Advanced Forensic Techniques for Accountants

This course builds on the knowledge gained in the AICPA course Forensic Accounting: Fraudulent Reporting and Concealed Assets and focuses on the techniques used by accountants to conduct forensic accounting engagements.

Objectives: 

• Use proven techniques to extract information from potential fraudsters
• Use public records during forensic engagements
• Make the best use of business documents relevant to investigative accounting
• Develop approaches when there is no paper trail

Prerequisite:  Forensic Accounting: Fraudulent Reporting and Concealed Assets (available in group study only) Introduction to Fraud Examination and Criminal Behavior; Detecting Misappropriation Schemes or equivalent knowledge.

Chapter 1

The Investigative Accountant

Learning Objectives

Upon completing this chapter, you should be introduced to

• A framework to be used for the incorporation of multiple investigation techniques.
• The roles and tasks of the investigative accountant.
• A review of fraud schemes and the four types of fraud.
• An investigative methodology.

Introduction

The AICPA has provided training on forensic accounting (Forensic Accounting: Fraudulent Reporting and Concealed Assets). That course provides an overview for accountants that focus on "one particular incident or series of events" (i.e., forensic accountants) in contrast to those who "review all available data and documents as they relate to a particular time frame" (i.e., financial accountants). Forensic accountants practice in a variety of areas that often involve litigation or other assistance to attorneys. The Forensic Accounting course provides an overview on the issues encountered by forensic accountants. That course covers the actual "accounting" work performed, such as the collection of documents, and it covers issues unique to the practice of forensic accounting such as depositions and testimony.

This course builds on the previous training, but centers primarily on the techniques used by accountants to investigate fraud and related matters. In fact, the term investigative accountant is used to emphasize the work – the engagements, the tasks – of the accountant versus the legal or "forensic" context of that work. In addition, the techniques discussed in this course may be used by a variety of professionals who never participate in the litigation arena. For instance, internal auditors will greatly benefit from adopting the techniques discussed below. This course presupposes that individuals have a background and familiarity with the basic concepts of fraud, business crimes, and white-collar crime. Although some of the topics discussed in the Forensic Accounting program are briefly reviewed in this and other chapters, it is expected that individuals taking this course know what to look for regarding various schemes and red flags.

The framework for this training comes from an understanding of the roles and tasks of the investigative accountant. We review those roles and tasks in this chapter. The purpose of this explanation is to introduce a common understanding of the kind of techniques explained later. We also provide, in this chapter, a methodology for fraud investigation. The methodology is conceptual, focusing on the process of investigation. Again, we are introducing common understandings that can be used later in the course. The goal of this training is to add to the skills of the investigative accountant. The first chapter lays the foundation for building skills and techniques.

The Organization of This Course

There is not much in this training about the nature of fraud, characteristics of fraudsters, or the breakdown of internal controls. For the most part, you will find no listings of fraud schemes or red flags. Neither will there be generic listings of "sources." The nature of this course is not to train about fraud but to train the investigation of fraud.

Much of the training in fraud investigation involves the learning of fraud schemes. After all, one of the basic tenets of fraud investigation is to figure out how the fraud happened. This training is not so much about what happened, the schemes themselves, but ways to dissect what happened. This course arms experienced accountants with new or additional techniques they can use in their engagements and tasks. Many of the techniques covered in this course are not complicated on their face. Yet, successful use of these techniques often centers on attention to small details. This course tries to cover some of the small details necessary to execute various techniques. It also covers background on when and why to use certain techniques. The goal of this course is to help investigative accountants use the right technique at the right time in the right way.

The remainder of this chapter will cover concepts and terms used later in this course. The next three chapters cover evidence gathering techniques and ways to find information. The following three chapters focus on data analysis. The final chapter discusses some issues involved with putting the evidence together. It also deals with special techniques outside the domain and scope of practice of the investigative accountant.

To a certain extent, the order of the chapters follows the order of the work of the investigative accountants. We start with public record searching because that is the best way to start many engagements. Still, the investigative accountants need not execute the techniques in any specific order. In many situations, investigators start with analytical techniques and move on to data gathering techniques. Thus, Chapters 2 through 8 can be taught in any order.

Fraud?

This course is geared towards the investigation of fraud. It helps, then, to know what fraud means. What is the realm of the investigative accountant? Now, the legal or even dictionary definition of fraud is not what most accountants, investigative or otherwise, mean when they talk about fraud. Fraud is not just intentional misrepresentation of facts. To some extent, we define fraud by offender (also known as the "white-collar criminal"); to another extent, we define fraud by the method of crime, one involving manipulations and deceit. Still, neither of these definitions fully explains the raison d'etre of the investigative accountant. Any level of employee including "blue-collar" and clerical workers can perpetrate frauds. Moreover, frauds can involve the physical taking of material. Investigative accountants are asked to investigate inventory shrinkage and product diversion. Although not common, frauds can involve physical intimidation and violence. We need a single tying factor. The tying factor is money. Fraud involves acts related to money, the gaining of money, the hiding of money, and the obfuscation of the true state of money.

Types of Fraud

It helps, then, to break fraud down into sub-categories, that is, different acts involving the manipulation of money. There are many ways to categorize fraud: who committed the fraud, how it was committed, and whom the fraud benefited, etc. Different textbooks can be consulted for details on the definitions of fraud (see recommended reading list, Appendix C).

For learning investigative techniques, it is helpful to think of fraud occurring four ways:

1. By an employee or customers against a company
2. By one company against another company
3. By management against investors/the public
4. Frauds against creditors

The following exhibit from the Forensic Accounting course lists common fraud schemes.

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