Question

I need to write a research paper on the methods used by forensic accountants to discover corporate fraud. I want to find out how corporate governance uncovered scandals like Enron and WorldCom. Are there any pointers, example outlines, or research suggestions to be able to write a 5-7 paper on the subject?

Answer 1

Forensic Accounting shall determine the following:

    How – The way in which the divergence has taken place.

    Where – At what point of the procedural chain has the divergence occurred.

    What – Is the divergence an intentional or not.

    Why – The motive or reason for the divergence, especially in terms of intentional divergence.

    Who – The person or other entity that is at fault.

Types of Fruad detected while doing Frensic accounting :

1.   Frauds related to Revenue and Sales- such as showing fictitious sales revenue(inflated/ deflated)

2.   Frauds with respect to falsifying the market position of the company by either showing false results or deceiving the shareholders by showing inflated share prices and consequently lower debts.

3.   Other frauds may also consist of various deceptive sale practices being undertaken by the company itself in order to capture market share or sustaining the present market position. This is generally done by selling defective parts or even re-imbruing the expenses which have not been actually incurred / covered in the policies.

4.   Various third party frauds may also comprise of recording of deceptive allowances from vendors in order to falsify the revenue(inflated/ deflated) and even sometimes underachievement to vendors is also reported.

5.   Fraudulent acts of providing mis-statement in the financial statements by the directors such as no violation of law has taken place or Internal Financial Controls are in place etc.

6.   Frauds related to tampering of bank records and taking the monetary advantage thereof.

7.    Theft of competitor secrets or third party intellectual property rights may also amount to fraudulent act which also comes under the purview of forensic auditors.

8.   Various other frauds may also include-

a.    Showing financial statements as these are in line with the standards set or budgeted tasks.

b.   Falsifying the value of the business

c.    Using business resources for personal purposes

d.   Accepting bribes form the customers/ dealers/ vendors in order to facilitate business to them

e.    Representation of dummy workers/employees in the manpower sheets and consequently higher wage cost/ employee cost.

f.     Fictitious expenses and inflated incomes

g.    Showing dummy suppliers/ vendors and payments thereof

h.   Representing excess recoverable/ payables in the financials

Few evidence gathering things forensic accountants might use to detect fraud are:

a. Using testing controls to identify weaknesses in the system and noticing how and why the fraud could have taken place.

b. Utilizing analytical procedures to compare trends in the data and making comparisons between different areas of the business to spot deviations.

c. Interviewing employees and other key members that could have information regarding the fraud.

d. Taking advantage of computer assisted auditing software to identify issues of timing and other relevant data issues.

e. Opting for substantive techniques, which include things such as cash or asset counts.

Forensic accountants can spot fraud by data mining with actions like:

1. Evaluating the frequency of payments and consistency of financial figures.

2. Finding gaps in ledgers or missing data files or information.

3. Examining the vendor and supplier information, including addresses.

The forensic accountant shall hold the following skills for better detecttion:

Analytical skills are very important to seek the origin of accounts

Audit experience is very important for successful forensic accounting

Background of criminal law is very important for forensic accountant

Basic accounting skills are very important to be a successful forensic accountant

Certification for forensic accounting is very important to insure capabilities to discover fraud

Connecting analysis with other documentation is very important in discovering fraud

Data mining skills are very important

Deep experience of financial statement analysis and interpretation is crucial to practice forensic accounting

Enforcement of law knowledge is important

Experience of fraud detection capabilities is very important to be successful forensic accountant

Finding conflict areas and finding evidence is very important in forensic accounting

Knowledge of case procedures is important for forensic accounting

Knowledge of testifying if very important for forensic accounting

Running investigations in fraud cases is very important in forensic accounting

The ability to perform conflict check is very important in conducting forensic accounting

The language of business is very important skill for forensic accountant

Writing communication skills are very important for forensic accountant