The Role of Forensic Accounting

Question: Discuss about the The Role of Forensic Accounting. Answer: Introduction Advancement in the digital technology offers great and vast opportunities for the perpetrators as well as for the fraud investigators. Fortunately, the technology to investigate the ways of examining the fraud methods, conducted. While some of the methods, computerized traditional tasks versions, like online working papers, others, like neural networks based risk analysis have been revolutionizing the field. Several researchers and auditors get themselves to work amid the workplace that is ever-charging with the methods that are computer based, leading the charge (Anderson, 2012). Drastic growth of the corporate world with border-less business increases the opportunities that could be unlawful activities, scandals and misleading acts. Despite advanced tools and procedures implementations to control these discovered fraudulent activities, still new financial frauds have been developing and discovered, for about 62% in just three years, from 2009 to 2012 (Anderson, 2012). As per recent newsletters, there is a rise of 53% of financial frauds, reported during first half year of 2016, more than 2015. Background The fraud incidents continue to increase both in public and private sector organizations, all over the world. Now, fraud has become a common and universal problem and no single nation is immune, through developing countries suffer most pain (Hawkins Priday Ltd., 2012). Probably, the most difficult aspect to these techniques that are computer based is the single term application to wider range of methods, such as data mining, digital analysis, computer forensics and electronic evidence collection. Such detection of the computer based fraud involves various methodologies, technologies and goals different technologies. Some of these techniques need the basic understand of the techniques of data mining and query languages, and others demand strong statistics knowledge and computer science background. Forensic accounting has been growing so rapidly, in the field of accounting and describes the results from anticipated and actual litigations and disputes. The term, Forensic indicates, suitable for use for court of law and this is the standard to what the Forensic Accounting and Forensic Accountants work, generally. So, Forensic Accounting is considered as a accounting investigation style for determining the involvement and engagement of the organization or individual in any form of financial activities that are illegal (Imoniana et al, 2013). Though Financial Accounting and Financial Accountant have been in existence from many decades, the present FA include various new methods and techniques of financial information security. As the management and employee fraud, theft embezzlement and many similar crimes financial have been increasing, eventually, personnel of auditing and accounting must have relevant skills and training for investigate these crimes, both at locally right from grassroot level to the state levels for better ensuring in larger prospective towards fraud deterrence, investigation, prevention, remediation and detection. Issue Financial Accounting has been implemented for detecting the digitized financial unlawful activities, against the standards of law, with the intent of fraud. The challenge of discovering all the existing digital financial frauds, is not limited to just the present technologies, but also in the knowledge, skills and expertise of the Financial Accounting to use all possible Financial Accounting methods and techniques, developed then far. Aim and objectives The aim of the research is to explore the ways of investigating the frauds through forensic accounting and how these can best be useful in terms of the business. The aim and objective of the paper is to find the solutions for the following research points. Different types of services that the Forensic Accountant provides All the skills needed by a Forensic Accountant professional Various techniques employed for detection of the fraud and the effectiveness of them Further steps taken after detection of the fraud, by the Forensic Accountant Literature Review Forensic Accounting Forensic Accounting or financial forensics is the area of accounting, which is specialised practice, describes engagements and results from litigation or actual or anticipated disputes. The work that is performed and issued reports will give the answers to the what, where, why, how and who, in which the court ultimately decides.. Financial Accounting provides the answers to the questions of what, who, where, why and how, from the reports generated and work performed. Forensic accountants also called as investigative auditors or forensic auditors, generally have to provide evidence who are expertise in every eventual trial. Generally in every accounting firm that are larger and medium sized firms and government and police agencies have the forensic accounting departments as specializations (Crumbley et al, 2005). There are sub specializations in the above groups in personal injury claims, anti-money laundering, insurance claims, fraud, construction (Crumbley et al, 2005). Forensic Accountant Forensic accountants are well experienced accountants, auditors and investigators of the financial and legal documents, in which all the activities that are possible suspicions frauds within a company or hired to prevent the fraud activities happening, also providing services the areas like valuation, accounting, damages and general consulting. Forensic accountants also work for tracking of bankruptcy, divorces, fraudulent claims, insurance claims, construction and terrorism (Charrier Pelisse, 2013). Most of the forensic accountants are in the work like lawyers and enforcement personnel. They appear for the purpose of expert witnesses. Services Forensic Accounting services are used since ancient Egyptians of Pharaoh times. Pharaoh used scribes for these services for accounting of his assets and gold. The scribes used in the courts that were charged to prevent fraud and detection. These services were used the same until the start of 20th century. The accountant should have knowledge of latest methods of accounting, procedures and standards. And they must be proficient in different reporting systems and also should be able to give recommendations to strengthen and improve internal controls. They should have knowledge of monitory units that are international to use in companies and foreign accounts (Wong Venkatraman, 2013). As an accountant or auditor, one should perform financial audits to prevent the fraud in possible situations. As an attorney, one should have knowledge of state and federal laws and different regulations to approve or disprove frauds. They are the expert witnesses to communicate with individuals those who dont have knowledge of accounting. As an investigator, one should get the evidence by investigating to present in court of law and should be able to investigate allegations, complaints, suspected fraud. They must analyse, sort and compare the data to present in the court. The investigators should have relationships with the processing agencies and the team. Some of the forensic accountants will do specialization in forensic analytics, which are the analysis of electronic data to detect or to claim financial fraud (Adeniyi, 2004). The stages in Forensic analytics are Data collection Data analysis Data preparation Reporting Taking example of forensic analytics that is if by analysing the persons purchasing card activity to assess the purchases were diverted or not, the forensic activity is used in invoicing the company or financial activities of a vendor to identify fictitious vendors and the same to the franchisors to identify the fraud and to get erroneous sales reports. In America, an expert witness is required in court proceedings in Federal court who is a forensic accountant to give hearing and give testimony that need data and facts. The data consists of methods and principles of the case. In United Kingdom the proceedings in the court given are unbiased opinion and objective of an expert witness (Albrecht, et al.,2004). Skill The forensic accountant should advance fully to handle all rounded investigations of auditors and investigators, to handle all types of situation and need digital and financial forensic skills. In these days the criminals involved in white collar crimes using computer based to defraud financial matters. In such cases the traditional financial accountant could not trace such crimes (Arnoff Sue, 2001). In some areas, a financial accountant needs to trace e-mails to convict fraud. In this case a certified forensic accountant have to familiarize and expertise with digital training. They are the part of forensic and digital forensic experts. Criminology Psychology Principles and Practice of Accounting Computer and digital Forensics Fraud Auditing and Forensic Accounting Criminal Investigations Studies on Fraud and Corruption Investigation Law Investigative accounting Fraud Prevention and Detection Forensic Investigation Criminal Investigation Design and Implementation of Preventive Controls Digital Forensics Forensic Accounting Bankruptcy, Assets tracing in Divorce and Money Laundering Cases and Expert witnessing (Nurudeen, 2006) Forensic Accounting Techniques There is a possibility in Forensic accounting involved the following situations, they are Fraud accounting and reports may occur Misallocation of assets Forensic accounting transactions involve review of transactions using document reviews, examining of electronic media and interviews. Since the results of 6 techniques of forensic accounting are time consuming in processing of court reviews of government adjudication there needs to be high evidence and the standards should be maintained in evolving evaluation of forensic accounting. Using interview techniques there can be chance of admitting guilt by the personnel, who are involved in fraud scheme, in the evaluation of forensic accounting. There is another technique, data mining through which entries are stored in databases. There needs to be document reviews involving investigations. The electronic media consists of systems such as telephone system records, computer databases, security system records (Nigrin Mark, 2011). Interview Techniques There needs to be involving interview techniques because the results in interview will be presented to the court of adjudication. The outcome from the interview may be used in legal process for attorney in the auditing (Adenivi, 2004). Generally, the auditors should follow the rules of interview techniques. To control this technique work, some of the factors given below. The timing should be controlled in the interview process so that the time constraints should not be influenced The setting of interview should be controlled to avoid interruptions Involving 2 persons one for taking notes. Interview is conducted at a time to one person There should be formal recording helping in free flow of information Final notes should be prepared and following proper documentation Trying to gather information of persons that isnt included in the crime those who are not suspects As the process of interview proceeded by getting information, further serious interview should be conducted to admit of guilt. The following are the aspects of these type of interviews, they are Getting guilt admission Letting of person to understand that they are lying By using logical approach Trying the approach of Do the right thing Keep asking questions and sometimes keep silence of person Questioning the person for known answers so that lets the person honest Admission of guilty by use of information of such interviews is a part in forensic information (Coglitore Matson, 2011). Data Mining With Computers Data mining process helps the auditor to find the patterns, trends and anomalies present in the data sets. They should investigate, if any unusual matters are found suspicious. One of the aspects in data mining is Meta Data. This is the data about the computer files and programs and in organisation (Wong Venkatraman, 2013). Various Metadata aspects show specific and certain computer file aspects, as the following. Computer file name File creation and modification dates The file size The location of file that is stored and changed The person name involve in file change (Sharma Panigrahi, 2013) Forensic Accountant can detect trail of data, related to the computer files. For example, Meta data can identify the name of person, who changed the ledger. Both date and time are recorded about the use of the ledger and as each transaction is recorded. Meta Data is also used in e-mailing the accounts. Files can be analysed using Meta data in reviewing the computer systems of accounting and can be known that proper review is happened. From this review, misuse of files and accessing of files can be determined (Houck et al, 2006). And can avoid destroying of files in accounting. It can be known that the actual data in usage of files in ledger. There are some patterns in usage of data reviewed by forensic accountants as the following. The unusual patterns used in the data Are there any repeated names and addresses of vendor file The names of vendor that may change in sorting the data or misspelled There may be problem in payments in vendor transactions Multiple payments may be problematic to the same vendors There is a problem in missing data The various vendors with the same name and addresses may be problematic Checking of addresses of vendor to addresses of employee Checking adjustments reclassifications in ledgers There are many other systems in organisations consisting data and most helpful to auditors and they include telephone data, personal computers, servers, pagers, fax machines, digital cameras, scanners, printers, GPS systems and so on (Sharma Panigrahi, 2013). Document Review Strategies One of the key point of evidence in audit is, document review. In forensic accounting special care is needed to deal with documents (Zysman, 2004). Mainly three questions are reviewed in investigation of forensic accounting, they are: How confidential information is handled? How the information is preserved in documents to present in situation in court? Who maintains the audit records? (Sharma Panigrahi, 2013) Some agreements are needed in between parties to the forensic audit in handling the documents, to present in the court proceedings. If they do not handle the documents properly, they can be excluded from the court proceedings. If the documents changed or altered there is a chance of diminishing the quality of the evidence. There might be a chance of compromising, if the documents are not maintained properly. The forensic audit subject is a serious matter, as they may go to adjudication there may have chance to exclude the documents. Imperatively, the forensic audit will move closely with legal counsel in obtaining the documents for audit (Albrecht, 2008). As if the legal process is completed in auditing which is appropriate, the investigation should develop a plan in developing correct documents. In large organisations there might be thousands and millions of documents there for processing which are relevant. There are some issues regarding preparing the plan in submitting the documents. A retention policy for formal records need to be developed. There should be storage to store the documents. The technology of imaging needs to be a part of investigation. There should be a review for employee files, at work There might be a chance of keeping files at the home of employees and it needs to be considered. The chart of an organisation should be examined entirely for auditing. The carbon copy should be maintained. The mediums of storage should be reviewed. The documents of former employees should be retained for the audit. The computer systems with history to the e-mailing should be handled for documents. Outsourcing documents that are important should be given to the vendors. The physical location is also important for the documents. (Zysman, 2013) As there are thousands and millions of documents, there is a chance of disruption in handling the documents and chance to fail in developing correct document review. If the documents exist and if the forensic accountants do not get them, there is chance of failing in the process. For example if the documents are in offsite there might be a chance of failing in the review process (Albrecht et al, 2008). And if the documents are at former employees and are important, should be recovered if not there might be the failure in submitting the documents to the court that can be the failure of audit. So a well plan must be made to develop a correct audit and there also have coordination with counsel. Further Steps After Fraud Detection The Financial Accountant must gather and preserve all the information and evidences to present in the court of law. it should include the investigation of the allegations, complaints and suspected fraud tips. All this information and evidences must sort, compare and analye the data, with respect to the final conclusions (Cho Gaines, 2007). The FA must have decent and healthy working relationship with the prosecuting and investigation agencies. Methodologies The entire report has been developed with an extensive stud of the journals, books, press releases of companies and man online articles, taken from varied sources. Data taken from the above sources has been thoroughly examined and analyzed to build a structured understanding, about, what exactly is forensic accounting, what are its formal methods and legal aspects. The report has been used qualitative data analysis of the journals, real-time case studies analysis and the data collected from various sources. Finally, the entire data is structured and logically sequenced, based on the structure. From the overall understanding of the concept, the final conclusion is made, b data reduction to draw out the skeleton of the report, while meeting the objective and aim of the report. The findings of the research are presented in an analytic induction model. Findings Forensic Accounting is no doubt a significant and vital area and profession that can investigate and find the unlawful financial practices, right from an individual to an organization. The key point found and explored about the roles of the Financial Accountant is to extract the data that is not lawful and with bad intent. Eventually, the role is vital and demands profound expertise in the field of financial accounting, since it demands profound digital and computer knowledge as well as the federal laws, like lawyers. They need the local as well as the international laws and monetary units of business, since todays corporate businesses cross the boundaries easily. They also should possess the skills of people management, since they have to deal with the people of different industries and professions as they have to interview, discuss with them to extract the data, relevant to their objectives. They should make use of various accounting techniques, as they have to explore and apply di fferent techniques and methods at various stages and circumstances, in order to grab the result that they look for. Though they should have strong and profound expertise in digital and computer financial accounting and federal laws, they also should have the basic and fair knowledge and skills in the other fields, such as forensic investigation, expert witnessing, criminal investigation, corporate business operations, computer and digital forensics and many relevant fields. After the preparation of the data and reports, the Financial Accountant must submit the evidences, as per the formats defined and needed for the court of law, since these formats demand and usually, unique for different jurisdictions, states, countries and internationally. Discussion from Findindgs The roles of the Financial Accounting and so the Financial Accountants are more relevant to the investigation of the corruptions and crimes involved in the financial operations, right from the individuals to the huge corporate organizations. Financial Accounting extracts the criminal conduct evidences and assists in the rebuttal or determination of the claimed damages and assists to protect as well as the assets recovery. It enables the co-ordination of the other professionals and experts, such as forensic document examiners, private investigators and consulting engineers. Expert witness can be provided by the Forensic Accounting and Accountant with formulation of the acts with regards to the financials. Finally the documents presented after investigation become to the key to refute or support the claim. The process starts with leaving the audit trail by the forensic auditors, to carry out the digital forensic investigation and the process and final report is completed by the Financial Accountant and finally, the conclusion is made, whether the final report is in support to the client or in rebut to the opponent of the client and the conclusions are final verdicts are declared by the authorities of the federal laws. Conclusion Financial accounting is a fraud detection method and it is quite useful for the businesses and investigate an possible flaws and frauds in the financial statement processes and reports. Forensic accountancy and so the forensic accountant provides various services, right from creating a macro picture to extract every possible investigation method. Financial accountant has to be multi-skilled, as, he or she needs to be proficient with the technological methods for investigation as well as all legal and federal policies of the legal and illegal aspects of managing and presenting the data. Financial accountant needs to adapt various techniques to detect every possible fraud in data handling and presenting, and the quality and accuracy of the investigation are based on how effectively they are used. 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