Forensic and Investigative Accounting Chapter 2 Forensic Accounting Education, Institutions, and Specialties © 2011 CCH. All Rights Reserved W. Peterson Ave. Chicago, IL

Chapter 2Forensic and Investigative Accounting2 Just as termites never sleep, fraud never sleeps. Just like termites, fraud can destroy the foundation of an entity. Termites, Rust, and Fraud

Chapter 2Forensic and Investigative Accounting3 Professors’ Top Ten Topics in Forensic Accounting Curricula 1. Fundamentals of fraud. 2. Financial statement fraud. 3. Types of fraud. 4. Cooking the books and problems in accounting. 5. Elements of fraud: pressure, opportunity, and rationalization. (continued on next slide)

Chapter 2Forensic and Investigative Accounting4 Professors’ Top Ten Topics in Forensic Accounting Curricula 6. Antifraud controls. 7. Internal control evaluation. 8. Theory and methodology of fraud examination. 9. Principles of ethics and corporate code of conduct. 10. Fraud detection and deterrence programs. Practitioners tend to emphasize litigation service more than professors.

Chapter 2Forensic and Investigative Accounting5 Knowledge, Skills and Abilities Needed by Forensic Accountant Law, legal system, courts, and courtroom procedure. Law, legal system, courts, and courtroom procedure. Financial statement fraud. Financial statement fraud. Corporate governance, shareholder rights and litigation, securities laws, and protections. Corporate governance, shareholder rights and litigation, securities laws, and protections. Report writing and communication. Report writing and communication. Criminal law and procedure. Criminal law and procedure. (continued on next slide)

Chapter 2Forensic and Investigative Accounting6 Knowledge, Skills and Abilities Needed by Forensic Accountant Computer fraud and cybercrime. Computer fraud and cybercrime. Human factors involved in intelligence gathering, interview techniques and understanding the motivations for fraud and other criminal activities. Human factors involved in intelligence gathering, interview techniques and understanding the motivations for fraud and other criminal activities. Ethical issues in business. Ethical issues in business. Business valuation. Business valuation.

Chapter 2Forensic and Investigative Accounting7 Accountants must be attuned to detecting fraud at every level of service, including standard accounting services, compilations, reviews, and bank reconciliations. If there is fraud and you don’t detect it, you are going to be sued, and you will likely lose, as the public perception is the accountant is the watchdog. Robert J. DiPasquale, Parsippany, N.J. Robert J. DiPasquale, Parsippany, N.J. Source: H.W. Wolosky, “Forensic Accounting to the Forefront,” Practical Accountant, February 2004, pp Find It, or I’ll Sue

Chapter 2Forensic and Investigative Accounting8 Forensic Accounting Knowledge Base

Chapter 2Forensic and Investigative Accounting9 Careers in Forensic Accounting Parade magazine on April 15, 2007, indicated that the hottest jobs for college graduates were forensic accountants.

Chapter 2Forensic and Investigative Accounting10 Income Expectations for Forensic Accountants Salaries start around $50,000. Salaries start around $50,000. Senior-level government employees can earn between $85,000 to $95,000. Senior-level government employees can earn between $85,000 to $95,000. In the private sector, one can earn between $125,000 to $150,000. In the private sector, one can earn between $125,000 to $150,000.

Chapter 2Forensic and Investigative Accounting11 Consulting Fees Forensic accountants work with attorneys, private investigators, law enforcement officers, corporate security specialists, the IRS, and the FBI. Forensic accountants work with attorneys, private investigators, law enforcement officers, corporate security specialists, the IRS, and the FBI. In 1999, Kessler International stated that the firm charges about $300 per hour for forensic consultations. In 1999, Kessler International stated that the firm charges about $300 per hour for forensic consultations.

Chapter 2Forensic and Investigative Accounting12 Background in Forensic Accounting Accountants Accountants Consultants Consultants Internal auditors Internal auditors IRS auditors IRS auditors Government auditors Government auditors FBI agents FBI agents SEC accountants Bankruptcy specialists Professors Bank examiners Chief financial officers Valuators of closely held businesses A forensic accounting background is helpful in these professional specialties:

Chapter 2Forensic and Investigative Accounting13 Specialties Within Forensic and Investigative Accounting Employee Crime Specialist Employee Crime Specialist Asset Tracing Specialist Asset Tracing Specialist Litigation Services Specialist and Expert Witness Litigation Services Specialist and Expert Witness

Chapter 2Forensic and Investigative Accounting14 Forensic Groups and Credentials GroupCredential American College of Forensic Examiners International (ACFEi) Certified Forensic Accountant (Cr.FA) Association of Certified Fraud Examiners (ACFE) Certified Fraud Examiner (CFE) Association of Certified Fraud Specialists (ACFS) Certified Fraud Specialist (CFS)

Chapter 2Forensic and Investigative Accounting15 Forensic Groups and Credentials GroupCredential Forensic Accounting Society of North America (FASNA) None National Association of Certified Valuation Analysts (NACVA) Certified Valuation Analyst (CVA) Certified Valuation Analyst (CVA) Certified Forensic Financial Analyst (CFFA) Certified Forensic Financial Analyst (CFFA) Certified Fraud Deterrence (CFD) (merged with CFFA in 2007) Certified Fraud Deterrence (CFD) (merged with CFFA in 2007)

Chapter 2Forensic and Investigative Accounting16 Professional Groups and Credentials GroupCredential National Litigation Support Services Association (NLSSA) None Network of Independent Forensic Accountants (NIFA) None Institute of Business Appraisers Certified Business Appraiser (CBA) American Institute of CPAs Certified Financial Forensics (CFF)

Chapter 2Forensic and Investigative Accounting17 CPA Certificate Important AICPA research indicates that CPAs represent 94 percent of forensic experts hired over two years. Source: Field of Forensic Service Remains Hot, A. E. Feldman Blog, -services-rem...

Chapter 2Forensic and Investigative Accounting18 Difficulties With Fraud Joseph Wells says Joseph Wells says Regrettably, the actual cost of fraud is unknown and unknowable. It is a concept the criminologists call “the dark figure.” Unlike visible crimes such as robbery, not all frauds are uncovered. Of those uncovered, not all are reported. No agency is tasked with compiling comprehensive data on fraud. Source:

Chapter 2Forensic and Investigative Accounting19 Predication The ACFE group indicates that in the private sector, a fraud investigation should not be conducted without proper predication. The ACFE group indicates that in the private sector, a fraud investigation should not be conducted without proper predication. Examples: Anonymous tips, complaints, audit inquires, conflict of interest. Examples: Anonymous tips, complaints, audit inquires, conflict of interest. Thus, predication is the basis for undertaking a fraud investigation. Thus, predication is the basis for undertaking a fraud investigation. Without predication, the target might be able to sue for real or imaginary damages. Without predication, the target might be able to sue for real or imaginary damages.

Chapter 2Forensic and Investigative Accounting20 Skills of a Forensic Accountant Mean Analytical Skills 6.51 Basic Accounting Skills 6.31 Problem Solving Skills 6.30 Data Analysis Skills 6.27 Interviewing Skills 6.25 Verbal Communication Skills 6.11 Basic Computer Skills 6.05 Source: D.A. McMullen and M.H. Sanchez, “A Preliminary Investigation of the Necessary Skills, Education Requirements, and Training Requirements for Forensic Accountants,” Journal of Forensic and Investigative Accounting, Vol. 2, Issue 2, July-December, 2010, p.43.

Chapter 2Forensic and Investigative Accounting21 Characteristics of a Forensic Accountant Mean Persistence6.12 Skepticism6.12 Puzzle Skills 6.08 People Skills 6.04 Flexibility5.91 Works well in teams 5.84 Experience in Auditing 5.80 Source: D.A. McMullen and M.H. Sanchez, “A Preliminary Investigation of the Necessary Skills, Education Requirements, and Training Requirements for Forensic Accountants,” Journal of Forensic and Investigative Accounting, Vol. 2, Issue 2, July-December, 2010, p.43.

Chapter 2Forensic and Investigative Accounting22 Demand for Forensic Accountants Robert Half 2009 Salary Guide indicates that even in the 2009 economic recession, there was still a strong demand for forensic accountants. In a 2008 AICPA survey, two out of three accountants indicated that their forensic practices had grown over the past year. Source: Robert Half, Robert Half 2009 Salary Guide, Accounting and Finance. P.R. Newswire, Demand for Forensic CPAs Accelerates, AICPA, Survey Shows, New York, September 25, 2008.

Chapter 2Forensic and Investigative Accounting23 Society for Financial Examiners Established in 1973, the Society for Financial Examiners is a professional organization for examiners of insurance companies, banks savings and loans, and credit unions. SOFE offers three professional designations which are earned by completing extensive requirements and a series of examinations. Source:

Chapter 2Forensic and Investigative Accounting24 International Association of Asset Recovery The International Association of Asset Recovery (IAAR) has a new certification called the Certified Specialist in Asset Recovery (CSAR). The IAAR mission is to help practitioners to win back assets that rightful belong to victims, government agencies, other organizations, or individuals who have been victimized by criminal or wrongful conduct. Source:

Chapter 2Forensic and Investigative Accounting25 Corporate Crime Reporter The Corporate Crime Reporter is a legal print newsletter published and mailed 48 times a year (corporatecrimereporter.com). Some articles are posted on their website, but are only highlights from the print newsletter.