Financial Investigation And Forensic Accounting Pdf
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- Forensic Accounting and Fraud Deterrence
- Financial investigation and forensic accounting [2nd ed]9780849322235, 0849322235
- Forensic auditing
- FRD506 – Financial Investigation & Forensic Accounting
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Forensic Accounting and Fraud Deterrence
The work would normally involve an investigation into the financial affairs of an entity and is often associated with investigations into alleged fraudulent activity. Forensic accounting refers to the whole process of investigating a financial matter, including potentially acting as an expert witness if the fraud comes to trial.
Although this article focuses on investigations into alleged frauds, it is important to be aware that forensic accountants could be asked to look into non-fraud situations, such as the settling of monetary disputes in relation to a business closure or matrimonial disputes under insurance claims. The investigation is likely to be similar in many ways to an audit of financial information, in that it will include a planning stage, a period when evidence is gathered, a review process, and a report to the client.
The purpose of the investigation, in the case of an alleged fraud, would be to discover if a fraud had actually taken place, to identify those involved, to quantify the monetary amount of the fraud ie the financial loss suffered by the client , and to ultimately present findings to the client and potentially to court.
Audit techniques are used to identify and to gather evidence to prove, for example, how long the fraud has been carried out, and how it was conducted and concealed by the perpetrators. Evidence may also be gathered to support other issues which would be relevant in the event of a court case.
Such issues could include:. It is useful to categorise these types into three groups to provide an overview of the wide range of investigations that could be carried out. The three categories of frauds are corruption, asset misappropriation and financial statement fraud. Corruption There are three types of corruption fraud: conflicts of interest, bribery, and extortion.
Research shows that corruption is involved in around one third of all frauds. Asset misappropriation By far the most common frauds are those involving asset misappropriation, and there are many different types of fraud which fall into this category. The common feature is the theft of cash or other assets from the company, for example:. Financial statement fraud This is also known as fraudulent financial reporting, and is a type of fraud that causes a material misstatement in the financial statements.
It can include deliberate falsification of accounting records; omission of transactions, balances or disclosures from the financial statements; or the misapplication of financial reporting standards. This is often carried out with the intention of presenting the financial statements with a particular bias, for example concealing liabilities in order to improve any analysis of liquidity and gearing.
The various stages are briefly described below. Accepting the investigation The forensic accountant must initially consider whether their firm has the necessary skills and experience to accept the work.
Forensic investigations are specialist in nature, and the work requires detailed knowledge of fraud investigation techniques and the legal framework. Investigators must also have received training in interview and interrogation techniques, and in how to maintain the safe custody of evidence gathered. Additional considerations include whether or not the investigation is being requested by an audit client.
If it is, this poses extra ethical questions, as the investigating firm would be potentially exposed to self-review, advocacy and management threats to objectivity. Unless robust safeguards are put in place, the firm should not provide audit and forensic investigation services to the same client. Commercial considerations are also important, and a high fee level should be negotiated to compensate for the specialist nature of the work, and the likely involvement of senior and experienced members of the firm in the investigation.
Planning the investigation The investigating team must carefully consider what they have been asked to achieve and plan their work accordingly. The objectives of the investigation will include:. The investigators should also consider the best way to gather evidence — the use of computer assisted audit techniques, for example, is very common in fraud investigations.
Gathering evidence In order to gather detailed evidence, the investigator must understand the specific type of fraud that has been carried out, and how the fraud has been committed.
The evidence should be sufficient to ultimately prove the identity of the fraudster s , the mechanics of the fraud scheme, and the amount of financial loss suffered. It is important that the investigating team is skilled in collecting evidence that can be used in a court case, and in keeping a clear chain of custody until the evidence is presented in court.
If any evidence is inconclusive or there are gaps in the chain of custody, then the evidence may be challenged in court, or even become inadmissible. Investigators must be alert to documents being falsified, damaged or destroyed by the suspect s. Evidence can be gathered using various techniques, such as:. The ultimate goal of the forensic investigation team is to obtain a confession by the fraudster, if a fraud did actually occur.
For this reason, the investigators are likely to avoid deliberately confronting the alleged fraudster s until they have gathered sufficient evidence to extract a confession. The interview with the suspect is a crucial part of evidence gathered during the investigation. Reporting The client will expect a report containing the findings of the investigation, including a summary of evidence and a conclusion as to the amount of loss suffered as a result of the fraud. The report will also discuss how the fraudster set up the fraud scheme, and which controls, if any, were circumvented.
It is also likely that the investigative team will recommend improvements to controls within the organisation to prevent any similar frauds occurring in the future. Court proceedings The investigation is likely to lead to legal proceedings against the suspect, and members of the investigative team will probably be involved in any resultant court case.
The evidence gathered during the investigation will be presented at court, and team members may be called to court to describe the evidence they have gathered and to explain how the suspect was identified.
It is imperative that the members of the investigative team called to court can present their evidence clearly and professionally, as they may have to simplify complex accounting issues so that non-accountants involved in the court case can understand the evidence and its implications.
There are numerous different types of fraud that a forensic accountant could be asked to investigate. The investigation is likely to ultimately lead to legal proceedings against one or several suspects, and members of the investigative team must be comfortable with appearing in court to explain how the investigation was conducted, and how the evidence has been gathered.
Forensic accountants must therefore receive specialist training in such matters to ensure that their credibility and professionalism cannot be undermined during the legal process. Forensic auditing. In a conflict of interest fraud, the fraudster exerts their influence to achieve a personal gain which detrimentally affects the company. The fraudster may not benefit financially, but rather receives an undisclosed personal benefit as a result of the situation.
For example, a manager may approve the expenses of an employee who is also a personal friend in order to maintain that friendship, even if the expenses are inaccurate. Bribery is when money or something else of value is offered in order to influence a situation.
Extortion is the opposite of bribery, and happens when money is demanded rather than offered in order to secure a particular outcome.
The common feature is the theft of cash or other assets from the company, for example: Cash theft — the stealing of physical cash, for example petty cash, from the premises of a company. Fraudulent disbursements — company funds being used to make fraudulent payments. Inventory frauds — the theft of inventory from the company.
Misuse of assets — employees using company assets for their own personal interest. The objectives of the investigation will include: identifying the type of fraud that has been operating, how long it has been operating for, and how the fraud has been concealed identifying the fraudster s involved quantifying the financial loss suffered by the client gathering evidence to be used in court proceedings providing advice to prevent the reoccurrence of the fraud.
Evidence can be gathered using various techniques, such as: testing controls to gather evidence which identifies the weaknesses, which allowed the fraud to be perpetrated using analytical procedures to compare trends over time or to provide comparatives between different segments of the business applying computer assisted audit techniques, for example to identify the timing and location of relevant details being altered in the computer system discussions and interviews with employees substantive techniques such as reconciliations, cash counts and reviews of documentation.
Written by a member of the Paper P7 examining team. Related Links. Student Accountant hub page.
Financial investigation and forensic accounting [2nd ed]9780849322235, 0849322235
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Show all documents The value of frauds executed in these sectors has been very large and caused severe financial strain on individuals, corporations and the government. Many of these financial frauds could have been detected earlier and possibly avoided by the use of forensic accounting techniques. The aim of this study is to determine the financial investigation and Forensic Accounting to averting the frauds and misrepresentations in the corporate houses. Although, there is a need to have forensic accounting in Libya, its adoption and application does not appear to have been considered yet. Having a high level of awareness and acceptance among academics is important because it would reflect their intention and willingness to introduce and popularize forensic accounting where actualizing the procedure must happen through the universities.
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CPE Credit Hours: Embezzlement, graft, fraud and money laundering are among the hardest crimes to prosecute. Investigation is impossible without an understanding of the law, accounting, finance, and banking procedures. Law enforcement must have the proper weapons to combat the evolving sophistication of financial crimes. Financial Investigation and Forensic Accounting offers a thorough examination of current methods and legal concerns for the detection and prosecution of economic crime.
Haynes ManualsThe Haynes Author : George A. Manning Ph. D CFE EA Description:In recent years, the law enforcement community has become more aware of white collar crime, yet has lacked the training for combating these criminals.
FRD506 – Financial Investigation & Forensic Accounting
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As economic crimes continue to increase, accountants and law enforcement personnel must be vigilant in expanding their knowledge of ways to detect these clandestine operations. Written by a retired IRS agent with more than twenty years of experience, Financial Investigation and Forensic Accounting, Third Edition offers a complete examination of the current methods and legal considerations involved in the detection and prosecution of economic crimes. Following an overview of the economic cost of crime, the book examines different types of offenses with a financial element, ranging from arson to tax evasion. It explores offshore activities and the means criminals use to hide their ill-gotten gains. The author provides a thorough review of evidentiary rules as well as the protocol involved in search warrants.
The work would normally involve an investigation into the financial affairs of an entity and is often associated with investigations into alleged fraudulent activity. Forensic accounting refers to the whole process of investigating a financial matter, including potentially acting as an expert witness if the fraud comes to trial. Although this article focuses on investigations into alleged frauds, it is important to be aware that forensic accountants could be asked to look into non-fraud situations, such as the settling of monetary disputes in relation to a business closure or matrimonial disputes under insurance claims. The investigation is likely to be similar in many ways to an audit of financial information, in that it will include a planning stage, a period when evidence is gathered, a review process, and a report to the client. The purpose of the investigation, in the case of an alleged fraud, would be to discover if a fraud had actually taken place, to identify those involved, to quantify the monetary amount of the fraud ie the financial loss suffered by the client , and to ultimately present findings to the client and potentially to court. Audit techniques are used to identify and to gather evidence to prove, for example, how long the fraud has been carried out, and how it was conducted and concealed by the perpetrators.
Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. The broad objective of the study is to examine the role of forensic accounting in curbing financial crimes. The study adopts a survey research design. The method was adopted because it is likely to generate the kind of information required as well as providing good basis for the generalization of findings.
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