Magazine article CMA - the Management Accounting Magazine

Forensic Accounting

Magazine article CMA - the Management Accounting Magazine

Forensic Accounting

Article excerpt

With burgeoning economic pressures and society's weakening values, the forensic accountant, acting like a bloodhound rather than a watchdog, has become the private eye of corporate culture.

In many cases, when you hear the word "forensic," visions of dead bodies spring to mind. But the word actually means, "of a standard acceptable to a court of law;" or rather that the completed work must follow acceptable professional standards and procedures, and must, if necessary, stand up in court under the scrutiny of cross-examination regardless of the branch of knowledge to which it is applied: forensic science, forensic psychiatry, forensic climatology or forensic accounting.

Forensic accounting, a discipline that deals with the relation and application of financial facts to legal problems, has been an incredible growth industry in the 1990s. Many of the large accounting firms have forensic accounting services and there are many individuals who devote their practices exclusively to this type of accounting. The role of the forensic accountant continues to expand as international white-collar crime increases in scope and complexity. The trend began in the mid-1970s when financial experts were needed to assist police in the escalating growth of white-collar criminal cases. In those days, police had neither the manpower nor the financial resources to deal with their increasing crime loads and company auditors usually had neither the background nor the training to recognize fraud. Even today, the unrelenting pressures on police budgets have resulted in the reduction in the number of police officers available to carry out investigations and the amount of time they can devote to investigating the incidence of crime, particularly those which do not involve violence or drugs. Police advise businesses and corporations to hire forensic accountants to put together a detailed case and a near-complete investigation before bringing it to authorities; this practice has become known as investigative cost-sharing.

The private eyes of corporate culture

Bob Chambers, chairman of KPMG's Investigations and Security Inc. based in Toronto, maintains that "an accountant acts like a watchdog but a forensic accountant is trained to act like a bloodhound."(1) Forensic accountants have become the private eyes of corporate culture and deal with a variety of specialized functions in addition to investigating fraud, including acting as expert witnesses, investigating patent infringement, breach of trust and fiduciary duty, due diligence analysis, security evaluations, fidelity and other insurance investigations, litigation support (which has recently become a major service area within forensic accounting), asset tracing and recovery, and other matters that require a combination of financial and investigative expertise. Many forensic practices have employed former law enforcement experts and investigative journalists in order to benefit from different types of skills and experiences, and to increase their number of contacts and sources.

To successfully carry out an engagement, forensic accountants must have an investigative mentality; in other words, they must have an unrestricted scope and look for what others have not seen. Right brain skills such as intuition, creativity, curiosity, ingenuity, common sense and the ability to synthesize elements into a whole are assets to any investigation. In addition, the ability to think laterally or solve problems by indirect or seemingly illogical methods may sometimes aid an investigator in determining the actions of a person who has committed fraud. Logical and analytical left brain skills provide a forensic accountant with the ability to identify the issues central to the problem, identify a full range of possibilities, and examine the probability of each.

Forensic accountants must be able to effectively question suspected white-collar criminals; this style of interviewing is very different from the usual question and answer session with a client. …

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