assistance.
experienced
cases
prior
Ultimately,
forensic
(www.forensicaccounting.com/seven)
it
forensic
that one can learn
a capable
audit
the skills
accountant
.
JOB OPPORTUNITIES
There
are numerous
professionals
accounting.
trained
U.s.
who are considering
At the present
and experienced
governmental
the Internal
are also
large
audit
Revenue
Investigations,
Department
employment
corporations.
the resources
forensic
accountants
the Federal
Accounting
Investigative
in the internal
However,
to staff
since
internal
for
in investigative
the largest
and investigatory
the General
available
a career
time,
Service,
of Defense.
opportunities
body
come
of
from the
agencies,
Bureau
such as
of
Office,
and the U.S.
accounting
positions
audit
departments
of
not all companies
auditors,
have
they are having
difficulty preventing and detecting fraud in the workplace.
These small and mid-size businesses are beginning to
out source this function to private companies or public
accounting
firms
(Thornhill
9).
12
PRIVATE
Kroll
COMPANIES
Associates,
The number
forensic
world's
largest
strategic
including
be traded
is growing.
which
Kroll
there
talks
with
several
were
financial
some Big Six firms.
Company,
in August
which
on the Nasdaq
Associates,
has recently
1996,
was made
now specialize
company,
In late
alliance
O'Gara
companies
investigative
eye.
announcement
with
of private
accounting
the public
firms,
Inc.
allow
Exchange.
Inc.,
the
been
in
of a
and accounting
Finally,
an
1997 that Kroll
will
will
team up
them to go public
Over
in
the years,
and
Kroll's
private investigators have solved several high-profile
cases.
For example,
murdered
Italy's
they proved
and his death
largest
bank
made
of Kroll's
engagements.
These
.
running
cases
cases
financial
banker
to look like suicide,
collapsed
concentration
that an Italian
in 1982.
involve
after
The main
less celebrated
include:
checks
on potential
business
partners
·
tracking
down
culprits
in corporate
fraud
and
embezzlement
·
.
managing kidnapping and hostage crises
putting new fraud prevention
systems in place
(Zweig 74)
was
13
The Abacus
Group,
The Abacus
specializing
LTD.
Group,
in forensic
services.
Michael
has stated
that when
those
that
objective,
is another
accounting
LoGuidice,
investigating
claims
LTD.
fraud
several
most
is suspected
accounting
their clients in trouble.
must
public
company
and litigation
a spokesperson
the charges
although
private
for this group,
in a corporation
be impartial.
firms
firms
support
claim
He
to be
tend not to want
When given imprecise
to hurt
requests for
a firm can present what appears to be full
disclosure,
disclosure yet still omit information which is damaging to
their
client.
investigative
LoGuidice
companies
boasts
of the ability
to search
of private
for full disclosure
of all
the facts in order to expose the truth
.
(abacusltd.com/litigate)
PUBLIC
Ernst
ACCOUNTING
& Young,
These
their
LLP
claims
alleged
FIRMS
made
clients.
the Big Six and smaller
division
public
lack of objectivity
away any of their
in size.
against
Presently,
are obviously
Forensic
public
accounting
firms
accounting
firms
not turning
divisions
are definitely
each of the Big Six firms have
for investigative
accounting.
about
of
growing
a
Some of the firms
14
refer
them
to them as litigation
forensic
accounting
support
services.
services;
others
Regardless
call
of the title
given to this function by each firm, they all generally
handle similar engagements.
Some examples of the cases
investigated include:
insider dealings
money laundering
patent infringement cases
product liability
bankruptcy
damage measurement
.
.
.
.
.
.
On their
certified
these
website,
public
difficult
accountants
& Young,
have
investigations.
explained
in one word
is nearly
as much
-
LLP discusses
the capability
Their
EXPERIENCE.
through
reasons
can be
accounting
requiring
experience--to
why
to solve
"Forensic
an art as a science,
ability--developed
for essential
Ernst
intuitive
know where
information"(www.ey.com/fas/fraud).
to look
Auditors
are trained to examine a company's records with a certain
amount
of professional
company,
the auditors
first-hand
access
investigatory
reconstruct
skepticism.
are the only outside
to find it.
techniques,
records
If fraud
Using
accountants
in order
to build
exists
party
analytical
in a
with
the
and
are able to
a coherent
the trail of funds and sequence of events.
picture
of
15
Shore
& Azimov,
Shore
public
P.C.
& Azimov,
accounting
accounting
accounting.
firm,
services
twelve
including
locations
Phoenix.
Their
.
.
.
with
primarily
certified
on forensic
a specialization
in insurance
the firm has approximately
shareholders,
and twelve
in Chicago,
services
Atlanta,
of the certified
are developed
loss
sixty
offices,
New York,
and
include:
public
through
employees
are then brought
attorneys
to form a strong,
team
smaller
calculating lost profits and damages
assistance with discoveries, interrogations,
depositions
preparation of trial exhibits
expert opinions
The skills
Azimov
a relatively
focuses
Presently,
employees,
.
P.C.,
accountants
specialized
together
with
well-balanced
and
at Shore
training.
&
These
the clients'
litigation
support
(www.sa-cpas.com/consult).
THE ROLE OF A FORENSIC
When
a company
can be of assistance
1. Prevention
2. Detection
3. Investigation
ACCOUNTANT
is concerned
in three
with
ways.
fraud,
an accountant
16
PREVENTION
OF FRAUD
The first method
-
prevention
goal of all companies.
consultant
system
individuals
A control
to deter
fraud
and find ways
system
could
segregation
of duties
implementing
computer
DETECTION
in to establish
an internal
from occurring.
are able to evaluate
may be facing
the ultimate
It is usually an auditor or business
who is called
in order
is obviously
any risks
to strengthen
be as simple
These
that a company
these
weaknesses.
as establishing
or, for more
controls
control
complex
(Thornhill
systems,
175).
OF FRAUD
It is also the duty of an auditor to detect any
potential
fraud
that
list of indicators
·
·
which
Unusual
behavior
taking
sick days
Discovering
without
·
is occurring.
that
shortages
possible
employees,
or vacations,
several
The use of excessive
Large
signify
of certain
explanation
of a technique
·
may
The following
used
should
documents
should
raise
credit
to cover
of inventory
memos
is a brief
fraud.
such as never
be noted.
are missing
a red flag.
is an indication
up the theft
of cash.
can indicate
theft.
17
Excessively
.
signify
large payments
instances
of fraudulent
(getzoff.com/business)
potential
may
disbursements
.
HOW TO RETAIN A FORENSIC
When
to individuals
ACCOUNTANT
fraud
is noted
by an auditor,
it may be
necessary to then call in a forensic accountant to
investigate
charges.
There
be considered
when
and foremost,
a company
qualified
order
retaining
individual
investigation
accountant
in order
maximum
should
thoroughly
benefit
counsel,
If restrictions
the forensic
retained by the counsel.
which
be extended
and reduce
exists
to the work
the
overall
access
of the findings.
and
and accurately.
be given
of the investigation,
involving
that
should
documentation.
privilege
to guarantee
In
cost,
the
The
to all of the
are imposed
upon
there may be an impact
Also,
to
First
to find an experienced
as possible.
relevant
that need
accountant.
as early
accountant
the sufficiency
factors
be hired
forensic
the scope
a forensic
needs
is completed
to obtain
are several
on
in situations
accountant
should
be
This will ensure that the
between
the client
of the forensic
(www.forensicaccounting.com/five)
.
and counsel
accountant
will
as well
18
INVESTIGATION
Once
OF FRAUD
a forensic
the allegations
accounting
accountant
should
assignment
quickly
is hired,
begin.
is unique.
approach
adopted
specific
to the engagement.
forensic
accounting
investigation
Each
Therefore,
and the procedures
performed
However,
assignments
forensic
the actual
would
in general,
include
of
be
many
the same basic
phases.
Phase 1 :
Problem
Phase
2:
Evidence
Collection
Phase
3:
Evidence
Evaluation
Phase
4:
Report
Recognition
and Review
Planning
Findings
The first phase can be divided into two separate
subjects.
During Problem Recognition, the forensic
accountant
must
·
answer
several
questions.
How was the actual or potential problem identified and
communicated?
·
Where
was the fraud
supposed
to have
taken
place?
·
During what time period was the fraud supposed to have
taken place?
·
Who are the potential fraud perpetrators?
After answering these questions and reviewing the
appropriate
documents,
a decision
will be made whether
to
19
proceed
43)
with
or abort
the fraud
investigation
(Thornhill
42-
.
Review Planning involves developing a plan of action
while
taking
learned
into consideration
when
objectives
recognizing
base
controls.
scope
they will
The forensic
of scrutiny
losses
is not found
Evaluating
Evidence,
investigation.
disproves
the matter
of witnesses,
objects.
documents,
affirming
professional
rule of
and benefits
present,
and future
(Thornhill
44-45).
2 and 3, Obtaining
the essence
in question.
on the
In fraud
past,
is simply
an individual's
and internal
costs
and stopped
The evidence-gathering
investigating
include
records,
represent
that Phases
Evidence
and weaknesses,
The general
between
constitute
The review
also decide
examination.
"costs"
be noted
must
that proves
It can include
facts,
data,
could
background.
and
of the fraud
anything
phase
and
identified.
evidence.
strengths
accountant
investigations,
It must
the goals
the information
and effectiveness,
in any fraud
if fraud
locate
find their
investigation.
the level
is disgarded
also
management
integrity
of the audit
balancing
must
also consider
organizational
First,
audit must be clearly
accountants
from which
plan must
the problem.
of the fraud
The forensic
all of the information
testimony
or concrete
also
involve
This would
qualifications,
or
education,
20
and credit
rating.
such actions
Also,
as locker,
fraud
investigations
lunchbox,
may
lead to
and desk checks,
so it is
important that the forensic accountant never overstep the
line that is a violation of an individual's rights.
improper
search
evidence
will be declared
illegally
is conducted,
obtained
Evaluation.
This
can be expanded
having
to make
inadmissible
(Thornhill
In all likelihood,
it is probable
because
critical
is the last phase
it was
phase
where
additional
a conclusion.
that the
47).
the most
to develop
If an
is Evidence
the investigation
information
The actual
before
evaluation
performed depends upon the nature of the engagement.
Evaluation
.
procedures
performing
can include:
a regression
analysis
by using
a computer
application
.
summarizing a large number of transactions
·
utilizing
.
a tracing of assets
charts
and graphics
The final phase
accountants
must
to explain
is to Report
have
confidence
the analysis
Findings.
Forensic
in their
ability
the data developed and evaluate it accurately.
report
the information
manner.
Often
a report
sections
on the nature
in a clear,
concise,
will be prepared
of the assignment,
to take
They must
and effective
which
may include
the scope
of the
21
the methodology utilized,
investigation,
and the final
The philosophy when preparing the report is
opinions.
simply to present the facts in an order that will support
the conclusions
reached
EXPERT WITNESS
TESTIMONY
As mentioned
involves
legal
(Thornhill
earlier,
counsel,
when
which
48).
a fraud
it does
investigation
in most
cases,
the
lawyer should retain the forensic accountant in order to
maintain
would
confidentiality
also
opinion
retain
a forensic
at trial.
issues.
accomplished,
in part
their
If reliance
the trier
and defendant
side.
dete~mine
In these
which
cases,
one is more
an expert
of fact to
regarding
on such testimony
have
experts
the trier
effective
any
is
the final verdict
It is not uncommon
points or facts during testimony
192)
witness
of fact will base
to both
A lawyer
to render
is for the trier
of the expert
on such testimony.
plaintiff
information.
accountant
The intent
rely on the testimony
significant
of client
for the
working
on
of fact must
in presenting
the
(Bologna and Lindquist
.
To be a credible
knowledgeable
experience
expert
witness,
accountants
should
in their own fields by education and
and also be members
in good standing
of their
be
22
profession.
a thorough
Expert accounting witnesses must not only have
understanding
of generally
accepted
accounting
principles but also have special knowledge of specific
industry
standards.
developments
accounting
appear
Experts
in the particular
issues
within
to be credible
.
Speak
.
Refrain
from using
.
Address
only
clearly
volunteer
the specific
a professional
.
Dress conservatively
.
Be honest.
The goal of forensic
standards.
and any important
Experts
follow
these
suggestions:
needs
and do not
demeanor
is to make
the judge,
to jargon
stated
or cares
about
simply
to hear.
their
findings
and the jury,
accounting
and briefly,
Any
and
rules
and
are all
information
beyond
(Bologna and
192-193).
Experts
team prior
also
information
to the counsel,
resorting
asked
that only makes accounting more obscure
Lindquist
will
jargon
questions
accountants
The facts,
the audience
they
professional
Maintain
to avoid
industry
of recent
and audibly
any additional
understandable
to be aware
that area.
when
.
also
need
also play
to their
an important
courtroom
role
testimony.
in the litigation
Their
involvement
23
may be at various
case.
These
stages
stages
1. Assessment
of the
include:
of documents
3. An evaluation
4. Preparation
required
of the scope
between
to support
the case
of work
of the financial
5. Negotiations
parties
assessment
(Bologna
and analyses
and
Lindquist
197)
STUDIES
Forensic
variety
accountants
of possible
paragraphs
been
the development
of the case
2. Identification
CASE
throughout
will
solved
discovering
accountants
were
Each
anonymous
individual
accountants.
The second
called
used
THEFT
parking
phone
cases
have
involves
of a restaurant
was
forensic
evidence
will be described
in reaching
which
case was an
case,
in to locate
a wide
The following
One case
In the final
case history
The first
hospital
three
theft.
sales.
to investigate
situations.
to find if the management
methodologies
EMPLOYEE
describe
employee
underreporting
trial.
fraudulent
by forensic
investigation
are retained
for a murder
along
with
the
each conclusion.
INVESTIGATION
case
involves
lot.
theft
Hospital
of cash by employees
management
tip that a supervisor
received
an
and a few employees
of a
24
were
stealing
was taken
monthly
from the "pay-as-you-go"
seriously
cash
Forensic
money
because
receipts
management
from those
accountants
were
called
lots.
The tip
had discovered
lots were
that
on the decline.
in to investigate
accusations.
To catch
analyzing
the culprits,
the cash
tape was removed
register
forensic
tapes.
or deactivated
accountants
began
They discovered
during
certain
that the
times
of the
day, which coincided with shifts worked by the supervisor
and his wife.
It was determined that if attendants wanted
to pocket money, they would have to ring up the sale on the
cash register to open the parking lot gate and determine the
parking
record
fee.
Then,
they would
of the void would
but the forensic
register's
team
"Z" total,
have
appear
learned
which
to void
the sale.
on the cash register
that a record
counts
daily
No
tape,
was kept on the
transactions.
The
"Z" total often recorded more than 100 voids a day during
the time worked
When
sales.
ways
sale"
by the couple.
questioned,
The forensic
the couple
to jamming
the couple
accountants
was stealing,
parking
admitted
then discovered
ranging
meters
to pocketing
five other
from punching
and removing
cash
in "no
the coins.
They estimated that the hospital lost approximately
$300,000
25
over
three
fraud
years.
and served
UNDERSTATEMENT
The couple
time
ultimately
in prison
pled
(Elzinga
guilty
and Ray 32)
to
.
OF REVENUES
The next
case
involves
an investigation
into a possible
understating of revenues by owners of a restaurant.
management
firm ran a shopping
restaurant.
monthly
at the restaurant
restaurant
its first
still
three
Concerned
sales,
audit
had never
years
the restaurant's
The accountants
totally
the
was obviously
paid more
out of line.
is greater.
successful,
but the
than a flat rate during
might
firm retained
books,
seemed
be underreporting
forensic
as permitted
While
to make
to
the lease.
balanced
most
sense,
It was discovered
accountants
under
that the records
too perfectly.
to sales
whichever
in operation.
discovered
perhaps
of expenses
of sales,
that the restaurant
the management
perfectly,
including
The restaurant's rent was based on a flat
rate or a percentage
Business
complex,
A large
of the ratios
one expense
was
that an abnormally
high percentage of sales were recorded as being paid by
credit
cards.
for restaurants
a significant
This was inconsistent
in the same price
portion
of sales
with
range
are paid
the industry
and location,
in cash.
norm
where
26
,
In an effort
fraudulent
to catch
the restaurant
act of understating
cash
sales,
accountants set up a sting operation.
of patrons
and pay
to eat, had them make
for the amounts
examined
the photocopied
checks.
the photocopies
turned
Only
They sent in groups
When
receipts,
in their
forensic
photocopies
in cash.
the restaurant's
owners
of their
forensic
accountants
they compared
approximately
bills,
them to
70 percent
up in the restaurant's
of
receipts.
Based on this information, the forensic accountants
concluded
that
unreported,
which
lost revenue
including
Satisfied
lawyers
with
and Ray 36)
years.
of
When
the restaurant
of the investigation.
situation,
of the terms
of a higher
monopoly
the resolution,
(Elzinga
met with
of dollars
three
not win in this
license
going
millions
firm over
the findings
the consideration
liquor
sales were
in several
to a renegotiation
loss of their
MURDER
firm's
knew they could
they agreed
charges
resulted
they outlined
The owners
of cash
for the management
the management
owners,
30 percent
base
of their
rent
so
lease,
and the
in the complex.
the firm elected
not to press
.
INVESTIGATION
The final case involves gathering evidence in a murder
investigation.
Forensic accountants were retained when
27
millionaire,
contracted
Helmuth
Buxbaum,
for the murder
was charged
of his wife.
with
having
Robert
Barrett,
a
heroin junkie with a criminal record, had told police that
Buxbaum
had paid
installments
giving
to
him approximately
to commit
Barrett
money
the crime.
for drugs,
$35,000
in three
Buxbaum
admitted
but denied
having
to
paid
him
kill.
Buxbaum
paid
cash
for most
of his illicit
activities,
so forensic accountants examined his bank withdrawals,
automated teller transactions, and cash advances on credit
cards.
Sufficient
Buxbaum
had spent
documents
between
However,
on the three
received
the large
significantly
$1000
occasions
payments,
higher.
were
available
and $4000
when
to conclude
in cash
Barrett
dates,
each week.
said he
the cash withdrawals
On all three
that
were
Buxbaum
withdrew
more than enough cash to cover the size of the payments
described by Barrett.
simple
graph
amounts
Barrett's
part
that
showed
were withdrawn
testimony.
of an expert
Forensic accountants prepared a
degree
murder
(Bologna
and Lindquist
periods
when
and how those periods
The graph
witness
of first
the three
was presented
testimony.
and sentenced
143).
Buxbaum
large
cash
corresponded
to
to the jury as
was convicted
to life in prison
28
CONCLUSION
The field
immense
of forensic
popularity
that the number
accounting,
in recent
years,
of qualified
which
has gained
is expanding
individuals
so rapidly
in this area
meeting the demand for job opportunities.
is not
It is difficult
to fill all of the employment openings because of the wide
range of skills and qualifications needed to be successful
in this field.
professionals
Also, current and future accounting
need to be made more aware of their options in
this relatively
increase
grow,
and the market
these
respect
new area.
accountants
that
courtroom
for forensic
Now,
with
forensic
accountants
the big law firms
rates
continues
to gain more
The image
to take incriminating
crime
accounting
are beginning
they deserve.
out in closets
disgarded.
As white-collar
of the
of detectives
photographs
can walk
as part
to
hiding
is
into the
of the litigation
team.
By having the opportunity to research this area of
accounting,
I have
opportunities
known
gained
available
that accounting
through
this project
of an accountant
know which
a greater
to me in the future.
for the job
I have
always
is not just "number-crunching,"
I have
learned
can be in all areas
fundamental
appreciation
skills
how important
of life.
and qualities
but
the skills
I also now
I currently
29
possess,
as well
undergraduate
technical
degree
accounting
allow me to build
strongly
as those
I need
has given
me a basic
knowledge,
upon.
in
experiences
my professional
this Capstone
My
foundation
but my work
and strengthen
feel that completing
to improve
skills.
has proven
that my options for the future are unlimited.
will
I
to me
WORKS CITED
,
!
Bologna, Jack and Robert J. Lindquist.
Fraud Auditing and
Forensic Accounting:
New Tools and Techniques.
New
York: John Wiley and Sons, 1995.
Demery, Paul.
Practical
"Auditors' New Fraud Detection
Accountant.
Mar 1997: 22-27.
Elzinga, David and David
Security Management.
http://abacusltd.com/.
http://getzoff.com/.
http://www.ey.com/.
Transmitted
Transmitted
Transmitted
14 Jan 1998.
14 Jan 1998.
14 Jan 1998.
Transmitted
Mancino, Jane.
"The Auditor
Accountancy.
Apr 1997:
Transmitted
14 Jan
14 Jan 1998.
and Fraud."
32-36.
Journal
of
Thornhill, William T. Forensic Accounting:
How to
Investigate
Financial Fraud.
New York: Irwin
Publishing,
1995.
Zier,
The
Ray.
"Ferreting Out Fraud."
Feb 1997: 32-37.
http://www.forensicaccounting.com/.
1998.
http://www.sa-cpas.com/.
Role."
Joe.
"Dealing With Corporate
Manager.
Summer 1994: 18-20.
Fraud."
Canadian
Zweig, Phillip L. "Green Eyeshades and Private
Business Week.
20 Jan 1997: 74.
Eyes?"