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01 Forensic Accounting, Fraud, Fraudster Profile

This document provides an overview of forensic accounting. [1] It defines forensic accounting as utilizing regular accounting principles and practices in legal situations, essentially serving as a bridge between accounting and legal systems. [2] It notes that a forensic auditor's role is to check the reliability of evidence, unlike a typical auditor who relies on documents. [3] It discusses some traits of a good forensic auditor like professional skepticism and being a good observer who uses multiple clues.

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Arif Ahmed
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332 views27 pages

01 Forensic Accounting, Fraud, Fraudster Profile

This document provides an overview of forensic accounting. [1] It defines forensic accounting as utilizing regular accounting principles and practices in legal situations, essentially serving as a bridge between accounting and legal systems. [2] It notes that a forensic auditor's role is to check the reliability of evidence, unlike a typical auditor who relies on documents. [3] It discusses some traits of a good forensic auditor like professional skepticism and being a good observer who uses multiple clues.

Uploaded by

Arif Ahmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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SESSION I

FORENSIC
ACCOUNTING
WHAT IS FORENSIC ACCOUNTING ?
 The word accounting is defined as “a system of recording and summarizing
business and financial transactions and analysing , verifying , and recording
the results.”

 The word forensic is defined as the application of scientific knowledge


to legal problems and legal proceedings.

 By combining these two definitions it can be concluded that


forensic accounting utilizes his regular accounting principles &
practices in legal situations.

 Forensic Accounting is like the bridge which connects


accounting system to legal system. Thus, we can say that the
forensic accounting is an accounting that is used in a court of
law.
DIFFERENCE BETWEEN AUDITOR & FORENSIC
AUDITOR

 Auditor relies on documents  Forensic auditor checks the reliability of the


evidence.
CREATING AN OPPORTUNITY

Don’t stop after reporting….


An auditor, while conducting an
Make the management aware
internal audit came across various
about the possibilities of mis
loopholes in the audit in a
statements and advice them to
particular area.
conduct a forensic audit!
GOOD TRAITS OF A FORENSIC AUDITOR

Professional Skepticism
Be a good observer
Use multiple clues
SIMPLE FORENSIC TESTS: NURTURING AN EYE FOR
DISTRUSTING THE OBVIOUS IN SPOTTING
DOCUMENTATION ANOMALIES

• Juxtaposition: Placing objects side by side. (Used to verify the authenticity of documents).
Juxtaposing audio recordings in case of NSEL Scam. All recordings starting with “Hello”.
However only 1 recording directly starting in between.
 Eg. Can be used to verify signature, old dated documents but paper is very fresh i.e. physical
appearance of the bill.)
 Eg. CCTV footage being shaky. May be hand cam recording

• Tests of Impossibility: (Employee’s entry card swiped when he was on holiday, company has
only diesel cars but has petrol bills)
SIMPLE FORENSIC TESTS:

Tests of absurdity. Recommendation for


same employees: Same
spelling mistakes & same
sentences in 2 documents.
DEFINING FRAUD

As per Black’s Law dictionary,


An act of intentional deception or dishonesty
perpetrated by one or more individuals, generally
for financial gain.
ELEMENTS OF FRAUD

The individual must The victim is


The victim relied on
know that the injured financially
the statement
statement is untrue. or otherwise

There is an intent to The statement must


deceive the victim. be false.
FRAUD TRIANGLE
Pressures
 High degree of competition or market saturation, accompanied by declining margins.
 Significant declines in customer demand and increasing business failures in either the industry or
overall economy.
 High vulnerability to rapid changes, such as changes in technology, product obsolescence, or interest
rates
 Operating losses making the threat of bankruptcy, foreclosure, or hostile takeover imminent.
 Recurring negative cash flows from operations or an inability to generate cash flows from operations
while reporting earnings and earnings growth.
Opportunities
 Significant related – party transactions not in the ordinary course of business or with related entities
not audited or audited by another firm.
 Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective
judgments or uncertainties that are difficult to corroborate.
 Significant, unusual, or highly complex transactions, especially those close to period end that pose
difficult “substance over form” questions.
 Significant operations located or conducted across international borders in jurisdictions where
differing business environments and cultures exist.
 Domination of management by a single person or small group (in a non owner-managed business)
without compensating controls.
 Oversight by those charged with governance over the financial reporting process and internal control
is not effective.
RATIONALISATION

Entity’s values or ethical standards not properly communicated by management.

Known history of violations of securities laws.

Excessive interest by management in maintaining or increasing the entity’s stock price or earnings
trend.

The practice by management of committing to analysts, creditors, and other third parties to achieve
aggressive or unrealistic forecasts.

The owner-manager makes no distinction between personal and business transactions.


FRAUD DIAMOND

The theory introduced by Wolf


& Hermanson adds the fourth
variable “Capability” to the
fraud triangle.
FRAUD PENTAGON

It is an attitude of
2 facets are added to superiority who
the concepts of a fraud believe that the
triangle namely company policies
“Competence” & and procedures do
“Arrogance” not apply to him.

Competence is an
extension of
Opportunity to include
an individual’s ability
to override the internal
controls.
Fraud Circle

This theory
recognizes the fact Wherever there will
that Frauds are omni be money, there will
present. be frauds.
Fraud Tree

Association of Certified
Fraud Examiners (ACFE) has
developed a model for
categorizing known frauds
that it calls the fraud tree,
which lists about 49 different
individual fraud schemes
grouped by categories and
sub categories
Types of Frauds

Types of Fraud

Corporate Fraud
(Also known as Consumer Frauds –
Bank Frauds Cyber Frauds Insurance Frauds Securities Frauds
occupational or Ponzi Schemes
employee frauds)

Fraudulent
Asset
Financial Corruption
Misappropriation
Statements
Bank Frauds
Electronic Frauds

4 biggest threats in
Cheque frauds banking industry: Credit/ Debit frauds

Identity thefts
Theft of Cash Receipts

Cash Larceny Skimming

Understated Sales Lapping Schemes

Write off good debts as bad


FRAUDULENT DISBURSEMENTS

False disbursements/ Refunds

Check Tampering

Expense Reimbursements Schemes

Payroll Schemes

Billing Schemes
CORRUPTION

Stealing Bribery Colluding with


intellectual third parties
property & (kickbacks)
supplying it to
competitors
Engagement Area Examples

Money laundering

Insurance claims

Credit card

Employee fraud investigations

GAAP Violations

Telemarketing fraud

Cheque Tampering

Contract and procurement fraud

Asset misappropriation

Securities fraud

Financial statement fraud

Bankruptcy fraud

Embezzlement
Fraudster Profiling
OPINIONS PLEASE

Department

Gender Age

Position: According to Tenure with


Employee/ you who
the
Manager/ commits
more frauds? organisation
Executive?
THANK YOU

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