Forensic and Investigative Accounting Chapter 2 Forensic Accounting Education, Institutions, and Specialties © 2013 CCH Incorporated. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 800 248 3248 CCHGroup.com

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

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

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

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

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

Forensic and Investigative Accounting Find It, or I’ll Sue 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. Source: H.W. Wolosky, “Forensic Accounting to the Forefront,” Practical Accountant, February 2004, pp. 23-28. Chapter 2 Forensic and Investigative Accounting 7

Forensic Accounting Knowledge Base Chapter 2 Forensic and Investigative Accounting 8

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

Income Expectations for Forensic Accountants Salaries start around $50,000. 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. Chapter 2 Forensic and Investigative Accounting

Forensic and Investigative Accounting Consulting Fees 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. Chapter 2 Forensic and Investigative Accounting

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

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

Forensic Groups and Credentials 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 2 Forensic and Investigative Accounting

Forensic Groups and Credentials The CFFA group becomes: Master Analyst Financial Forensics(MAFF) Change CFFA to MAFF (twice) Chapter 2 Forensic and Investigative Accounting

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

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

Seven Important MAFF Areas The NACVA’s Master Analyst Financial Forensics lists seven important areas: Financial Litigation Specialization Forensic Accounting Specialization Business and Intellectual Property Damages Specialization Matrimonial Litigation Support Specialization Business Valuation in Litigation Specialization Bankruptcy/Insolvency Specialization Fraud Risk Management Specialization A description of these areas can be found on their website http://www.nacva.com/cti/cffa/asp Chapter 2 Forensic and Investigative Accounting 18

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, http://blog.aefeldman.com/2009/04/13/field-of-forensic -services-rem... Chapter 2 Forensic and Investigative Accounting 19

Fundamental Forensic Knowledge of a CFF Professional responsibilities and practice management. Laws, courts, and dispute resolution. Planning and preparation. Information gathering and preservation (documents interviews/interrogations, and electronic data). Discovery. Reporting, experts, and testimony. Chapter 2 Forensic and Investigative Accounting 20

Difficulties With Fraud 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: http://www.nysscpa.org/cpajournal/2006/906/infocus/p16.htm Chapter 2 Forensic and Investigative Accounting 21

Forensic and Investigative Accounting 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. Thus, predication is the basis for undertaking a fraud investigation. Without predication, the target might be able to sue for real or imaginary damages. Chapter 2 Forensic and Investigative Accounting 22

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 2 Forensic and Investigative Accounting 23

Characteristics of a Forensic Accountant Mean Persistence 6.12 Skepticism Puzzle Skills 6.08 People Skills 6.04 Flexibility 5.91 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 2 Forensic and Investigative Accounting 24

Increasing Demand for Forensic Accountants 2012 AICPA survey: Noticeable increase in demand for FA services. Forty-seven percent of respondents saw an increase in hours spent. 2011 AICPA survey: one-half of participants had average increase in FA services of 20 percent. 2011 AICPA survey found 25 percent of participants hired more FA professionals. Chapter 2 Forensic and Investigative Accounting 25

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: www.sofe.org/about Chapter 2 Forensic and Investigative Accounting 26

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: www.iaaronline.org Chapter 2 Forensic and Investigative Accounting 27

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. Chapter 2 Forensic and Investigative Accounting 28