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Topic: Forensic Accounting in Practice Forensic Accountants: Fraud Busters


1. Introduction

2. Skills needed by a Forensic Accountant

3. Forensic Accountant and the Courtroom Environment

4. Legal Responsibility of a Forensic accountant in the Business

5. Cases of Forensic Accounting

a.Case 1: A shareholder’s dilemma

b.Case 2: The Smoking Gun (Internal Coup)


Forensic Accounting in Practice Forensic Accountants: Fraud Busters


Introduction

Forensic accountants are often asked to carry out important duties in organization in regard to financial matters. Their involve analysing financial information in view of detecting fraud such as misappropriations and fraud among others. After analysing the financial information, they are required to summarize and give explanation of those issues to the party interested, and be able to provide professional testimony ina court of law if required. Moreover, the forensic accountant must document all the evidence gathered during the process of analysing financial information to allow other partied in dispute to review and make their decisions. The report lays the basis for pre-trial settlement talks and in-court settlement if the parties fail to arbitrate between themselves.


Skills needed by a Forensic Accountant

Individuals interested in the field of forensic accounting need to epitomize several skills because of the nature of the careers. Various private and public agencies have a fixed core competency for aspiring candidate to this line of profession. Carlino (2010) indicates that among the skill required in this profession is analytical skill. Analytical skill involves having the capacity to bond data, knowledge and understanding from different areas. This helps in providing accurate and relevant information simplifying decision making during the judgement process. Moreover, Carlino (2010) cites that analytical skills help an individual identify strengths, opportunities, weaknesses, articulate principles strategically and threats linked to a particular task, helping him to make the right decision.

 

Also, a forensic accountant should be a person with patience and persistence skills. Investigations involving financial statements sometimes take many hours or days of study and analysis to uncover if they are correct or faulty adjustment has been done. Similarly, analysing financial transactions and documents is complex, therefore, this needs a high degree of persistence to uncover the details contained therein. Having patience and persistence skills help individual spot details which might otherwise be skipped because of hurry.

 

Davis et al., (2010) indicates that forensic accountants write reports and testify in courts, thus, effective communication skills are vital. Accounting involves analysing complex financial transactions, statements and account information among others. After an individual has analysed them, she/he has to submit them via oral or written reports in a clear and succinct manner using graphs, pictures and language that is readily understandable by people who are not accountants such as legal professionals.


A forensic accountant should be a conscious stickler to detail. This skill is important when the accountant is unraveling financial transaction (Kay & Gierlasinski, 2001). The accountant should sieve financial detail to a deeper in order to uncover any evidence that might be needed to sustain a prosecution in the court.


Davis et al., (2010) point out that without accounting skills, one cannot be an efficient forensic accountant, thus, an individual should have a strong background in accounting. A bachelor’s degree in an accounting discipline is a requisite coupled with membership by a certified professional body, However, sometimes, individuals may gain forensic accounting skills on the job.


Forensic Accountant and the Courtroom Environment

When an organization suspects financial misappropriation is taking place or as happened, it deploys forensic investigators to begin determining the magnitude, extend and the nature of the fraud. The forensic accountants, after gathering relevant evidence, they are supposed to support their arguments in the confines of the courts.


In the courts, forensic accountants unravels the evidence tied to financial fraud. They do this through testifying. Thus, as mentioned earlier, this calls for better skills in analytical and oral communication because in the court the forensic accountant has to cross-examine the parties involved in the fraud and be cross-examined also.

 

Forensic accountant serves as a detective in the court environment. For instance, he/she has to interview the people that may have been involved in the fraud hence extracting more information necessary to sustain a case.


Legal Responsibility of a Forensic accountant in the Business

 

In most cases, forensic accountants are hired by organizations and law professional among others to help in unraveling financial crimes through fraud investigations. They also offer litigation support services on an accounting standpoint. According to Zabihollah and Burton (1997),the society places a big responsibility to forensic accountants; they have to detect, prevent, investigate high profiled white collar frauds; computer scams and terrorist funding. In their line of duty they help in protecting the economic security of the business by working hand in hand with the law enforcers.How do they achieve this in practice? (2004) indicates that forensic accountants detect the organization losses in advance, this practice has contributed to many organizations saving more dollars which would otherwise have been misappropriated. Besides, this practice built the trust of investors because it motivates them to continue investing their funds knowing that they are secure.


Also, Zabihollah and Burton (1997) show that the forensic accounting field provides job security for a forensic accountant. Many organizations are springing up, coupled with rising financial frauds; the need for financial accountants will continue to rise. Derk and Leauanae (2004) indicates that in the US, the field of forensic accounting has fixed thousands of jobs that were not feasible before. This has secured the economy as more people are able to earn a living through gainful employment as forensic accountants.


Forensic accountants analyses financial statements and evidence used in legal matters. Thus, the evidence uncovered are used to identify fraudulent activities such as tax evasion, insurance fraud, embezzlement fraud and money laundering in the organization. Besides, their services have been significant in uncovering the activities of drug trafficking and hidden assets of couples entangled in divorce matters.


Forensic accountants gather and analyse financial data using mathematical and investigative skills. Their findings are used as evidence in a court of law to apprehend the culprits. They support their evidence by being professional witnesses during the legal proceedings to assist the court system arrive at a legal decision against criminal and fraudulent lawbreakers.


Cases of Forensic Accounting

Case 1: A shareholder’s dilemma

A 73 year old father had just made a comeback to his construction company after the board handed him the presidency of the company (Barrett, 2013). Barely two years in the office, he realized that, his 42 year old son, the former president had devised various schemes to defraud the company. He had indicated that the father had received approximately $ 11 million of the total $14 million instalment for the sale of his 55 % share of stock back to the company. Moreover, he had allocated about $ 6 million a year (for his father’s retirement) and a further $6,500 monthly stipend to the ex-wife of the father (Barrett, 2013).


Role of Forensic Accountant

The forensic investigators were invited to carry out a thorough audit on the deposed son. The forensic audit was divided into two folds; to authenticate the assertions of misfeasance by the father, prior and after his return and to illustrate that during the son’s tenure, there was no misappropriation of funds the father had purported in the lawsuit. Besides, the forensic accountants were also mandated to carry out the valuation of the business to substantiate the son had run the company into bankruptcy.


Results

The evidence gathered by the forensic accountants were presented to the legal consultants of the father and was admitted without no argument. The evidence laid a basis for the legal proceedings and as a review for tightening the internal controls for the company.


Case 2: The Smoking Gun (Internal Coup)

The company was preparing to make an initial public offering, IPO. The prerequisites such as products on offer and patients appointments that worked well with doctors in many Southeastern states had been tested and polished and it was now prepared to make its unveiling in an IPO (Barrett, 2013).


However, wealthier and deep-pocket investors, two corporate offices both doctors and board members had planned an action of removing the financial and operating officers together with their staff just before the offering is made. Moreover, the deep-pocket investors were withholding funds unless these officers were replaced or terminated by his and board members' choice (Barrett, 2013). The legal advisors to the CEO had no sufficient proof that the three were conspiring and required evidence indeed they were.


Role of Financial Accountant

The financial accountants were invited to ascertain whether there was a conspiracy between the three groups mentioned. They were asked to analyse the company’s hardrive of the server and two laptops the company had provided for the two doctor board members to illustrate to the court that indeed an illegal coup was being staged.


Results

After conducting a thorough forensic examination in the victims offices and the company’s server, there was no evidence to link the three for the conspiracy. However, further investigation revealed that the three indeed communicated through personal emails hosted by Hotmail and Yahoo but not the company’s official emails running through the company’s server


 

References List

Barrett, W.C. (2013). My Life in Crime: Chronicles of a Forensic Accountant. Retrieved from

http://accounting.smartpros.com/x59274.xml

Carlino, B. (2010). Forensic Skills in High Demand. Retrieved from

http://www.accountingtoday.com/ato_issues/24_6/forensic-skills-in-high-demand-54207- 1.html

Davis, C., Ogilby, S., and Farrell, R. (2010).Survival of the Analytically Fit: The DNA of an Effective Forensic Accountant. Retrieved from

http://www.accountingtoday.com/ato_issues/24_6/forensic-skills-in-high-demand-54207- 1.html

Derk, G. R., and Leauanae J.L. (2004).” Expert witness qualifications and selection", Journal of Financial Crime, 12 (2), 165 - 171

Kay, C.C., and Gierlasinski, N. J. (2001). "Forensic accounting skills: will supply finally catch up to demand?", Managerial Auditing Journal, 16(6), 378 – 382

Zabihollah, R.E., and Burton, J. (1997). "Forensic accounting education: insights from academicians and certified fraud examiner practitioners", Managerial Auditing Journal, 12 (9), 479 - 489

 
 
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