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CHAPTER 27OTHER DIMENSIONSOF FORENSIC ACCOUNTING

Michael S. Markman

James E. Bucrek

Aron Levko

Stephen P. Lechner

Mark W. Haller

Robert W. Dennis

Mona M. Clayton

J. Christopher Dineen

Gregory Schaffer

Some believe that all forensic accountants perform financial crime investiga-tions. This view is explained largely by the fact that in the post-Enron, post-WorldCom era, forensic accounting has for many become associated solely withfraud detection and investigation. In reality, forensic accountants offer a muchwider range of services. Although this book is focused predominantly on thedeterrence, detection, investigation, and resolution of corporate fraud, it makessense to offer here a chapter-length overview of the other dimensions of forensicaccounting.

In their day-to-day practice, some forensic accountants focus on commercialdisputes in specific industries or practice areas. In commercial disputes, forensicaccountants typically play three roles: expert witness, consultant on technicalaccounting or financial issues, and arbiter of facts. As an arbiter or trier of facts,sometimes referred to as special master, forensic accountants are appointed bythe court to act as judge and jury. In their consulting role, forensic accountantsmay provide discovery assistance, prove business facts, compute damages, andassist counsel in the development of strategy. One should not assume that a

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526 Ch. 27 Other Dimensions of Forensic Accounting

forensic accountant involved in commercial dispute projects is qualified to per-form financial crime investigations. For an inventory of the skills to look for inselecting a forensic accountant who focuses on financial crime investigation, seeChapter 13. Close attention should be given to the individuals qualificationsincluding certifications and especially experiencebefore deciding on the rightforensic accountant for the task at hand. Assuming that all forensic accountantsare interchangeably capable of executing all forensic accounting investigationengagements would be analogous to assuming that all certified public accoun-tants are qualified to prepare tax returns.

While fraud can be sensational and garner headlines, commercial disputes aswell as, say, marital disputes among high-net-worth individuals occur often, mayentail billions of dollars, and may involve complex issues requiring expert anal-ysis. The majority of forensic accounting work actually occurs outside of inves-tigations in a wide range of specific practice areas. A glimpse of these areas,suggesting why forensic accounting expertise may be helpful, follows.

l CONSTRUCTION

How does a capital project with a $100-million budget end up costing us $1 bil-lion? This question is heard all too often from municipal authorities as well aschief executives and board members of corporations, universities, and hospitals.Unfortunately, when the creation, development, and execution of a capitalproject are not the core activities of an organization, cost overruns, schedulingdelays, and quality issues sometimes occur.

Good counsel during the planning stages and an active approach taken towardrisk management of capital projects may head off many problems before theyeven start. Ultimately, however, disputes and litigation are reasonable probabili-ties because capital projects often are fraught with change, and many changesmay have various implications for the cost, scheduling, and quality of theproject. In many disputes, the contractor brings a construction claim against oth-ers involved in the project who are responsible for the added costs. The list ofthose against whom claims may be made often includes owners as well as othercontactors involved in the project. These added costs may take several forms:additional work, forced delays, acceleration of time frames, disruption of workflow, unabsorbed overhead, and marginal cost of capital are some of the possi-bilities. Proving the sequence of events, facts, and circumstances that lead tothese additional costs may require specialized forensic accounting that blendsconstruction with accounting expertise.

Suppose that in the scope of a project during construction, changes arisethat affect the contractor, the construction manager, and several subcontrac-tors. Further assume that each must now revise estimates regarding time, cost,and materials. Owing to the complexity of the work and the interdependencyof relationships, the costs associated with unplanned changes may have multi-faceted consequences or cumulative effects that may wipe out all of the con-tractors anticipated profits for the project. Unfortunately, a simple ticking and


Environmental Issues 527

tying of invoices may not help the contractor prove its case. Forensic analysisis often helpful in proving a logical connection between changes in the projectand the resulting damages. Moreover, those damages should be calculated tothe standard of reasonable certainty, which has been well established by legalprecedent.

Given the complexity of the accounts and sequence of events, forensicaccountants are often found on both sides of such cases. While one set of foren-sic accountants may calculate damages and provide expert testimony in court orat arbitration on behalf of the plaintiff, others may work for the defendants byanalyzing plaintiffs experts findings and possibly additional issues not consid-ered by plaintiffs expert, ultimately providing expert testimony intended torebut damage claims with due force and persuasiveness. Defendants expert mayalso be asked to support a counterclaim with financial analysis and experttestimony.

l ENVIRONMENTAL ISSUES

The shock felt across the United States when the Cuyahoga River caught fire in1969 or when the entire community alongside Love Canal was evacuated in1977 because of hazardous chemicals buried there has been converted into rea-sonably tough federal and state environmental legislation. The ComprehensiveEnvironmental Response, Compensation and Recovery Act (Superfund Act); theResource Conservation and Recovery Act (Hazardous Waste Act); and to alesser extent the Clean Air and Clean Water Acts sometimes generate complexdisputes in which forensic accounting expertise may be helpful.

Specifically, the cradle-to-grave provisions of the Hazardous Waste Act andthe shared responsibility of successive owners in the Superfund Act mean thatenvironmental costs and damages can occur quite suddenly and under the leader-ship of a management team that was not in place at the time of the event. As aresult, companies seeking to limit, reduce, or eliminate the costs of cleanup mayengage forensic accountants to help reconstruct and present the operations of thecompany during the period in question.

Suppose that the successive owner of a property that is now a Superfund siteis sued for the cleanup of a certain chemical remaining there. By conducting aforensic investigation that demonstrates that it never bought, sold, made, or tookpossession of the chemical in question, the defendant in the litigation may beable to eliminate or significantly reduce its liability.

In the environmental arena, forensic accountants may be useful in helping toreduce fines levied by the U.S. Environmental Protection Agency under the so-called economic benefit model. While the government looks at the economicbenefits that have accrued to a company for being out of compliance, forensicaccountants look at and present historical expenditures that were made toachieve compliance. Such expenditures may be used to offset portions of penal-ties ultimately payable.



l INTELLECTUAL PROPERTY

In 1982 the value of intellectual assets constituted approximately 38 percent ofthe aggregate market capitalization of the Standard & Poors 500 Index. By 1992the figure had grown to 62 percent, and in 2002 the figure climbed to over 80percent.1 Those figures demonstrate that intellectual propertyconsisting ofpatents, trademarks, copyrights, and trade secretsrepresents a significant por-tion of corporate value. As intellectual property grew in importance, so too didthe patent and copyright activity designed to protect such assets. For manyindustries, patents and copyrights represent an important barrier to entry. Yeteven as many companies move to protect their intellectual property, theyincreasingly engage in technology-sharing agreements as well.

While all of these trends contributed materially to the quality of life and pro-ductivity gains, they sometimes create fertile ground for disputes, including liti-gation. Because intellectual property has unique characteristics, determination ofdamages may require complex analysis. For instance, in an intellectual propertyinfringement case, there may be claims of lost sales and profits. But infringe-ment tends to have an impact on prices, competition, and quantities in the mar-ketplace. Therefore, forensic accountants may often go beyond lost sales andfind the additional losses associated with the effects of price erosion, reducedeconomies of scale, and the presence of competition, among other factors thatmight not have otherwise existed. In some disputes, forensic accountants maycalculate what a reasonable royalty would have amounted to had such a royaltyarrangement been in place. This calculation often considers the large number ofterms and conditions that typically appear in complex royalty agreementsforexample, exclusive versus nonexclusiveand their economic implications.

Many disputes arise out of licensing agreements. Licensors of intellectualproperty, disputing the ways in which licensees utilize their rights, may claimdamages as well as lost profits. Forensic accountants may be consulted to helpestablish the damages sustained by the licensor, as well as the lost profits result-ing from actions taken by the licensee.

In the area of patents, owners of intellectual property may seek protection notjust for specific technologies but also for fundamental processes and algorithms.For example, in 1991 Kodak paid $873 million to Polaroid in a patent rights dis-pute involving instant cameras and films.2 The figure that forensic accountantshad to establish in this case was the amount of profit that Polaroid had lost.

1. These percentages were derived by a PricewaterhouseCoopers team from S&P 500 market capi-talization amounts rather than actual valuations of assets represented on public company financialstatements, which do not recognize the market value of most types of intellectual property unlessand until there is a transaction such as a sale of the company. Needless to say, investors do factorin off-balance-sheet values, such as market capitalization, when making investment decisions.The percentages are calculated as follows: Market Value of Invested Capital < (Share Price Shares Outstanding) + Long-Term Debt > Less Book Value Market Value of Invested Capital.

2. Intellectual Property Library, Polaroid Corp. v. Eastman Kodak Co. (DC Mass) 17, USPQ2d1711 Polaroid Corp. v. Eastman Kodak Co., U.S. District Court District of Massachusetts, 17USPQ2d 1711 (Bureau of National Affairs, Inc., 2003), http://www.patents.com/apl/kodak3.pdf.


Government Contracting 529

Meanwhile, forensic accountants for the defendant were given the task of rebut-ting the argument of lost profits.

l GOVERNMENT CONTRACTING

The federal government is the largest customer in the world and has unparalleledcreditworthiness. Given the size of contract awardsfrequently in the hundredsof millions and billions of dollarsdisputes and litigation often arise in thecourse of government contracting that require complex financial analysis.

In some instances, the government litigates to recoup its costs. For instance,in one landmark case the termination of a contract for a U.S. Navy attack plane,the A-12, provoked a $2-billion demand from the government for the return ofprogress payments, which in turn resulted in several countersuits for wrongfultermination. In disputes brought by the federal government, forensic accountantstypically support counsel for the defense, since the government is supported byexpertise from other governmental agencies such as the Defense Contract AuditAgency or Office of the Inspector General. The government will also retainexternal forensic accountants or experts to assist with litigation.

The vast majority of suits, however, are actions brought against the governmentby contractors or disputes between parties that are government contractors. Claimsin these suits often revolve around two primary issues: costs and performance.

Cost disputes frequently center on allocation between direct and indirect costsand their allowability. When the government disallows costs, plaintiffs mayobtain a forensic analysis to help determine the compliance of a cost with a con-tract or the connection of a cost to work requested.3

Performance-based disputes take several forms. For instance, if a governmentcontractor is being terminated, questions may arise as to whether the terminationis based on performance or simply for the convenience of the government.Forensic accountants sometimes conduct a financial analysis of costs incurredagainst established, time-phased budgets to help demonstrate whether perfor-mance is adequate or not. When forensic accountants can help plaintiffs establishthat termination was for the convenience of the government, the plaintiff willreceive better compensation than if allegations of inadequate performance hadwithstood scrutiny and trial. Finally, disputes related to the costs of performanceoften occur when the government makes so-called constructive changes to a con-tract. Forensic accountants assist plaintiffs by analyzing and quantifying theamounts involved.

Corporate forensic investigations can intersect with government contractingwhen a corporation detects fraudulent activity in the work it is doing for the gov-ernment. Forensic accountants also provide investigation support for qui tam

3. The forensic accountants testimony is not intended to provide insight on how the contract shouldbe interpreted. Forensic accountants do not offer legal opinions. The financial accounting expertprovides a financial analysis based on a specific contract interpretation communicated by coun-sel, who has engaged the expert.



cases brought against a company by a relator and the government, when fraudu-lent activity is alleged. In such cases, in addition to conducting an investigationto detect the possible existence and extent of the fraud, forensic accountinginvestigators may assess the financial impact of the fraud so that adequate repa-rations can be made to the government in an effort to ward off litigation withattendant possible criminal sanctions.

l INSURANCE AND BUSINESS INTERRUPTION

Many insurance policies now include a professional fees endorsement. Manybelieve that the existence of these endorsements represents recognition on thepart of insurers that the preparation of a claim in the event of a catastrophe andthe resulting interruption of business involve a complex matter that generates arisk for the policyholder. Companies often retain forensic accountants to helpthem prepare claims, establish damages and losses, and, in some circumstances,rebut the arguments of the insurance companys forensic accountants.

One of the primary challenges often facing the insured is to put accountinginformation into a format that reflects how insurance policies are written. Spe-cifically, while corporate accounting calculates profit and loss within a produc-tion framework, losses from business interruption claims are structured quitedifferently. In the context of a business interruption claim, loss represents thedifference between what happened to a company following a loss versus whatwould have happened had the loss not occurred. In other words, but for the loss,how would the company have performed? Calculating loss in this fashion isoften a multifaceted challenge that, while utilizing accounting, also requires anunderstanding of factors such as the industry and company personnel. Forensicaccountants are often able to reconstruct and estimate how a business might haveperformed had the insured event not occurred. This is usually compared withpostevent performance, recognizing the changes in revenues and expenses thatoccur as a result of the disaster. Changes in the revenue and expense componentscan be complex because the operations of the businessfrom what it sells, towhere and how products and services are producedcan be fundamentallychanged by the disaster that befell the company.

Forensic accountants may establish and calculate the companys sustainedloss and also provide expert-witness services to defend their findings. The chal-lenge is compounded by the activities of similar expertise on the other side of thedispute. Given that reality, forensic accountants acting on behalf of the plaintiffmay adopt the pragmatic goal of fighting for the best possible result rather thanan overwhelming victory.

l MARITAL DISSOLUTION

The incidence of divorce between spouses with substantial wealth often createsseveral challenges in setting entitlement awards as well as the valuation anddivision of marital property. For example, when there is a prenuptial agreement,


Shareholder Litigation 531

such contracts often specify entitlements based on the living expenses of eachspouse. Thus, in a marital dispute, the calculation of the entitlement may rely onestimating these expenses. A complication: the spending patterns establishedduring the marriage often reflect joint expenditures. Forensic accountants mayhelp analyze and separate historical spending to provide a basis for and defenseof a proposed entitlement.

Apportionment of marital assets may present a number of challenges, com-pounded by whether or not the divorce is occurring in a community propertystate or an equitable distribution state. Questions may arise as to the value ofassets that were initially brought into the marriage (premarital assets), their cur-rent value, and the portion of the marital estate they now represent. The task ofapportionment of assets may lead to the work of tracing assets to determine whoacquired them initially and how and of ensuring that all assets are taken intoaccount during the apportionment process. The location of assets not disclosedby a spouse may materially weaken a proposed apportionment or give rise to dis-pute over a proposed settlement. Forensic accountants may be helpful in bring-ing important facts to light.

Forensic accountants may also address the value of professional goodwill incases of marital dissolution in community property states. There is a wide rangeof valuation techniques for professional goodwill. Establishing a value for thisassetor determining whether it even existsmay have a material impact onthe apportionment of marital assets.

l SHAREHOLDER LITIGATION

Three federal securities acts create the framework in which interstate securitiestransactions are regulated. These are the Securities Act of 1933, the SecuritiesExchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.Together these laws attempt to ensure that the investing public has sufficientinformation to enter knowledgeably into securities transactions. Although eachlaw defines a different standard of recovery for investors, the three share a com-mon goal: to make the plaintiff whole via reversal of inappropriate transactionsor through monetary compensation of losses stemming from the violation orinfraction of the law.

In general, the remedy of monetary compensation requires forensic analysis inorder to estimate damages. There are several widely accepted techniques forestimating damages. One of the most widely employed is the so-called out-of-pocket measure, which is the difference between the price paid for a security andthe actual value at the date of the sale. While this approach is easily understood,its application is often complex. Forensic accountants can estimate the value ofthe security in question, absent the alleged fraud or misrepresentation that pro-voked the action to begin with. The process often requires analyses that take intoaccount macroeconomic information as well as industry and company-specificinformation. A more numerical, statistical approach to valuing securities useslinear regression analysis.



Shareholders sometimes file lawsuits against corporate officers and directorsfor violation of securities laws in addition to a wide range of other allegedoffenses, including breach of fiduciary duty, personal appropriation of corporateopportunities, discrimination, self-dealing, oppression of minority shareholders,and violation of environmental laws. The majority of suits are brought againstdirectors for the first alleged infraction in the preceding list: breach of fiduciaryduty. In such suits, forensic accountants may be engaged to evaluate the causesof a business decline and assess the relationship of that decline to a boards deci-sions and performance.

l BUSINESS VALUATION

The concepts and principles of business valuation for litigation purposes are thesame as those for business valuations pursuing other purposes such as a buyout,creation of an employee stock option plan, or an equity investment. Business val-uation in litigation frequently may occur as a result of marital dissolutions, dissidentshareholder disputes, corporate dissolution, or a taxable transaction that is subse-quently challenged by the Internal Revenue Service or other taxing authorities.

Forensic accountants engaged to clarify such situations often perform intensivedata gathering in terms of the financial, contractual, legal, operational, and histor-ical dimensions of the business under review. That information may be used todevelop valuations under a number of generally accepted techniques, includingmarket comparisons, discounted cash flow, net assets, comparable transactions,and comparable sales. Because disputes can arise with shareholders of differentclasses, the analysis often goes beyond the aggregate determination of value. Inmany instances, forensic accountants take into account the rights, privileges, andrestrictions on various equity securities and assign values to each class.

Forensic accountants sometimes value preferred shares as well as pure equitysecurities. In such instances, the focus of analysis usually shifts toward a risk-based examination, in which forensic accountants evaluate a companys abilityto make preferred-share payouts based on the presence of other fixed-paymentobligations and other short- and long-term debt.

l BUSINESS COMBINATIONS

Some business combinations provoke disputes related to antitrust laws, whileothers may generate disputes because of clauses in merger and acquisition con-tracts and the effects they have on purchase prices. In the former arena, plaintiffsestablish harm from the anticompetitive effects of the defendants antitrust vio-lations. Forensic accountants may be engaged to help plaintiffs prove, anddefendants rebut, alleged damages stemming from restraint of trade. Restraint oftrade can take numerous forms, including monopolization, exclusive dealing,price discrimination, and mergers that substantially lessen competition, amongothers. In many cases, success may rest on testimony and analyses by forensic


Cybercrime 533

accountants, who may be able to demonstrate lost profits based on a competitiveimpact analysis, market definition analyses by product and geography, and priceelasticity in the marketplace.

Of course, not all business combinations provoke antitrust claims, but mergeror acquisition contracts may generate disputes between buyers and the sellersfor example, disputes that arise from irregularities discovered after closing, theapplication of offsets, notices of objection immediately following closing, inter-pretations of materiality, and earn outs. Those are just a few of the possiblegrounds for dispute. Forensic accountants may assist one or both parties in for-mulating the dispute, discovery, analysis, and calculation of damages. In litiga-tion connected to merger and acquisition activity, there can be a high degree ofsubjectivity because of the personal involvement by the principals in the transac-tion. Forensic accountants may be helpful in such situations: they have no emo-tional involvement in the transaction. By providing objective, unbiased analysis,they may help move disputes toward resolution.

l CYBERCRIME

In the current environment, a security breach may more likely refer to the attackand penetration of a computer network than to a masked intruder on the premisesafter hours. When an electronic breach occurs, security specialists may beretained to determine the point of weakness in a corporations information sys-tems and to implement remedies that will prevent a comparable breach fromoccurring in the future. Forensic technologists may be called on to help deter-mine what information or records were compromised and perhaps to look fortelltale signs that could aid in identifying the attackers.

Often, however, an attack has consequences that go beyond the immediateneed to repair a security breach. In such instances, forensic accountants may becalled on to help quantify losses that may include costs to remedy, lost produc-tivity, price erosion, reduction in barriers to entry, and still other factors. Quanti-fying these losses may also be required in support of criminal or civil litigation.During the course of litigation, forensic accountants may serve as expert wit-nesses to establish facts and fact patterns associated with a cybercrime. Forensicaccountants may also assist in the filing of an insurance claim associated withlosses from cybercrime.

When a cybercrime has occurred, forensic accountants may be asked to helpsupport the settlement of claims between a company and its vendors. The exist-ence of outsourced technology services often means that an attack and penetra-tion result in liability for one or more companies providing technology services.Forensic accountants may be able to assist counsel in formulating claims speci-fied by their technology outsourcing agreements. The formulation of such claimsis often complicated by the interdependent relationships among technology ven-dors. As a result, counsel may desire detailed analysis to support claims it ismaking on vendors.



A GUIDE TO FORENSIC ACCOUNTING INVESTIGATIONCONTENTSPREFACEACKNOWLEDGMENTSChapter 1: FRAUD: AN INTRODUCTIONFRAUD: WHAT IS IT?FRAUD: PREVALENCE, IMPACT, AND FORMFRAUD IN HISTORICAL PERSPECTIVETYPES OF FRAUDROOT CAUSES OF FRAUDA HISTORICAL ACCOUNT OF THE AUDITORS ROLEAUDITORS ARE NOT ALONEDETERRENCE, AUDITING, AND INVESTIGATIONCONCEPTUAL OVERVIEW OF THE FRAUD DETERRENCE CYCLEFIRST LOOK INSIDE THE FRAUD DETERRENCE CYCLEAUDITING AND INVESTIGATION

Chapter 2: THE ROLES OF THE AUDITOR AND THE FORENSIC ACCOUNTING INVESTIGATORTHE PATROLMAN AND THE DETECTIVECOMPLEXITY AND CHANGEAUDITOR ROLES IN PERSPECTIVENOT ALL GOOD PEOPLEEACH COMPANY IS UNIQUEROLE OF COMPANY CULTUREESTIMATESCHOICESWHAT AUDITORS DOBEDROCK OF AN EFFECTIVE AUDITSPADEAUDITING STANDARDS TAKE A RISK-BASED APPROACH TO FRAUDMANAGEMENT OVERRIDEREGULATORY REACTION TO FRAUDFINANCIAL BENEFITS OF EFFECTIVE FRAUD MANAGEMENTCONCLUSION

Chapter 3: PSYCHOLOGY OF THE FRAUDSTERCALCULATING CRIMINALSSITUATION-DEPENDENT CRIMINALSPOWER BROKERSFRAUDSTERS DO NOT INTEND TO HARMKINDS OF RATIONALIZATIONAUDITORS NEED TO UNDERSTAND THE MIND OF THE FRAUDSTERCONCLUSION

Chapter 4: FINANCIAL REPORTING FRAUD AND THE CAPITAL MARKETSTARGETS OF CAPITAL MARKET FRAUDSECURITIES INVESTMENT MODELSOME OBSERVATIONS ON FINANCIAL FRAUDSUMMARY

Chapter 5: AUDITOR RESPONSIBILITIES AND THE LAWChapter 6: INDEPENDENCE, OBJECTIVITY, SKEPTICISMSEC FINAL RULES FOR STRENGTHENING AUDITOR INDEPENDENCESEC REGULATION OF FORENSIC ACCOUNTING SERVICESCONSULTING VERSUS ATTEST SERVICESINTEGRITY AND OBJECTIVITY12PROFESSIONAL SKEPTICISMTRUST BUT VERIFY: A CASE STUDYLOOSE-THREAD THEORY OF AUDITINGFURTHER THOUGHTS ON THE LOOSE-THREAD THEORY

Chapter 7: FORENSIC INVESTIGATIONS AND FINANCIAL AUDITS: COMPARE AND CONTRASTChapter 8: POTENTIAL RED FLAGS AND FRAUD DETECTION TECHNIQUESTYPES OF FRAUD REVISITEDFRAUD DETECTION: OVERVIEWLAYING A FOUNDATION FOR DETECTIONINTERPRETING POTENTIAL RED FLAGSIMPORTANCE OF PROFESSIONAL SKEPTICISMREVISITING THE FRAUD TRIANGLEIDENTIFYING AND EVALUATING RISK FACTORSINFORMATION GATHERINGANALYTIC PROCEDURESANALYTIC TECHNIQUESASSESSING THE POTENTIAL IMPACT OF FRAUD RISK FACTORSEVALUATING CONTROLSUNPREDICTABLE AUDIT TESTSOBSERVATION AND INSPECTIONFINANCIAL STATEMENT FRAUD: DETECTION TECHNIQUESREVENUE RECOGNITIONCORRUPTIONSUMMARY

Chapter 9: INTERNAL AUDIT: THE SECOND LINE OF DEFENSEWHAT DO INTERNAL AUDITORS DO?INTERNAL AUDIT SCOPE OF SERVICESTHE HANDOFF TO FORENSIC ACCOUNTING INVESTIGATORS AND LEGAL COUNSELPERCEPTION PROBLEMCOMPLEX CORPORATE FRAUD AND THE INTERNAL AUDITWORLDCOM AND THE THORNBURGH REPORTCASE STUDIES: THE INTERNAL AUDITOR ADDRESSES FRAUDREPORTING RELATIONSHIPS: A KEY TO EMPOWERING FRAUD DETECTIONTOMORROWS INTERNAL AUDITOR, TOMORROWS MANAGEMENT AND BOARD

Chapter 10: FINANCIAL STATEMENT FRAUD: REVENUE AND RECEIVABLESIMPROPER REVENUE RECOGNITIONREVENUE RECOGNITION DETECTION TECHNIQUESIMPROPER ALLOCATION OF VALUE IN MULTIPLE-ELEMENT REVENUE ARRANGEMENTSIMPROPER ACCOUNTING FOR CONSTRUCTION CONTRACTSRELATED-PARTY TRANSACTIONSREVENUE AND RECEIVABLE MISAPPROPRIATIONINFLATING THE VALUE OF RECEIVABLESEXTENDED PROCEDURESROUND-TRIPPINGIMPROPERLY HOLDING OPEN THE BOOKSCONSIGNMENTS AND DEMONSTRATION GOODSSUMMARY

Chapter 11: FINANCIAL STATEMENT FRAUD: OTHER SCHEMES AND MISAPPROPRIATIONSASSET MISSTATEMENTSUNDERSTATEMENT OF LIABILITIES AND EXPENSESOFF-BALANCE-SHEET TRANSACTIONSTWO BASIC ACCOUNTING MODELSCOOKIE JAR RESERVESIMPROPER AND INADEQUATE DISCLOSURESMATERIALITYDISBURSEMENT SCHEMESINVOICE SCHEMESCHECK TAMPERINGEXPENSE REIMBURSEMENT SCHEMESPAYROLL SCHEMES

Chapter 12: WHEN AND WHY TO CALL IN FORENSIC ACCOUNTING INVESTIGATORSTODAYS AUDITORS ARE NOT FORENSIC ACCOUNTING INVESTIGATORSAUDITORS ARE NOT AUTHENTICATORSAUDITORS HAVE LIMITED EXPOSURE TO FRAUDAUDITORS ARE NOT GUARANTORSHISTORICALLY, AUDITS MAY HAVE BEEN PREDICTABLEPOTENTIAL TRIGGER POINTS OF FRAUDRELIANCE ON OTHERSCONCLUSION

Chapter 13: TEAMING WITH FORENSIC ACCOUNTING INVESTIGATORSFORENSIC ACCOUNTING INVESTIGATORS COOPERATION WITH INTERNAL AUDITORSFORENSIC ACCOUNTING INVESTIGATORS COOPERATION WITH EXTERNAL AUDITORSOBJECTIVES OF ALL INTERESTED PARTIESHOW SHOULD THE INVESTIGATION OBJECTIVES BE DEFINED?WHO SHOULD DIRECT THE INVESTIGATION AND WHY?READY WHEN NEEDEDWHERE TO FIND SKILLED FORENSIC ACCOUNTING INVESTIGATORS

Chapter 14: POTENTIAL MISSTEPS: CONSIDERATIONS WHEN FRAUD IS SUSPECTEDCONFRONTING SUSPECTSDISMISSING THE TARGETASSUMPTIONSTHE SMALL STUFF COULD BE IMPORTANTMATERIALITY: MORE ON A KEY TOPICADDRESSING ALLEGATIONSTHE CASE OF THE CENTRAL AMERICAN GENERAL MANAGEREXERCISING SKEPTICISMCASE OUTCOMES

Chapter 15: INVESTIGATIVE TECHNIQUESTIMINGCOMMUNICATIONEARLY ADMINISTRATIVE MATTERSPREDICATIONWHAT SHOULD YOU KNOW BEFORE YOU START?A WORD ABOUT INSURANCEEXCEPTIONS AND OTHER CONSIDERATIONSDOCUMENT REVIEWCONCLUSION

Chapter 16: ANONYMOUS COMMUNICATIONSTYPICAL CHARACTERISTICS OF ANONYMOUS TIPSFEDERAL STATUTES RELATED TO ANONYMOUS REPORTING AND WHISTLE-BLOWER PROTECTIONSRECEIPT OF AN ANONYMOUS COMMUNICATIONINITIAL UNDERSTANDING OF ALLEGATIONSDETERMINE WHETHER ANY ALLEGATION REQUIRES IMMEDIATE REMEDIAL ACTIONDEVELOPMENT AND IMPLEMENTATION OF THE INVESTIGATIVE STRATEGYDISCLOSURE DECISIONSPRIORITIZE THE ALLEGATIONSINTERVIEWING EMPLOYEESFOLLOW-UP TIPCONCLUSION

Chapter 17: BACKGROUND INVESTIGATIONSCOMMERCIAL MEDIA DATABASESCOMMERCIAL DATABASE PROVIDERSUNIQUE INTERNET SOURCESCONCLUSION

Chapter 18: THE ART OF THE INTERVIEWDIFFICULTY AND VALUE OF OBTAINING AN ADMISSIONPLANNING FOR THE INTERVIEWTYPES OF INTERVIEWSOTHERS MAY WISH TO ATTEND INTERVIEWSINTERVIEW PROCESSDOCUMENTING THE INTERVIEWSUMMARY

Chapter 19: ANALYZING FINANCIAL STATEMENTSDEVELOPING EFFECTIVE ANALYTIC PROCEDURESUSING FINANCIAL RATIOS AS MEASURES OF RISK OR INDICATIONS OF FRAUDIDENTIFYING OTHER RELATIONSHIPS THAT MIGHT INDICATE FRAUDIDENTIFYING SIGNS OF EARNINGS MANAGEMENT

Chapter 20: DATA MINING: COMPUTER-AIDED FORENSIC ACCOUNTING INVESTIGATION TECHNIQUESBENEFITS AND PITFALLSEFFECTIVE DATA MININGASSESSING DATA QUALITY AND FORMATDATA CLEANINGELIMINATING DUPLICATE INFORMATIONTESTING THE DATA FOR COMPLETENESS AND ACCURACYSKILLS OF THE FORENSIC TECHNOLOGISTEFFECTIVE USE OF DATA ANALYSIS RESULTSDATA MINING IN ACTIONDELETED/SLACK/UNALLOCATED SPACECHOICE OF TOOLSPRESENTING RESULTSREVIEWING THE ESSENTIALSCONCLUSION

Chapter 21: BUILDING A CASE: GATHERING AND DOCUMENTING EVIDENCECRITICAL STEPS IN GATHERING EVIDENCEWHOSE EVIDENCE IS IT?EVIDENCE CREATED BY THE FORENSIC ACCOUNTING INVESTIGATORWHAT EVIDENCE SHOULD BE GATHERED?IMPORTANT CONSIDERATIONS REGARDING DOCUMENTS AND WORKING PAPERSCONCLUSION

Chapter 22: SUPPORTING A CRIMINAL PROSECUTIONKEY CONSIDERATIONSREFERRAL CONSIDERATIONSPLEA AGREEMENTSFILING A CIVIL LAWSUIT

Chapter 23: REPORT OF INVESTIGATIONTYPES OF REPORTSIMPORTANCE OF ADEQUATE PREPARATIONSTANDARDS OF REPORTINGWRITTEN REPORT OF EXPERT WITNESS OPINING FOR THE PLAINTIFF ON A CIVIL FRAUD CLAIMAFFIDAVITSINFORMAL REPORTSGIVING A DEPOSITIONMISTAKES TO AVOID IN REPORTINGWORKING PAPERSRELATIONSHIP REVIEWSUBSTANTIVE WORKING PAPERSEACH WORKING PAPER SHOULD STAND ON ITS OWNTESTIMONY BINDERINTERVIEW MEMORANDUMS

Chapter 24: WORKING WITH ATTORNEYSIN THE COMPANY OF LAWYERSCONFIDENTIALITY REQUIREMENTSFORMING THE INVESTIGATIVE TEAMDOCUMENTATIONCIVIL LITIGATIONINTERVIEWINGEXTERNAL AUDIT FIRMWORKING FOR OR INTERACTING WITH LAW ENFORCEMENT OR GOVERNMENT AGENCIESDISAGREEMENTS WITH COUNSELCONCLUSION

Chapter 25: CONDUCTING GLOBAL INVESTIGATIONSON INTERNATIONAL ASSIGNMENTWORK PLANFOREIGN CORRUPT PRACTICES ACTADDITIONAL CONSIDERATIONSSCHEMES AND OTHER MATTERSPERSONAL CONSIDERATIONS

Chapter 26: MONEY LAUNDERINGRELATIONSHIP BETWEEN FRAUD AND MONEY LAUNDERINGVARYING IMPACT OF MONEY LAUNDERING ON COMPANIESTHE FIVE-POINT PROGRAM FOR AML-REGULATED BUSINESSESIMPACT OF MONEY LAUNDERING ON FINANCIAL STATEMENTSAML AND FORENSIC ACCOUNTING INVESTIGATIONLEGAL ARRANGEMENTS LENDING THEMSELVES TO ANONYMITYPOTENTIAL RED FLAGSAUDITING AND MONEY LAUNDERINGRELATIONSHIP BETWEEN FRAUD INVESTIGATION AND AML

Chapter 27: OTHER DIMENSIONS OF FORENSIC ACCOUNTINGCONSTRUCTIONENVIRONMENTAL ISSUESINTELLECTUAL PROPERTYGOVERNMENT CONTRACTINGINSURANCE AND BUSINESS INTERRUPTIONMARITAL DISSOLUTIONSHAREHOLDER LITIGATIONBUSINESS VALUATIONBUSINESS COMBINATIONSCYBERCRIME

Chapter 28: LOOKING FORWARD: THE FUTURE OF FORENSIC ACCOUNTING INVESTIGATIONEVOLVING DISCIPLINENEW TOOLSEDUCATION AND TRAINING: TO BETTER SUPPORT THE NEW DISCIPLINEREGULATION AND ENFORCEMENTCHANGING CORPORATE ENVIRONMENTFUTURE OF FORENSIC ACCOUNTING INVESTIGATION: INCREASINGLY GLOBAL

INDEX

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