Forensic Accountants plays a major role in fraud, investigation. With the rising technology and developments come the rise of fraud. There are many reasons why a person may commit fraud- holes in the company’s management, pressure in their personal life, or irrationality. So, once an employee is actually caught for fraud, what are the next steps? Who actually determines whether the employee’s actions count as fraud or not?

This is the job of a Forensic Accountant. Once the suspicion of fraud arises, courts call upon Forensic Accountants to investigate how the fraud occurred, and whether all the evidence collected by the Fraud Examiners points toward reasonable grounds for fraud or not.

The job of a Forensic Accountant is to study the provided data related to the case. From this, they must determine how the money was ‘stolen’, and how to recover it. Forensic accountants provide their knowledge of investigating, accounting, and auditing to collect and present evidence related to fraud. They may also be asked to present their findings in court in the case of litigation.

Regular accounting requires recording and cross-checking the transactions made by a business. On the other hand, forensic accounting requires in-depth- analysis. This is helpful in recovering lost money and resolving conflict among the involved parties.

Forensic accountants must have superb numerical and analytical skills. They use these to pore over the given material in-depth and present facts that would otherwise be complex in a clear, simplified manner.

So, why is Forensic accounting necessary in today’s world?

The increasing need for Forensic Accountants is greatly tied to the rise in corporate and individual fraud. With the increasing economic pressure, more struggling individuals and companies may resort to fraud in order to make quick money, or keep up their targets.

People are facing the loss of their job and insolvency now more than ever, which may drive them to extremes. People can commit fraud in many ways, and it’s not always easy for the higher-ups to keep track of each and every employee in the company.

Sometimes the Internal Audit of the companies themselves may fail to notice the red flags. Management itself may not be able to pinpoint the reason for fraud or determine how the money was spent. In this case, they hire Forensic Accountants to follow the trail for them. Even if the audit committee is able to detect when and how fraud occurs, they usually do not have the resources or time to carry out in-depth investigations. These functions are then left to the team of Forensic Accountants.

Forensic Accountants usually use their own arsenal of skills to get the job done. However, in most cases, they work in tandem with insurance agents, law enforcement officers, and government institutions to figure out the best course of action.

A day in the life of a Forensic Accountant

Here’s what goes on behind the scenes in this exciting career-

Investigation

Like any other case, a Forensic Accountant begins his/her investigation once the suspicions of fraud are confirmed. This first step involves combing through data to look for any discrepancies, interviewing employers and management of the affected company, and following other trails. It is up to Forensic Accountants to use their analytical skills to speculate on what exactly might have happened. Once they reach a rough conclusion, they then figure out a plan for the next steps and relay it to the company. The accountants and employees will then cooperate for the remainder of the task.

Reporting the findings

Once the Forensic Accountants put a plan into place, they inform the required law enforcers. The law enforcement team then begins an investigation of the suspects based on the evidence compiled by the Forensic Accountants. Based on their findings, they also point out various shortcomings in the company’s security system. They may also work together to create strategies for better security in the future, to prevent fraud from taking place again. Using all the data gathered, the Forensic Accountant team prepares a comprehensive report which they then submit to the law enforcers and lawyers in charge of the case. Once they do this, they may have to prepare to present their findings in court.

Legal proceedings

The Forensic Accountant acts as one of the most important witnesses in court. They now possess in-depth knowledge of all the events of the case and use this to testify against the culprit. They present their report and explain the evidence in detail to the judge and jury, who will then deliberate and pass the final verdict. It is up to the Forensic Accountant to explain all the details of the case in such a way that everyone understands. This ensures that the court is able to reach a just decision. All in all, the Forensic Accountant plays an extremely important role in every step throughout this journey.

How can you become a Forensic Accountant?

Are you interested in joining the high-profile world of Forensic Accounting? Here’s how you can start your journey into this lucrative and fulfilling career-

1. Anyone looking to be a Forensic Accountant must naturally have a curious mind and a nose for sniffing out danger. Education will only take you so far- it’s the ability to read between the lines that makes a Forensic Accountant so great. Apart from this, they must also be great with numbers and have a fondness for compiling and analyzing data.
2. To begin your journey, you must build a good base. Aspirants must possess a Bachelor’s Degree in Finance, Accounting, or Forensic Accounting. In a few cases, even a Criminal Justice or Law Enforcement degree will do. Usually, one must spend a few years as a general accountant before entering the field of Forensic Accounting. To gain more experience and renown, one can obtain a Masters in the subject as well. This will open the doors to more demanding and higher-paying positions.
3. As with any other position, collecting certifications along the way is always a good idea! Many jobs require a Certified Public Accountant License. Many more helpful certifications exist that can help forge new paths, like the Certified Forensic Accounting Professional (CFAP) and Certified Bank Forensic Accountant (CBFA). Though certificates are not always required, they definitely help Forensic Accountant aspirants get a leg up over other candidates!

We can help!

So, now that we’ve explored the basics of Forensic Accounting, are you ready to build an exciting and rewarding career in this world? You can start your journey today with Riskpro Learning! We offer a number of courses and certifications that can help you expand your knowledge on the subject. Broaden your horizons with us today!

What is fraud?

Fraud occurs when a person intentionally causes financial loss to another person through deceit and deception. The fraudster usually does this by misleading the victim in order to gain control of their assets. It is a form of planned, calculated theft. Fraudsters may conduct their activities online, or by carrying out dishonest operations in real life.

The offenses can either be civil or criminal in nature. In the case of civil fraud, the victim files a case against the accused in order to seek the recovery of their lost assets. In the case of criminal fraud, a law enforcement body files a case against the fraudster in order to enforce justice. This is usually in the case of large-scale fraud against companies or many individuals.

The different instances of fraud

There are many ways in which fraud can occur. Here are a few instances of fraud:

Consumer Fraud

Bogus companies and fraudsters may defraud people in the name of reliable companies using Pyramid schemes, phishing, telemarketing, and other means. They may also target consumers online by emailing them links that can compromise their private information when opened. The consumers themselves are led to believe that they are taking part in business as usual. However, once they suffer the loss of their assets, they realize that they have been defrauded.

Financial Statement Fraud

Companies may manipulate their financial statements in order to polish their image in the public eye, or receive bonuses for meeting certain targets when in reality they haven’t done so. They do this by overvaluing their assets, neglecting to mention expenses and liabilities, adding non-existent revenue, and skewing the timing of entries.

Corruption

Company officials at high levels may engage in taking bribes to appease paying customers. They misuse their power and influence for their personal gain. The demands of the payee, in this case, are almost always unlawful, which is why these under-the-table transactions take place.

Asset Misappropriation

Employees of the company may be misusing the provided assets for their own personal gain. The most common malpractice regarding assets is swiping cash before it is recorded in the company’s systems. Detecting this type of fraud is often quite difficult, as no records exist to unmask the fraudster. Employees may also indulge in check tampering, payroll schemes, fake billing, and inventory manipulation. Asset misappropriation also includes the misuse of company machinery and software for one’s own gain. This means using it for reasons other than for its intended purpose.

Theft of trade secrets

This happens when employees use confidential information for their own gain. It is a form of stealing- robbing the company of its creativity and ideas and taking credit for it. If a person or company steals the intellectual property (such as a recipe, lyrics, or a marketing idea) of another company, then it is a type of fraud.

Understanding the motives behind fraud- the Fraud Triangle

The fraud triangle is a representation of why a person might be driven to commit fraud. Each component of the triangle represents a motive behind fraud. So, how does the mind of a fraudster work? Let’s find out-

Opportunity

The first point of the triangle is Opportunity. When calculating people see circumstances that would allow them to commit fraud, they take it. These opportunities are usually caused by unorganization or negligence on the company’s part.

These opportunities are born from the weakening of a company’s internal controls. The internal controls of a company refer to the rules and guidelines put in place to ensure that all accounting and financial processes are done diligently and without any room for fraud.

When there are any gaps left in these quality checks, then people may take the opportunity to commit fraud. When the organization is lacking in competent supervision and checks on these controls, then it leaves alto of holes for employees to take advantage of the situation. If the methods of recording accounts and other financial transactions are inadequate as well, then it may result in employees skewing the entries.

If the upper management of a company is lackluster and doesn’t abide by the proper moral and ethical codes of the company- then it may reflect in the behavior of its employees. Management that conducts themselves properly in public and work diligently decreases the chance of fraud occurring in a company. If the management and board directors themselves fail to do their job, then it reflects poorly on the company, leaving the employees to act however they please. In many cases, this leads to them taking advantage of the management’s aloof manner for personal gain.

Incentive/Pressure

The second point of the fraud triangle is Incentive or Pressure. Pressure usually stems from the employees themselves, who may feel trapped or caged because of certain conditions. They feel that committing fraud to boost their numbers is the only way to escape from their predicament.

The most common form of pressure employees face is their performance review. In many companies, the efficiency of an employee is measured by the revenue he or she brings in, or by the commission they earn. If the expectations from the employees are too high, they may resort to fraud to oversell themselves in the hopes that their managers see them as good performers.

Many companies also offer bonuses to employees who hit certain revenue targets. People may manipulate their numbers in order to qualify for these bonuses- which is also a form of fraud.

Sometimes, companies may also feel pressure from their investors to perform well snd provide good returns. They may commit fraud to maintain good stock prices and keep the investors happy.

Employees may also be facing pressure from unfortunate circumstances in their personal life. Crippling debt, gambling and alcohol addictions, and looming bills may cause them to steal money from the company. People dealing with such issues are the most likely suspects of committing fraud.

Rationalization

The final point is Rationalization. A fraudster may try to justify their actions to themselves or anyone who catches them, in order to convince themselves that what they are doing is right.

The most common causes of this reasoning are when an employee feels that they are being overlooked or mistreated by the company. It may either be a way of getting attention, or payback for their unhappiness.

Sometimes, in the process of rationalizing their actions to themselves, an employee may in fact become irrational. They may get thoughts that committing fraud is the only way they can earn money and live a good life, or that everyone else in the company is secretly doing it as well.

Conclusion

Committing fraud is a criminal offense, and will always remain so. However, the people who commit fraud may always not have malevolent intentions. The reasoning of people behind their actions may often be complex, and there is always more than what meets the eye. The ‘fraud triangle’ sums up these reasonings quite well, and gives us an insight into what might be going on inside the minds of these offenders.

What is Fraud?

The offenses can either be civil or criminal in nature. In the case of civil fraud, the victim files a case against the accused in order to seek the recovery of their lost assets. In the case of criminal fraud, a law enforcement body files a case against the fraudster in order to enforce justice. This is usually in the case of large-scale fraud against companies or many individuals.

The different instances of fraud

Fraud can happen in many different ways. Let me give you a few examples of how fraud can happen:

Consumer Fraud

Bogus companies and fraudsters may defraud people in the name of reliable companies using Pyramid schemes, phishing, telemarketing, and other means. They may also target consumers online by emailing them links that can compromise their private information when opened. The consumers themselves are led to believe that they are taking part in business as usual. However, once they suffer the loss of their assets, they realize that they have been defrauded.

Financial Statement Fraud

Companies may manipulate their financial statements in order to polish their image in the public eye or receive bonuses for meeting certain targets when in reality they haven’t done so. They do this by overvaluing their assets, neglecting to mention expenses and liabilities, adding non-existent revenue, and skewing the timing of entries.

Corruption

Company officials at high levels may engage in taking bribes to appease paying customers. They misuse their power and influence for their personal gain. The demands of the payee, in this case, are almost always unlawful, which is why these under-the-table transactions take place.

Asset Misappropriation

Employees of the company may be misusing the provided assets for their own personal gain. The most common malpractice regarding assets is swiping cash before it is recorded in the company’s systems. Detecting this type of fraud is often quite difficult, as no records exist to unmask the fraudster. Employees may also indulge in check tampering, payroll schemes, fake billing, and inventory manipulation. Asset misappropriation also includes the misuse of company machinery and software for one’s own gain. This means using it for reasons other than for its intended purpose.

Theft of trade secrets

This happens when employees use confidential information for their own gain. It is a form of stealing- robbing the company of its creativity and ideas and taking credit for it. If a person or company steals the intellectual property (such as a recipe, lyrics, or marketing idea) of another company, then it is a type of fraud.

So, now that know what fraud is, it’s time to move on to how to pinpoint it and prosecute the fraudsters. This is where Fraud Examination and Forensic Accounting come in.

Fraud Examination- how to pinpoint a fraudster

Fraud Examination refers to the investigation of potential fraud on the basis of complaints, tips, and other material gathered. A fraud examiner must thoroughly inspect all aspects of the case. He can do this by gathering clues, interviewing suspects, collecting data from witnesses, and going through related documents. He must also take efforts to prevent fraud from occurring in the case that it is yet to happen. Fraud Examiners are expected to both investigate as well as solve potential cases of fraud.

A Fraud Examiner is not the final verdict-taker- he must merely gather all the evidence and present it in a clear, unbiased manner for the judge to take the final decision. The court also expects the Fraud Examiner to present his findings in a comprehensive manner, and testify against the suspects.

Forensic Accounting- analyzing the fraud

On the other hand, Forensic Accounting refers to the investigation done by trained accountants after the fraud actually occurs.

Forensic Accountants play a similar role to Fraud Examiners, just on a more technical level.

How are Fraud Examination and Forensic Accounting different from one another?

Fraud Examination and Forensic Accounting are unique and similar in nature. However, there are a few key differences by which we can tell them apart.

The first and most important difference is the timing of the investigation. Fraud Examination is done to prove the occurrence of fraud, while on the other hand, Forensic Accounting takes place after the confirmation of fraud. Fraud Examiners work on the basis of speculation and prediction, while Forensic Accountants work with the guarantee that the fraud has already taken place.

The main goal of the Fraud Examination is to determine who is conducting the fraud and whether it is taking place or not. On the other hand, the job of Forensic Accountants is to determine to extent of the damage caused. They must also come to a conclusion about whether the fraud allegations are in good reason.

The methods used by both parties are also quite different. Fraud examiners use documents, interview eyewitnesses, and access public records to make their claims. Whereas, Forensic Accountants study all financial documents involved in-depth to come to a feasible conclusion.

Though both investigations usually end in litigation, the findings of the Fraud Examiner will determine whether there are to be any court hearings or not, while on the other hand, the evidence collected by Forensic Accountants acts as support in the case of litigation.

The “Certified Bank Forensic Accountant” course from Indiaforensic is a comprehensive training program. It teaches bankers about forensic accounting and fraud examination. This course is really important for those who want to help stop financial crimes happening in banks. It covers a range of topics from bank frauds to cryptocurrency investigations.

Conclusion

So, we can say that Fraud Examination and Forensic Accounting are two sides of the same coin. Both these professionals need to work in harmony with each other to successfully identify fraud and appropriately prosecute the fraudster. Fraud Examination may even be considered a branch of Forensic Accounting. The ultimate goal of the two is to deal swiftly with any instances of fraud and protect victims from it in the future, as well as stop any potential fraud from occurring.