Author:M. Azim Ulfati
In this paper I will determine the most important five (5)
skills that a forensic accountant needs to possess and evaluate the need for
each skill. I will make sure to include discussion regarding the relationship between
the skill and its application to business operations.
I will describe the role of a forensic accountant within a
courtroom environment, then I will analyze the legal responsibility a forensic
accountant has while providing service to a business and lastly I am going to
research two (2) cases where forensics accountants have provided vital evidence
in a case and will summarize the cases and the importance of the forensic accountants’
role during each case.
Determine the most important five (5) skills that a forensic
accountant needs to possess and evaluate the need for each skill. Be sure to
include discussion regarding the relationship between the skill and its application
to business operations.
I believe it is very important to know that forensic
accounting is the specialty practice area of accountancy that denotes
engagements which result from real or anticipated disputes or litigation.
"Forensic" means "suitable for use in a court of law", and
it is to that standard and potential outcome that forensic accountants
generally have to work.
Forensic accountants also referred to as forensic auditors or investigative
auditors, often have to give expert evidence at the eventual trial.
Every accountant requires some types of skills in order to
function in the marketplace. The most important five skills that a forensic
accountant needs are
analytical characteristics, investigative, communication,
interpersonal, ethical, auditing skills and specific credential skills.
Forensic accounting is on the hot list of client services
now days. In order to be a productive accountant, it does not have to be
translated in to being an effective forensic accountant. Being an effective
forensic accountant needs the professional to have a broad spectrum of skills
and knowledge.
Forensic accounting services usually includes the following:
*The application of specialized knowledge and investigative
skills possessed by CPAs
*Collecting, analyzing and evaluating evidential matter
*Interpreting and communicating findings in the courtroom,
boardroom or other legal/administrative venue.
And the fundamental forensic knowledge includes:
* Professional
responsibilities and practice management
* Laws, courts
and dispute resolution
* Planning and
preparation
* Information
collecting and preservation like documents, interviews/interrogations, electronic
data and so on) (Charles, Ramona & Suzanne)
* Discovery
* Reporting,
experts and testimony (Charles, Ramona & Suzanne)
Foundational to the forensic
accountant’s fundamental forensic knowledge and specialized forensic knowledge
are the “CPA Core Skills.” From a traditional accounting perspective, these
core skills include education, training and experience with generally accepted
accounting principles and its application, attest services, tax, general
knowledge of business law and ethics for CPAs. Based on the ideas of a forensic
accountant there may be not the same set of core skills that are needed.
(Charles, Ramona & Suzanne)
Relevant to the forensic accountant
and forensic accounting as a niche practice area, some of the areas explored
were:
*Traits and
characteristics
*Core skills
*Enhanced
skills
*Specialties
needed and certifications
*Areas for
improvement (Charles, Ramona & Suzanne)
We must know that there seems to be some gap between
conceiving of the skills and the knowledge needed and as well as the ability
for transferring those skills in the practice of forensic accounting.
As more professionals
enter the niche practice area of forensic accounting and universities develop
curriculum to address this growing need, it is mandatory that there be a
fantastic understanding of perceptions and expectations with regard to this new
breed of accountant — the forensic accountant.
To accomplish, the analytical skills and characteristic is
the “Inquisitive” trait and the “Persistent” trait. These skills and traits
suggest the requirement for the forensic accountant to search out all related
info for an engagement, as well as be able to process it and solve the problem
at hand.
The need to be analytical in a forensic accounting
engagement may be the initial and most important overall characteristic,
without which other traits and abilities would be difficult to develop.
Analytical proficiency was important attributes for the
forensic accountant. Prior to that study proposed that analytical abilities are
important in the practice of forensic accounting. In sum, these results provide
additional weight to the assertion that analytical characteristics are critical
to the forensic accountant’s ability to provide value-added services in
engagements calling for more than simply auditing skills and problem-solving
abilities.
Core skills indicate that communication skills are the
important keys to a better forensic accountant. “Effective oral communicator”
most frequently on average, reflecting the need to effectively represent
verbally a position in a court of law. CPAs concurred by choosing it third most
frequently in the Top 5 and “Effective written communicator” second, perhaps
indicating the importance of preparing internal reports and documentation for
review by colleagues, or the submission of a written report to the court.
For instance, in investigative cases, attorneys are using
forensic accountants most frequently in many cases that involve financial
statements, economic damages and fraud. CPAs that are forensic accountants also
are frequently involved in these same kinds of engagements, with valuation work
engaged in somewhat more frequently than financial statement
misrepresentations.
The computer technology reflect the relative “newness” of
the need for this kind of expertise in the forensic accounting field. CPAs in
practice often partner with others proficient in technology. The AICPA does
present specialized technology credentials such as the Certified Information
Technology Professional. The higher replies rates by those who wants forensic
accounting services versus those who supply those services may show a strategic
niche for additional practice development. Additionally, educators are
increasingly calling for the incorporation of technology into the forensic
accounting curricula. (Charles, Ramona & Suzanne)
Interpersonal and auditing skills may be important, but the
orientation toward problem solving appears to be more important to the success
or effectiveness of the forensic accountant. However, the forced choice of only
five core skills could have affected the rankings. An extended study that
separates out the ranking of more technical versus people with interpersonal
and auditing skills could be useful. Ethical skills according to the corporate
culture are very important for the success and daily work of forensic accountants.
Accounting professionals do
important responsibilities beyond preparing financial statements. In a more
critical role, they help managers interpret the statements by comparing data
about the firm's current activities to those for previous periods and to
results posted by other companies in the industry. Ratio analysis is one
of the most commonly used tools for measuring a firm's liquidity,
profitability, and reliance on debt financing, as well as the effectiveness of
management's resource utilization. (Bonnie, 2012)
Ratios are classified based on their
certain purposes. The four major categories of financial ratios are summarized
in Table 15.1. The ratios for Diane’s Java for the 2011 and 2012 are shown in
table 15.2 according to Bonnie Kurtz, contemporary business. (Bonnie, 2012)
CATEGORY
|
RATIO
|
DESCRIPTION
|
Liquidity ratios
|
Current ratio
|
Current assets divided by current
liabilities
|
|
Quick (acid‐test) ratio
|
Current assets (minus inventory)
divided by current liabilities
|
Efficiency ratios
|
Inventory turnover
|
Cost of goods sold divided by
average inventory
|
|
Receivables turnover
|
Credit sales divided by average
accounts receivable
|
|
Total asset turnover
|
Revenue or sales divided by
average total assets
|
Leverage ratios
|
Debt ratio
|
Total liabilities divided by
total assets
|
|
Long term debt to equity
|
Long‐term debt divided by owners’ equity
|
Profitability ratios
|
Gross profit margin
|
Gross profit divided by revenue
or sales
|
|
Net profit margin
|
Net profit divided by revenue or
sales
|
|
Return on equity
|
Net profit divided by average
owners’ equity
|
|
(Bonnie, 2012)
|
Table 15.2
|
Financial Ratios for Diane's Java
|
|
FINANCIAL RATIO
|
2012 FISCAL YEAR
|
2011 FISCAL YEAR
|
Current ratio
|
2.58
|
2.25
|
Quick ratio
|
1.50
|
1.25
|
Inventory turnover
|
5.13
|
5.03
|
Receivables turnover
|
19.60
|
19.32
|
Total asset turnover
|
2.15
|
2.15
|
Debt ratio
|
35.6%
|
39.0%
|
Long‐term debt to equity
|
19.4%
|
22.4%
|
Gross profit margin
|
40.0%
|
38.0%
|
Net profit margin
|
11.1%
|
10.0%
|
Return on equity
|
37.9%
|
36.6%
|
|
|
(Bonnie, 2012)
Describe
the role of a forensic accountant within a courtroom environment.
It
is very important to know the role of forensic accountants within a court
environment. As we all know that there are many large-scale corporate scandals
in the United States of America and it is growing in the field of forensic
accounting. These forensic accountants are used not only by law enforcement
forces but also corporate organizations.
Forensic accounting is the application of the
skills and training of a chartered accountant to investigations, disputes and
other reviews, the result of which could end up in a court of law.
Fraud, by its very nature, is hidden in the
accounting systems of organizations and therefore a forensic accountant is usually
required to unravel the transaction history and reveal what has actually
occurred. ("Pwc,"
)
As part of this, the forensic accountant is
often called upon to quantify the value of the loss experienced by an organization
or individual. Any lost funds are traced from bank account to bank account to
identify where the money (or other assets) have ended up before working with a
legal team to secure the freezing and recovery of the funds or assets. ("Pwc," )
In cases of financial statement fraud, as seen,
it is not so much the case of cash being stolen, but company losses or
liabilities being hidden (or assets being overstated) by false accounting in
the financial statements and records. The forensic accountant’s role is
therefore to understand the accounting records and show the true nature of the
transactions being recorded.
Similarly forensic accountants are a key part in
the investigation of shareholder or director disputes, and insurance claims.
Ultimately, in all cases, the key skill of the
forensic accountant is in communicating complex financial transactions or
information in a succinct manner using pictures, graphs and language readily
understandable by non-accountants and in particular the legal profession, the
judiciary, and juries.
I would like to talk about the
Fraud investigations that how the forensic accountants plays its role and finds
evidence within the court environment.
If a company or corporation suspects
fraudulent financial reporting or misappropriation of assets, investigators
start investigation to determine the existence, nature and extent of the fraud.
They also work with clients to identify the perpetrator and, where possible,
recover the loss. When efforts have been made to conceal evidence, members of
forensic accountant technology team recover and process the digital evidence
using sophisticated software. Additionally, they examine current processes and
procedures and recommend controls to prevent or reduce the possibility of
vendor/supplier fraud. In all of these circumstances, they provide supporting
documents and are available to serve as expert witnesses in civil and criminal
litigation within the court environment. ("Rgl forensics," )
Let’s not remain unsaid that forensic accountants also play
a very important role Fraud detection for finding evidence to the court.
Testifying is very important for attorneys and so is
enhanced skills (Interviewing skills) for the forensic accountants. It needs
both oral communication and thinking. Interviewing is highly ranked than fraud
detection. It is good to know that knowledge of relevant professional standards
require the importance of interviewing in order to obtain information about a
case.
The image of the forensic accountant as a detective again is
suggested by this finding. Attorneys would not perceive interviewing skills as
essential for the forensic accountant to be productive. The requirement for a
forensic accountant to conduct or attend in an interview may be based on the
engagement.
Fraud detection, considered by many to be one of the most
important aspects of forensic accounting and this finding places fraud
detection among the more important activities in the forensic accounting field.
Academics were entirely consistent about their view that fraud detection is the
most critical enhanced skill and activity in forensic accounting. These results
may also show that academics view the field of forensic accounting through a
narrower lens or think “forensic accounting” is fraud detection rather than
through a wider lens that sees the breadth of specialized forensic accounting
services available.
Analyze
the legal responsibility a forensic accountant has while providing service to a
business.
A forensic accountant is a person typically
hired by large firms, regulatory authorities, law professionals to help
disentangle crimes through their crime related investigations , fraud ,
litigation support services from the accounting perspective
Forensic accountants are
responsible in the society to prevent, detect, investigate cases of
white-collar crime, bank fraud, terrorist funding and computer scams. ("Going concern," )
While providing services to a business forensic
accountants also not only help to ensure economical security in two ways but
also help law enforcement forces create a safe environment. First, they detect
company losses and fraud early in the society. This alone has saved many
companies large sums of money. By doing this, stock investors are able to feel
more secure about the funds they are investing.
Secondly, job security can easily be found
within the career field of a forensic accountant. As long as there is money
being handled, the need for forensic accountants will continue to grow. Its
recent popularity has created thousands of jobs that were not present before.
This, too, helps to secure the economy in the environment.
Forensic accountants deal with financial records
and evidence that is used for legal purposes. It is used to detect fraudulent
activity such as embezzlement, money laundering, insurance fraud, and tax
evasion. It has also been used to uncover hidden assets of couples undergoing
divorce and pinpointing drug trafficking.
Forensic accountants use math and investigative
skills to gather and analyze financial information. The findings are used to
detect suspicious activity within businesses and among individuals. This
evidence is often used in a court of law to prosecute offenders. They are often
used as expert witnesses in legal proceedings to help the courts make a just
legal decision against fraudulent and criminal offenders.
Research two (2) cases where forensics accountants have
provided vital evidence in a case. Summarize the cases and the importance of
the forensic accountants’ role during each case.
I believe it important to know
that there are many high profile cases of white collar crime, bank fraud,
terrorist funding and computer scams where the forensic accountants have
provided vital evidence.
Case Study 1: Divorce
The
issue:
Based on a true story of an American colleague
of mine Washingon whom I met on 2010 in Afghanistan. He had some hidden assets that his wife was
not sure for many years and after many years, his wife found out that Washington
has some family financial assets protected. Thus their marriage relationship
leads to divorce. Here the attorney made a good use of forensic accountants to
get all they can for their customer. The forensics accountants put their skills
to work for clients in divorce proceedings so the wife can take some of that
hidden assets that thought was protected somewhere.
The Role of
Forensic Accounting:
In this case the forensic accountant was hired
to find out and uncover the hidden assets. The Forensic accountant uncovered
that the funds were transferred to the family of Washington in Africa by
reading and analyzing the documents and paperwork’s.
Case Study 2: Criminal Tax Fraud
The
issue:
A friend of mine had few small family owned
businesses. She provided inaccurate information to the government on her taxes.
She tells the unreported story of one hundred and thirty thousand US Dollar to
a friend of hers and her friend assisted the IRS in this criminal tax fraud.
She continued her business for a year and within one year the Internal Revenue
Services (IRS) criminal investigation division engaged in surveillance, failed
to uncover any information or evidence that support the claim of criminal tax
fraud.
The Role of
Forensic Accounting:
Ultimately, the IRS found that the accused
parties failed to withhold payroll taxes on a small amount of employee wages
paid in cash. However, the IRS also claimed that the business owners had a
large amount of unreported cash receipts.
The forensic
accountants were used to calculate and provide evidence of the unreported
income of the small family owned business that the IRS criminal investigator
was making improper assumptions about the income and expenses of the business
by relying on industry standards that did not apply to this company. They
demonstrated why the IRS’s calculated numbers couldn’t possibly be accurate and
presented alternate calculations that had a high degree of reliability. This
alternate analysis was accepted by the government and saved time for further
prosecution of the suspected girl.
Case Study 3: Forensic Accounting
The Issue:
Attempts by an international firm to reconcile a
large customer account following the departure of a trusted employee revealed a
number of transactions that the firm had no knowledge of. Further investigation
disclosed the former employee had set up fictitious loans from which he had
benefited. (Linda &
Ehow)
The Role of
Forensic Accounting:
Forensic accountants were asked by the firm to
assist their legal advisors to prepare a case against the former employee who
had misappropriated over $1 million in funds. They prepared evidence that
documented each step in the numerous transactions and prepared a summary of what
the funds had been used for.
(Linda & Ehow)
Outcome:
Their evidence was presented to the legal
advisors for the defendants and was accepted without dispute. It was also used
for settlement negotiations for recovery action and to support a complaint to
the Serious Fraud Office for prosecution of the case. Their work was used to
review and strengthen a number of internal controls. (Linda & Ehow)
Conclusions
The main
objective of this research was to gain a clearer understanding of the
the most important five (5) skills that a forensic accountant needs to possess
and evaluate the need for each skill for
the varied investigative matters for which they are retained.
This research
study and the results revealed that analytical characteristics remain the
foremost skill and trait that forensic accountants are expected to possess. The
results also revealed that communication skills, the ability to simplify the
complex, and the ability to present opinions in a legal setting are critical to
the effectiveness of the forensic accountant. There is also a need for the
forensic accountant to be able to look beyond the analytical details and see
the big picture –- to start with the goal in mind.
What this study brings to light is the understanding that
there are certain responsibilities and enhanced skills that forensic
accountants need to possess for the types of projects on which they are engaged
to work. Along with the increased demand for forensic accounting services, the
study showed that the marketplace expects the forensic accountant to possess
specific core skills as well as relevant credentials or certifications.
We found out that
the
role of a forensic accountant within a courtroom environment is very vital for
providing evidence on fraud, investigating allegations of fraud, theft and
corruption, suspicious transaction analysis – detecting fraud where no prior
suspicion exists and where there may be large volumes of transactions, training
in fraud prevention, detection and investigation, reconstructing financial
records, liaison with law enforcement and assistance with civil litigation,
allegations of, or suspected Money-laundering, asset tracing,
Background checking – using publicly available information,
visual analysis software to establish and prove associations between
individuals.
We also analyzed
the legal responsibility that a forensic accountant has while providing service
to a business. And eventually research two (2) cases where forensics
accountants have provided vital evidence in cases and evidence was presented to the legal
advisors for the defendants and was accepted without dispute. It was also used
for settlement negotiations for recovery action and to support a complaint to
the Serious Fraud Office for prosecution of the case.
References
Charles, D.,
Ramona, F., & Suzanne, O. (n.d.). Characteristics and skills of the
forensic accountant. Introduction,
(n.d.). Going concern. What are your questions for a
Forensic Accounting Partner?, Retrieved from
http://goingconcern.com/search/site/What are your questions for a Forensic
Accounting Partner?
