1. Instructor: Victor E. Hartman, JD, CPA/CFF, CFE
Forensic Accounting: ACCT 8710
Instructor: Victor E. Hartman, JD, CPA/CFF, CFE
Time: 7:15 p.m. – 9:45 p.m.
Location: Aderhold Learning Center, Room 223
Phone: (404)
Content: HartmanFirm.com
Twitter: @VicHartman
Office Hours: 1 Hour Before Class, or By Appt.
Text: Forensic and Investigative Accounting, 7th
or 8th Edition (Crumbley)

2. Definition: Interview
Course Objectives
Definition: Interview
Describe the Field & Practice of Forensic Accounting.
Explain relevant guidance including law, accounting, investigative techniques, professional standards, non-authoritative guidance, and credentials.
Describe the categories of fraud.
Explain courtroom procedures and litigation support.

3. Definition: Interview
Course Objectives
Definition: Interview
Describe the importance of fraud, and financial, digital and behavioral forensics to forensic and investigative accounting.
Provide an overview of the field of business evaluations and asset appraisals.
Explain the parts of an interview and interrogation and engage in a role-play exercise.
Prepare a paper and oral presentation of a complex fraud.
Role playing exercise that demonstrates forensic issues that arise during a corporate governance failure.

4. Definition: Interview
Grade Composition
Definition: Interview
Class Participation: 5%
Interview Exercise: 10%
Paper & Presentation: 25% (20% Paper & 5% Presentation)
Mid-term Exam: 25%
SynTech Skit: 10% (5% Paper & 5% Role Playing)
Final Exam: 25%

5. Vic Hartman J.D., CPA/CFF, CFE The Hartman Firm, LLC Atlanta, Georgia
Chapter 1:
Fraudulent Financial Reporting
Vic Hartman J.D., CPA/CFF, CFE The Hartman Firm, LLC Atlanta, Georgia

6. Definition: Interview
What Is Forensic Accounting
Definition: Interview
Forensic: Latin – Forum; public place; courtroom.
Accounting:
Ask any MAcc student!
Nevertheless, the term “accounting” is often used in a broader sense.
Financial Issues
Business issues
Issues where those trained in accounting adds value.

7. Definition: Interview
Forensic Accounting v. Fraud Auditing
Definition: Interview
Fraud Auditor: An accountant especially skilled in auditing who is generally engaged in auditing with a view toward fraud discovery, documentation, and prevention.

8. Definition: Interview
Forensic Accounting v. Fraud Auditing
Definition: Interview
Forensic Accountant: A forensic accountant may take on fraud auditing engagements and may be a fraud auditor, but he or she will also use other accounting, consulting, and legal skills in broader engagements. In addition to accounting skills, he or she will need a working knowledge of the legal system and excellent communication skills to carry out expert testimony in the courtroom and to aid in other litigation support engagements.

9. Definition: Interview
Forensic Accounting Defined
Definition: Interview
Time: Forensic accounting focuses on the past, although it may do so in order to look forward.
Purpose: Forensic accounting is performed for a specific legal forum or in anticipation of presentation before a legal forum.
Peremptory: Forensic accountants may be employed in a wide variety of risk management engagements within business enterprise as a matter of right, without the necessity of allegations (e.g., proactive).

10. Definition: Interview
Forensic Accounting Defined
Definition: Interview
Forensic accounting is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using such past financial data for projecting future financial data to settle legal disputes.

11. Definition: Interview
Types of Forensic Issues
Definition: Interview
Fraud Analysis
Valuation
Business Valuations
Intellectual Property
Marital Dissolution
Internal Investigations
Tax audits and/or valuation issues
Civil Disputes
Criminal Charges
Cybercrime

12. Definition: Interview
Forensic Posture
Definition: Interview
Board of Directors Presentation
Management Consulting
Regulatory Agencies
Administrative Hearings
Litigation
Civil
Depositions
Mediations
Trial
Criminal
Grand Jury

13. Definition: Interview
History of Forensic Accounting
Definition: Interview
Before financials were audited by outside experts, the courts often handled challenges and brought in experts to give testimony.
Practice of forensic accounting was common even before independent accountants were asked to certify financial statements in auditing engagements.

14. Definition: Interview
AICPA Practice Aid
Definition: Interview
In 1986, the AICPA broke forensic accounting into two broad areas: investigative accounting and litigation support.
The types of litigation services were further broken down in Practice Aid 7, listing:
damages
antitrust analyses
accounting
valuation
general consulting
analyses

15. Definition: Interview
Panel on Audit Effectiveness*
Definition: Interview
In 1998, the Public Oversight Board appointed the Panel on Audit Effectiveness to review and evaluate how independent audits of the financial statements of public companies are performed and to assess whether recent trends in audit practices serve the public interest.
*An independent private sector body. The Panel on Audit Effectiveness was requested by the SEC Chairman at that time.

16. Definition: Interview
Panel on Audit Effectiveness
Definition: Interview
In 2000, the Panel issues a 200-page report, Report and Recommendations, which includes a recommendation that auditors should perform forensic-type procedures during every audit to enhance the prospects of detecting material financial statement fraud.

17. Definition: Interview
Corporate Fraud Crisis
Definition: Interview
Arthur Anderson:
October 2001: Began Shredding Documents
June 2002: Convicted
Enron:
December 2001, Filed Bankruptcy
January 2001, FBI Investigation Began
Worldcom:
July 2002, FBI Investigation Began :
Waive of corporate frauds came to light

18. Definition: Interview
Legal and Auditing Standards
Definition: Interview
Legal: Sarbanes Oxley
Legislation passed July 30, 2002
Auditing Standards: Consideration of Fraud in a Financial Statement Audit:
Private Companies: December 2002: SAS 99 / AU 316
Replaced 12/15/12 SAS 122 / AU-C-240
Public Companies: PCAOB initially adopted SAS 99 / AU 316
AS 2401 (effective 12/31/16)
Statement on Standards for Consulting Services, No. 1
COSO
Federal Sentencing Guidelines

19. Definition: Interview
COSO
Definition: Interview
Committee of Sponsoring Organizations
Sometimes knows as the “Treadway” Commission
Comprised of:
American Accounting Association
AICPA
Financial Executive International
The Assoc. of Accountants & Financial Professionals
Thought leadership on Internal Controls & Fraud Deterrence.

20. Definition: Interview
Compare & Contrast
Definition: Interview
Characteristic
Audit
Fraud Examination
Forensic Accounting;
Financial Forensics
Time perspective:
Historical
Future and historical
Primary focus:
Periodic
Reactive
Proactive and ongoing
Investigation scope:
Narrow
Broad ranging
Main work product is:
Audit opinion
Fraud case report
Forensic audit report
Main responsibility to:
Company and public
Defrauded party
Concerned principal or third party
Guidelines are:
Rules-based
Principles-based; under audit rules, it is rule-based
Principles-based
Purpose of report:
Ensure GAAP is followed
Identify perpetrator of fraud
Fraud risk assessment and strategic services
Professional stance:
Non-adversarial
Adversarial
Adversarial and non-adversarial

21. Definition: Interview
Common White-Collar Crimes
Definition: Interview
Public Corruption
Health Care Fraud
Bank Fraud
Bankruptcy fraud
Corporate/securities fraud
Insurance fraud
Mass marketing fraud
Money laundering
Mortgage fraud

22. Definition: Interview
Sarbanes-Oxley Legislation
Definition: Interview
Title 1 establishes the Public Company Accounting Oversight Board (PCAOB) under the SEC to regulate auditing and to discipline auditors.
Title 2 contains a series of rules to ensure that auditors are independent from their clients. For example, neither the primary nor reviewing partner may audit the same client for more than five consecutive years, and the auditor must report all material written communication to the audit committee.
Title 3 requires publicly traded companies to have an audit committee, the CEO and CFO must certify their company’s financial statements, and provides rules for the conduct of officers and their attorneys.
Title 4 prohibits personal loans and requires certain financial disclosures.
Title 5 mandates rules for financial security analysts (i.e., research analysts) to avoid conflicts of interest.
Titles 6, among other provisions, allows federal courts the power to bar individuals who violate security laws from participating in penny stocks.

23. Definition: Interview
Sarbanes-Oxley Legislation
Definition: Interview
Title 7 requires reports and studies on consolidation of accounting firms, credit rating agencies, enforcement actions, and investment banks.
Title 8 provides protection for whistleblowers and mandates penalties and fines for certain acts not dischargeable by bankruptcy. For example, failure of an auditor to keep working papers for 5 years* is subject to fines and 10 years in prison, and fine or imprisonment of up to 25 years for anyone knowingly defrauding shareholders of publicly traded companies. A person can receive 20 years in prison and fines for altering, destroying, mutilating, concealing, covering up, falsifying or making a false entry in any record, document, or tangible object.
Title 9 increases maximum prison sentences for mail and wire fraud from 5 to 20 years. Willfully and knowingly certifying financial reports not in compliance with the Act is now a criminal offense.
Title 10 says that it is the “Sense of the Senate” to require the CEO to sign the corporate tax return.
Title 11 provides a possible 20-year prison sentence for anyone altering, destroying, mutilating, or concealing a record, document, or other object (or otherwise impeding) for an official proceeding.
*Section 103 = 7 years; Section 801 = 5 years; Rulemaking 7 years
Bottom line: 7 years

24. Definition: Interview
SOX Specific Provisions
Definition: Interview
301(4) Audit Committee setup hotlines.
302: Corporate responsibility for financial reports (civil certifications).
307: Attorneys required to report up, but not out.
404: Management / External Auditor’s responsibility for internal controls over financial reporting.
409: Real time reporting of material change in financial condition.
806 Whistleblower Protection.
906: Corporate responsibility for financial reports (criminal certifications).

25. Corruption & Conflicts of Interest

26. Corruption Government: Laws and regulations Zoning
Purchasing products and services
Private Sector
Methods
Conflicts of interest
Bribes

27. Definition: Interview
Foreign Corrupt Practices Act (FCPA)
Definition: Interview
The purpose of the Foreign Corrupt Practices Act (FCPA) of 1977 is to combat corrupt business practices such as bribes and kickbacks. Thus, for more than 30 years these foreign bribery laws in the United States have restricted all U.S. employees, regardless of where the business is conducted.

28. Definition: Interview
FCPA
Definition: Interview
Two types of offenses:
1. Bribery Provision: Corrupt payments by a U.S. citizen (including corporation) to a foreign official to obtain or retain business.
2. Books & Records Provision:
Books and records must accurately reflect the underlying transaction.
Adequate Internal Controls

29. Definition: Interview
FCPA
Definition: Interview
DOJ/FBI Jurisdiction:
Exclusive jurisdiction for criminal enforcement
Civil enforcement for non-public companies
SEC Jurisdiction:
SEC registrants only (public companies)
Civil enforcement only

30. Definition: Interview
FCPA
Definition: Interview
Third Party Intermediaries
Audit Rights in Contract.
Criminal Defenses to Bribery:
Facilitation Payment: “routine governmental action” that involves “non-discretionary acts.”
Payment is legal in the country where it is paid.

31. Definition: Interview
FCPA: Guidance
Definition: Interview
DOJ and SEC’s 2012 Resource Guide
U.K. Ministry of Justice’s Bribery Act 2010 Resource Guidance
OECD’s Good Practice Guidance on Internal Controls, Ethics, and Compliance
ISO is an “international good practice” for managing bribery risk

32. What are the root causes of corruption?

33. Predatory vs. Accidental Social compact of reciprocity Slippery slope
Human Nature
Predatory vs. Accidental
Social compact of reciprocity
Slippery slope
Boiling frogs

34. Questions Vic Hartman J.D., CPA/CFF, CFE The Hartman Firm, LLC
Twitter: @vichartman
Mobile: (404)