The Battle against Fraud: Seeking the Accounting Profession's Support

Article excerpt

An Exclusive CPA Journal Interview with ACFE Founder and Chairman Joseph T. Wells

Joseph T. Wells, CFE, CPA, is the founder and chairman of the Association of Certified Fraud Examiners (ACFE; www.acfe.com), an organization dedicated to reducing the incidence of fraud and white-collar crime. When he speaks about fraud detection and deterrence, people listen. His passion for the subject is clear, and his determination to bring the necessary skills to the CPA profession is unwavering.

The CPA Journal: For those who may be unfamiliar with you and the ACFE, tell us about your professional background and what led to the formation of the association.

Joseph T. Wells: Like many, I did not end up where I started. My grand plan was to be an astronomer. When that didn't pan out, I graduated with an accounting degree and went to work for the predecessor to PricewaterhouseCoopers. But I was restless in public accounting. In search of adventure, I applied to and was hired as a special agent for the FBI. For nearly a decade, I investigated a wide variety of cases, mostly fraud, ranging from nickel-and-dime con artists to former U.S. Attorney General John Mitchell's involvement in Watergate. I left the FBI 25 years ago to start an investigative and consulting firm focused on white-collar crime.

A principal lesson that my background in investigating fraud taught me is that it is a very specialized field. In 1988, colleagues and I decided to start an organization to represent individuals who were employed in the profession of detecting, investigating, and preventing fraud. We also worked to develop a certification that recognized specialized knowledge and experience in this area, and we established educational and professional standards. Since that time, the Association of Certified Fraud Examiners has grown to more than 37,000 members in 125 countries.

CPAs and Fraud

CPAJ: Many in the accounting profession use the terms "forensic accounting" and "fraud examination" interchangeably. What is the difference?

Wells: "Forensic accounting" is the application of any accounting technique for courtroom purposes. It can involve fraud, bankruptcy, damages, valuation, or a host of other issues not connected with fraud. "Fraud examination" is the application of specific procedures to resolve allegations of fraud, from inception to disposition. Fraud examiners gather evidence, take statements, prepare reports, testify to findings, and assist in the detection and deterrence of fraud. Although "forensic accounting" is frequently used as a euphemism for fraud examination, the former is a much broader term. Moreover, fraud examinations are commonly conducted by professionals with a nonaccounting background.

CPAJ: You have long been an ardent advocate of antifraud education for accounting students. What do they and other practicing CPAs need to know about fraud to be able to detect it?

Wells: I have been such a passionate advocate for antifraud education because of my personal experience. I learned almost nothing about the topic during my undergraduate education, nor did my public accounting experience assist in this area But when I actually started investigating cases for the FBI, it became clear that accounting knowledge was just one element. As I've said on prior occasions, books and records don't commit fraud, people do. Knowing what motivates people to engage in illegal conduct is critical to recognizing these offenses. So is a thorough understanding of the laws related to fraud. CPAs who investigate fraud must also know how to gather evidence and interview potential witnesses. And finally, CPAs should be taught the most common fraud schemes so they can recognize the signs when they see them.

Most fraud cases are not complicated. The vast majority-nearly 90%-involve asset misappropriations, usually cash. Although financial statement fraud cases get the lion's share of publicity because the losses are so large, they are also exceedingly rare, accounting for less than 5% of all fraud. …