Chapter 2

Careers in Fraud Examination

and Financial Forensics

Critical Thinking Exercise

Why are manhole covers round ?

DOES DOING THE RIGHT THING PAY-OFF?

• Baruch Lev, Christine Petrovits and Sresh Radhakrishnan

• Proxied this concept by examining corporate philanthropy growth

• The researchers found that charitable contributions are significantly associated with future revenue

• Particularly for firms that are highly sensitive to consumer perception

• Overall, corporate philanthropy, under certain circumstances, furthers firms' economic objectives.

Background

• Increased legal and regulatory requirements• Increased demand for entry-level and

seasoned practitioners • Growing demand for forensic and litigation

advisory services• Unprecedented opportunity in fraud

examination and financial forensics fields

Becoming a Professional

• Competency

• Proficiency

• Specialized Training– Organization Specific– Task Specific

Students

Traditional Undergraduates With related Work Experience

Prerequisites and / or Co -Requisites

Knowledge, Skills and AbilitiesThat Qualify One to Enter the Profession

Career Paths

RegulatoryAgencies &Government

CorporatePosition: IA, Compliance,

Investigations

ProfessionalServices

Firms

Law Enforcement

LegalServices

Specialized Training: Firm and / or Task Specific

Continuing Professional Education

Figure 1

** **

Places Where Fraud Examiners & Financial Forensic Specialists Work

Places Where Fraud Examiners & Financial Forensic Specialists Work

• Professional Services Firms• Public and Private Companies• Regulatory Agencies• Government and Non-profits• Law Enforcement Agencies• Law Firms

Related Professions

• Law

• Psychology

• Sociology

• Criminology

• Intelligence

• Information Systems and Computer Forensics

• Other Forensic Sciences

A Fraudster’s Perspective• Window Dressing Board of

Directors

• Lack of Independent and Qualified Audit Committee Members

• Lack of Properly Trained Auditors

• Lack of Resources Devoted to White Collar Crime

Guide to Managing the Business Risk of Fraud

1. A written policy that outlines the fraud risk management program

2. Risk assessment of the exposure of the organization to potential schemes

3. Prevention techniques4. Detection techniques:

– in place in case preventative measures fail– in place to address unmitigated risks– in place to address concerns over collusion and

management override5. A reporting process

Business Administration, Management and Corporate Governance

• Board of Directors

• Audit Committee

• Senior/Executive Management

• Internal Audit

• External (Independent) Audit

• Regulators and Governing Bodies

Board of Directors

• Primary responsibility is to protect shareholder interest

• Board of Directors must:– Safeguard assets and invested capital– Review and approve important management

decisions– Asses managerial performance– Allocate rewards that encourages shareholder

value creation

Audit Committee

• Primary responsibility is to monitor the financial reporting and auditing processes

• Addresses risk of collusion and management override of internal controls

• Audit committee must assure:– Efficiency and effectiveness of operations– Reliability of financial reporting– Compliance with applicable laws and

regulations

Senior/Executive Management• Responsible for the quality, integrity, and reliability

of the financial reporting process• To discharge financial reporting responsibility

management should:– Identify circumstances, conditions, and factors that can

lead to fraud– Assess and manage the risk of fraud associated with the

identified circumstances, conditions, and factors– Design and implement an adequate and effective internal

control process for prevention and detection of fraud

Internal Audit

• Can be tasked to help ensure reliable reporting process of company

• Assess high-risk aspects of the internal control environment and financial reporting process

External (Independent) Audit

• Evolved from detection of fraud to expressing opinion on the fair presentation of financial statements

• SAS No. 99 Consideration of Fraud in a Financial Statement Audit

Regulators and Governing Bodies

• Regulations:– Inspire investor confidence– Protect investors

• Governing Bodies– Must create environment where risk of fraud

is mitigated to below materiality threshold

Organizations and Their Related Certifications

• Association of Certified Fraud Examiners (ACFE)– Certified Fraud Examiner (CFE)

• American Institute of Certified Public Accountants (AICPA)– Accredited in Business Valuation (ABV)– Certified Information Technology Professional (CITP)– Certified in Financial Forensics (CFF)

• Forensic CPA Society (FCPAS)– Forensic Certified Public Accountant (FCPA)

• Information Systems Audit and Control Association (ISACA)– Certified Information Systems Analyst (CISA)– Certified Information System Manager (CISM)– Certified in the Governance of Enterprise IT (CGEIT)

Organizations and Their Related Certifications

• Institute of Internal Auditors– Certified Internal Auditor (CIA)

• National Association of Certified Valuation Analysts (NACVA)– Certified Forensic Financial Analyst (CFFA)– Accredited Valuation Analyst (AVA)– Certified in Fraud Deterrence (CFD) – Certified Valuation Analyst (CVA)

• Society of Financial Examiners (SOFE)– Accredited Financial Examiner– Certified Financial Examiner– Automated Examiner Specialist

International Forensic Accounting and Fraud Examination

• Chartered Accountant (CA)– Equivalent to CPA around the globe– World’s first professional body of accountants– Established in 1854

Prerequisite Knowledge and Skills

• Basic Accounting Concepts

• Basic Auditing Concepts

• Basic Finance and Economics

• Basic Law Concepts

• General Business Communications Skills and Business Ethics

• Basic Computer Skills

On-going Development:- Training by Employers- CPE by Individuals and

Employers

Higher Education:Course(s)MinorBS/BAGraduate ConcentrationMastersCertificate ProgramExecutive / Management EdPhD Programs

Fraud Examination and Forensic Accounting

Fraud and Forensic Accounting: A Continuum of Knowledge,

Skills and Abilities

Developing Knowledge Frontiers:

Fieldwork Techniques, Research,

Theory, Presentations, Conferences, Publications

The Role of Research in a Profession

ACFE’s Bi-annual “Report to the Nation”

• Covers such topics as:– Is the incidence of fraud increasing or decreasing?– What types of fraud are being committed?– What is the cost of fraud?– How is fraud committed?– How is fraud detected?– What are the victim profiles?– What are the perpetrator profiles?

The Institute for Fraud Prevention

• Founded by the ACFE and AICPA

• Voluntary association of organizations and researchers

• Focus on research and education

• www.theIFP.org