Forensic accounting is an emerging discipline which helps in fraud detection and prevention and used as proactive and reactive tool for frauds management

1. Forensic Accounting
Presentation By
Dr. Ragahvendra K S
MCC

3. Forensic means
suitable for use in
court of law

4. • Relating to or denoting the
application of scientific
methods and techniques to the
investigation of crime.
• Relating to court of law.
• Scientific tests or techniques
used in connection with the
detection of crime.
• Relating to the use of scientific
knowledge or methods in
solving crimes.
Forensic
Relates to

5. • Forensic comes from the
Latin word forensis, meaning
“in open court” or “public”
• Describe something as
forensic- finding
evidence to solve a
crime. It could also
mean that it has to do
with the courts or legal
system.

6. Fault
“WRONG, MISTAKE, ERROR”
“WRONG, MISTAKE, ERROR
COMMITTED INVOLUNTARILY
AND UNCONSCIOUSLY.
FAULT STEMS FROM THE
DEFICIENCIES ORIGINATED
FROM THE PERSON OR
ENVIRONMENT.

7. Fraud
The Institute of Turkish History explains the word
fraud as “a deceptive trick, scam, game, artifice,
cabal which is committed to cheat, mislead
someone” and “contributing something useless to
something in order to gain advantage” (Institute of
Turkish History 1998, p 995).
According to another definition, fraud is “to create a
misjudgement or maintain an existing
misjudgement to induce somebody to make a
contract” (Arzova 2003, p 118).
Another definition says, “it is to enrich oneself by
intentionally reducing the value/worth of an asset
in secret.”

8. Intention is the most important
element which distinguishes fraud
from fault
The person committing fraud has an
objective of moral or material gain
Debugging frauds, which are heavily
committed on documents, from
faults and bringing them to light is a
difficult but not impossible task

9. Financial VS
Contractual
Fraud
Finance matter vs other
matters
More public interest vs more
party's interest
Investigation vs compromise
More Publicity vs less

10. History of FA
• Archaeological studies-3300-3500 BC- Egypt
• 18th Century- Close relationship-Accounting and
legal profession
• 1824- Glasgow Scotland
• 1946- use of FA was not coined
• 1946-Maurice E Peloubet- Essay- FA: its place in
Today’s Economy
• 1982- Francis C Dykman- Book- FA: the
accountant as an expert witness
• In India-

14. 1. Forensic accounting aims
to determine the
probability and/or extent
of the occurrence of
fraud.
2. Analyzing definite
financial and non-
financial information
3. Checking public records
4. Administering fact-
finding and admission-
seeking questioning and
evaluation
5. Suspicions or accusations
will be resolved and
refuted.
Objectives of
Forensic
Accounting

20. Govt. Agency Appoints FA
CBI: Central Beauro of investigation
CVC: Central Vigilance Commission
ED: Enforcement Directorate
NCB: Narcotics control Bureau
NIA- National investigation agency
RAW- Research and analysis wing
IB-Intelligence Bureau
DRI-Directorate of Revenue Intelligence
NCRB-National crime records Bureau
SFIO: Serious Fraud Investigation Office

22. What types of assignments does a Forensic
Accountant perform?
1. Criminal Investigations: Forensic investigations
often relate to criminal investigations on behalf of
police forces. For example, a Forensic Accountant may
be retained by the regional or local police forces and
organizations. A Forensic Accountant's report is
prepared with the objective of presenting evidence in
a professional and concise manner.
2. Shareholders' and Partnership Disputes:
These assignments often involve a detailed
analysis of numerous years accounting records
to quantify the issues in dispute. For example, a
common issue that often arises is the
compensation and benefits received by each of
the disputing shareholders or partners.

23. 3. Personal Injury Claims / Motor Vehicle Accidents: A Forensic Accountant
is often asked to quantify the economic losses resulting from a motor
vehicle accident. A Forensic Accountant needs to be familiar with the
legislation in place which pertains to motor vehicle accidents. Cases of
medical malpractice and wrongful dismissal often involve similar issues in
calculating the resulting economic damages.
4. Business Interruption / Other Types of Insurance Claims: Insurance
policies differ significantly as to their terms and conditions. Accordingly,
these assignments involve a detailed review of the policy to investigate
coverage issues and the appropriate method of calculating the loss. A
Forensic Accountant is often asked to assist from either an insured or
insurer's perspective in the settlement of a claim case. Examples of these
types of assignments include; business interruptions, property losses and
employee dishonesty (fidelity) claims.

24. 5.Business/Employee Fraud Investigations: Business investigations can
involve funds tracing, asset identification and recovery, forensic intelligence
gathering and due diligence reviews. Employee fraud investigations often
involve procedures to determine the existence, nature and extent of fraud
and may concern the identification of a perpetrator. These investigations
often entail interviews of personnel who had access to the funds and a
detailed review of the documentary evidence.
6. Matrimonial Disputes: Matrimonial disputes from a Forensic Accounting
point-of-view often involve the tracing, locating and evaluation of assets.
The assets to be evaluated and valued may be businesses, property or other
assets.

25. 7.Business Economic Losses: Examples of assignments involving business economic
losses include; contract disputes, construction claims, expropriations, product liability
claims, trademark and patent infringements and losses stemming from a breach of a
non-competition agreement.
8.Professional Negligence: These investigations are often approached from two
different but complimentary perspectives, these being Technical (has a breach of
Generally Accepted Accounting Principles or Generally Accepted Auditing Standards
or other standards of practice occurred) and (Loss Quantification). If the professional
in question is an accountant, then a Forensic Accountant could be involved with both
perspectives. If the matter involves some other profession a Forensic Accountant will
normally be retained to perform only loss quantification.
9. Mediation and Arbitration: Because of their familiarity and comfort with legal
issues and procedures some Forensic Accountants have sought out special training
and become involved in alternative dispute resolution (ADR).

27. Courses on Frauds
in India
Certified Forensic Accounting Program - (CFAP) is
the course dedicated to Corporate Frauds in India.
It speaks about the classification of the Corporate
Frauds and the ways to investigate the frauds in
various sectors.
Certified Bank Forensic Accounting – (CBFA) is
the course dedicated to Bank Frauds in India.
Certified Anti-Money Laundering Expert –
(CAME) is dedicated course on Anti-Money
Laundering. It also focuses on the various aspects
that good software should detect in its AML
solution.

30. ROOTCAUSE FOR DOING FRAUDS
Hide failure; not admit them
Hide
Conceal problems; not discuss them
Conceal
Defend wrong decisions; not admit them
Defend
Coverup mistakes; not own up
Cover up

31. Causational Factors of Fraud
Presented by
Dr. Raghavendra K S
MCC Bengaluru

32. What is Meant by “Predication of
Fraud?”
Circumstances, Taken as a
Whole, that Leads a
Reasonable Prudent
Professional to Believe a
Fraud is Occurring, or Has
Occurred, or Will Occur

33. The Negative Affects of Fraud

34. How Does an Organization
Encourage Dishonesty?
• Poor examples by
management
• Quotas or meeting
targets
• Rewarding individuals
not groups
• Competition among
employees

35. What Expectations Should
Management Communicate?
1. Appropriate
Values & Ethics
2. Fraud Awareness
& Training
3. Consistent
Punishment of
Violators

36. Factors Associated with High
Levels of Fraud
1. Top management doesn’t care about or pay attention to
appropriate behavior
2. Lack of recognition of job performance
3. Perceived inequities in the organization
4. Autocratic rather than participative management
5. Low organizational loyalty
6. Unreasonable budget expectations
7. Unrealistically low pay
8. Poor training and promotion opportunities
9. High turnover and absenteeism
10. Lack of clear organizational responsibilities
11. Poor communication practices within the organizations

37. Activities Fundamental to Fraud
Prevention?
Create and Maintain a
Culture of Honesty &
Integrity
Assess the Risk of Fraud &
Develop Concrete Responses
to Minimize Risk & Eliminate
Opportunity

38. Two main ways to detect frauds
Detection by
chance
Conducting a
proactive research
and encouraging
initial identification
of symptoms

39. Who Detects Most Frauds?
Employees
& Managers
NOT
Auditors
Detect Most
Frauds
Research Shows…

40. Types of Fraud
There are two types of fraud committed in business (Bozkurt 2003, p
2):
• Personal use of business resources
• Drawing up financial statements of the business falsely
• Embezzlement of the money during its collection but before it is
recorded in accounts
• Stealing the cheques of business
• Tampering the bank records and taking monetary advantage
• Gaining advantage through forgery of documents
• Making payments which should not be made or previously made
• Creating fictitious debts and having payments done in favor of oneself
• Giving discount improperly or without authority
• Creating ghost suppliers and having payments made in their favor

41. • Inventory and scrap theft
• Office supplies and fixed asset theft
• Creating fictitious expenses and obtaining disbursements
• Padding expense items
• Benefiting from placing redundant order
• Creating ghost employees and embezzling their wages/salaries
• Accepting bribes from the customers and suppliers of the business
with various reasons
• Using credit cards of the business for personal objectives
• Benefiting from overstated personal expenditures
• Manipulating the overtime periods and obtaining extra payment
• Benefiting from padded travel expenses
• Selling business assets under the market value

42. Characteristic Features of the Fraudsters
(Association of Certified Fraud Examiners (ACFE)
with 2,000 fraudsters)
• Gender- Male/ Female/ Transgender
• Marital status - married/ unmarried
• Education status - Qualified/ unqualified
• IQ level - High/low
• Age level- Young/old
• Working conditions
• Position at the business- high/middle/low
• Relations outside of business

43. Pressure Factors
• Pressures with financial content
• Pressures stemming from bad habits
• Pressures related with job

44. Pressures with financial content
Pressures with financial contents generally show up when
people need cash. These pressures could be classified as
below:
• Itching palm and greediness
• Desire to live well
• High amounts of personal debts
• High amounts of health expenditures
• Unexpected financial needs
The very first reason of employee fraud is that they are
poor due to lower income they receive and want to live
under better conditions. Pressures with financial content
could come into view in the long term as well as in the short
term. An employee who has been working in business for
several years could commit fraud for some reason.

45. Pressures stemming from bad
habits
Pressures arising from bad habits have attributes related
with pressures with financial content.
Being a gambler, drug or alcohol addict, and keen on
nightlife are among the several reasons causing fraud. This
kind of habit is accepted as the worst kind of factors
motivating fraud.
There are many examples of women employees
committing fraud to buy drug or alcohol for their children or
husbands; or of managers who are very successful in their
professional lives but commit fraud because of their
gambling ambition.

46. Pressures related with job
• Pressures related with the job could be
explained as being dissatisfied with the
job, the idea of an unfair attitude, not
getting promoted when expected, having
worked with lower wage, or not being
admired by supervisors.

47. How is Forensic Audit
different from Statutory Audit
• Objectives
• Period
• Techniques
• Management representation
• Off balance sheet items
• Adverse findings