2. ROLE & IMPORTANCE AND DIFFERENCES
FORENSIC ACCOUNTING Vs. FRAUD EXAMINATION
3. DEFINITION OF FRAUD
FIRST ONE SHOULD UNDERSTAND WHAT A FRAUD MEANS:
FRAUD IS NOT AN ACCOUNTING CONCEPT BUT USED IN A LEGAL SENSE.
IT IS AN IN TENTIONAL ACT WITH AN INTENT TO DECXEIVE OTHERS WHO SUFFER
LOSSES AND THE FRAUD PERPETRATOR ENDS UP WITH MONETARY GAINS.
FRAUD IS A DELIBERATE DECEPTION OR CHEATING FOR SECURING UNLAWFUL GAINS
THROUGH ILLEGAL MEANS.THUS THERE ARE TWO PARTIES INVOLVES-ONE IS THE
PERPETRATOR OR FRAUDSTER AND THE OTHER IS THE VICTIM OF FRAUD.
FRAUD IS AMTERIAL FALSE STAEMENT,KNOWING IT TO BE FALSE,WHERE THE VICTIM
INCURRS DAMAGES AND FINANCIAL LOSS.THE CRIME MAY BE CIVIL OR CRIMINAL IN
NATURE.
THUS FRAUD IS MADE BY DECEPTION FOR PERSONAL GAINS.
4. INTRODUCTION OF THE CONCEPTS
AT THE OUTSET IT MAY BE MENTIONED THAT THOUGH THEY ARE DIFFERENT YET RELATED.
A FORENSIC ACCOUNTANT NEED TO BE APROFESSIONAL- CPA,CA,CFFA ETC.
A FRAUD EXAMINER MAY NOT BE A PROFESSIONAL BUT AN EXPERIENCED ACCOUNTANT.
FORENSIC ACCOUNTING REFERS TO SEVERAL AREAS WHERE AS FRAUD EXAMINATION IS MAINLY
FOCUSSED IN RELATING TO ANTI FRAUD MATTERS.
THE INCIDENCE OF FRAUD IS SO COMMON THAT ITS OCCURANCE IS NO LONGER REMARKABLE,ONLY ITS
SCALE.
AS PER STATISTICAN INFORMATION:THE VARIOUS FRAUDS ARE COMMITTED :
1.MANAGEMENTS 55% 2.EMPLOYEES-30% 3.SUPPLIERS 4 % 4.CLIENTS 5% 5.Organised criminals 6%
5. DIFFERNCES BETWEEN FORENSIC ACCOUNTING VS.FRAUD EXAMINATION
FORENSIC ACCOUNTING
FORENSIC ACCOUNTING IS A LEGAL
TERM.
APPLICATION OF ACCOUNTING
TECHNIQUES.
NECESSITY DUE TO HIGH RISE IN
CRIMES –WHITE COLLAR
CRIMES,EMBEZZELMENT ETC
FRAUD EXAMINATION
FRAUD EXAMINERS ALSO KNOWN AS
INVESTIGATORS,ANALYSTS.
FRAUD EXAMINERS CO-ORDINATE
FRAUD DETECTION & PREVENTION
AND DETTERENCE.
FRAUD EXAMINERS IDENTIFY
WARNING SIGNS AND RED FLAGS
THAT INDICATE EVIDENCE OF
FRAUD & FRAUD RISK.
6. FORENSIC ACCOUNTING
FORENSIC ACCOUNTANTS HELP THE
GOVERNMENT IN THE
ENFORCEMENT OF REGULATORY
REQUIREMENTS.
MANY BANK FRAUDS ARE
INVESTIGATED BY FORENSIC
ACCOUNTANTS.
FRAUD EXAMINATION
INVOLVES OBTAINING
STATEMENTS,WRITING
REPORTS,TESTIFYING IN COURTS OF
LAW.
PRIMARY AIM TO INVESTIGATE
FRAUDS,DETECT AND SUGGEST
PREVNTIVE METHODS.
7. FORENSIC ACCOUNTING
FORENSIC ACCOUNTANTS ALSO
HELP IN PRICE FIXATION,STOCK
PRICE MANIPULATIONS.
FORENSIC ACCOUNTANTS GO IN
DEPTH TO INVESTIGATE WINDOW
DRESSING BY MANAGEMENTS.
FRAUD EXAMINATION
FRAUD EXAMINERS ALSO WORK IN
ANY TYPE OF INDUSTRY OR WITH
GOVERNMENT IN FRAUD
DETECTION.
THEY FIND ANY SUSPICIOUS
ACTIVITY AND WORK ON FRAUD
RISK.
8. FORENSIC ACCOUNTING
ALSO INVOLVED IN MERGERS &
ACQUISITIONS.
EONOMIC CRIME INVESTIGATIONS
SPECIAL AUDITS
ROLE IS TO GIVE PRELIMINRY
ADVISE,PREPARE DETAILED
REPORT,WITH DOCUMENTARY
EVIDENCEAND TESTIFY IN COURTS.
FRAUD EXAMINATION
FRAUD EXAMINERS WILL COORDINATE
WITH THE MANAGEMENT,LAW
ENFORCEMENT AGENCIES AND
LAWYERS.
THEY KEEP UPTO DATE KNOWLEDGE
OF THE CRIMINAL ACTIVITY TRENDS
AND FRAUD PREVENTION.
SHOULD BE IMPARTIAL WITH GOOD
ANALYTICAL ABILITY,
”PERCEPTIVENESS” IN DEALING WITH
SENSITIVE & DELICATE SITUATIONS.
9. FORENSIC ACCOUNTING
FORENSIC ACCOUNTING MAY BE
SUBDIVIDED BY FOUR CATEGORIES:
1.LITIGATION SUPPORT
2. INVESTIGATIVE & ASSITING IN
DISPUTES.
3.FRAUD DETECTION
4.COMPUTER FORENSICS.
FRAUD EXAMINATION
FRAUD EXAMINERS CAN BE
DIFFERENT SPECIALISTS OF A
SPECIFIC INDUSTERY WITH FULL
KNOWLEDGE OF THAT INDUSTRY
FRAUD EXAMINERS CONDUCT
INTERVIWES.
THEY TRY TO INDENTIFY POSSIBLE
SUSPECTS.
10. SKILLS REQUIRED FOR FIGHTING FRAUDS
UNDERTSANDING THE BUSINESS AND GOOD KNOWLEDGE OF INFORMATION &
TECHNOLOGY AS ALL BUSINESSES RUN ON DIFFERENT SOFTWARES AND ERP
PACKAGES.SO TO UNEARTH AND INVESTIGATE A FORENSIC ACCOUNTANT OR A
FRAUD EXAMINER NEEDS GOOD UNDERTSANDING OF THE SOFTWARE.
THEY SHOULD HAVE KNOWLEDGE OF DATA MINING TECHNUQUES,DIGITAL
EVIDENCE TOOLS AND ABILITY TO CONDUCT FORENSIC ANALYSIS.
MOST IMPORTANT BOTH SHOULD HAVE VERSATILE EXPERIENCE WITH RESPECT
TO THE INDUSTRY OF WHERE FORENSIC ACCOUNTING OR FRAUD EXAMINATION
IS CONDUCTED.
THEY SHOULD BE FULLY CONVERSANT WITH THE LOCAL LAWS GOVERNING THE
COMPANY AND LAGAL ANGLE ALSO LIKE PRIVACY LAWS,SECURITIES * STANDARDS
11. CASES:FORENSIC ACCOUNTING & FRAUD EXAMINATION
ENRON:BIGGEST ACCOUNTING FRAUD –UNWINDED BY FORENSIC ACCOUNTANTS.
THE BIG GANSTER OF 20S AND 30S AL CAPONE, WAS BROUGHT DOWN BY A
FORENSIC ACCOUNTANT FOR HIS TAX EVASION.
SUNBEAM-IS ANOTHER EXAMPLE OF A FORENSIC ACCOUNTING INVESTIGATION
THE MANIPULATION OF ACCOUNTS IN THE FORM OF RESTRUCTUREING OF THE
COMPANY.
PUNJAB NATIONAL BANK RECENET MULTI MILLION CRORES SCAM INVOLVING
LOUs –LETTER OF UNDERTAKING-FRAUD-WILL BE INVESTIGATED BY FRAUD
EXAMINERS WHO ARE SPECILISTS IN BANKING INDUSTRY.
OTHER FRAUDS WERE PERPETRATED:
ENRON,ADIDAS,REEBOK,PARMALAT,PONZI SCHEMES,EMBEZZELMENTS OF CASH
AND INVENTORIES,SATYAM COMPUTERS,TYCO.
(DETAILS OF FRAUD CASES- REF:WWW.FRAUDSDETECTION.COM)
12. FRAUD DTECTION METHODS
INTERNAL AUDITS
FRAUD RISK MANAGEMENT
SUSPICIOUS TRANSACTIONS
CORPORATE SECURITY
WHISTLE BLOWER POLICY
TIPS
BY ACCIDENT
LAW ENFORCEMET AUTHORITIES
ROTAION OF PERSONNEL & DIVISON OF ROLES & RESPONSIBILITIES