Legal Changes Affecting Forensic Accounting

Court cases within the past decade have changed the landscape of accounting, especially Sarbanes-Oxley, which has been humorously labeled “The Accountant Employment Act”, because it established the requirements of audited balance sheets from internal and external sources, among many other requirements for CPAs and corporations.

Within the past few years, there has been a few legal changes which have affected forensic accounting directly, this post will review the changes and discuss the laws. The information discussed is provided by the KPMG’s Forensic Accountant.

1) Experts’ loss of immunity

In the 2011 Jones v Kaney Supreme Court case, it was ruled that expert witnesses were no longer immune to suit due to the outcome of the case. The particulars of the case revolved around a psychologist who had negligently signed documents which significantly decrease the validity of the defendant’s claims, which required the defendant to settle for a lesser amount than had the expert witness performed the job adequately. This court case is particularly important for forensic accountants who participate in expert testimonies because it increases the amount of liability they face when participating in court proceedings. The future of accountants may need to involve liability insurance to cover possible law suits.

2) Admissibility of expert evidence in criminal proceedings

In March 2011, the Law Commission, developed and introduced a “reliability-based admissibility test” in order to assess the validity of information provided by expert witnesses. Previously, expert witness testimony was admitted, typically without scrutiny from other experts within the field, which lead to problematic consequences. First, the testimony is taken at face value by juries because often expert testimony is technical and complicated, which leaves them dependent on faith in the credibility of the witness. Second, without the investigation into the methods and data of the expert witness, there could be errors or gross miscalculations on the part of the expert. The new test and requirements regulate the expert evidenced and establish validity and credibility of findings prior to being submitted into court proceedings. The changes are established within The Draft Criminal Evidence Bill, which was passed with hopes in addressing the problems previously mentioned, but also to restore public faith in expert witnesses. This change affects public accountants in the same as it would any expert witness, but it will be especially important for forensic accountant expert witnesses to follow procedural steps for methodology and reporting.

The article covering the changes is written and compiled by KPMG, one of the largest CPA firms, in the U.S. and internationally. The information provided goes on to cover changes to legal aides and ‘no win, no pay’ fee agreements, but the data did not establish how the legal changes directly affect the forensic accountant. Unless the forensic accountant is hired independently on a basis providing legal aid (a position better suited for a lawyer), or is providing expert information on a ‘no win, no pay’ agreement (again, typically reserved for lawyers), it is not immediately obvious as to the breadth that these changes affect forensic accounting.

Emmanuel, Eileen, and Arnab Datta. “Recent Legal Developments Affecting Forensic Accountants.” Forensic Accountant 37 (2012): 8-10.

Fraudsters and Why They Commit Fraud

Two professors in Istanbul, Turkey compiled secondary research to identify a myriad of information regarding fraud. The article covers an impressive amount of data, and there is a particularly interesting section regarding forensic accounting versus fraud examination, but for the purpose of this review and examination of the article, the focus will be on the stereotypical fraud committer and why they commit fraud.

The Association of Certified Fraud Examiners surveyed 2,000 respondents who had committed a type of fraud. Many of the characteristics of fraudsters were anticipated, but the authors did identify characteristics which were more astute.

The typical fraudster is:

• Male
• Married
• Highly educated
• Older
• High IQ, or perceives themselves as having a high IQ
• Managerial types

The additional characteristics which were not necessarily expected are those who come in early and leave late, and those who have highly intimate relationships with buyers and/or sellers of the goods or services produced by the employer of the fraudster. The authors elaborated that those who come in early and leave late, especially those who attribute the need for extra hours to unfinished work, use the alone time within the company to commit fraud. The relationship with the buyers and sellers was attributed to the increased willingness of the employed individual to make unethical concessions for buyer/seller. The result of managerial types being more likely to commit fraud is unsurprising because the managers have a higher amount of autonomy, especially concerning budgets and operations. Managers have a higher opportunity to commit fraud, which leads into reasons why fraudsters commit fraud.

The reasons why people commit fraud is identified through the “fraud triangle”: 1) pressure, 2) opportunity, 3) justification. When all three components are combined within an individual, or situation, the likelihood of fraud increases.

1) Pressure factors include financial, bad habits, and job related. Financial pressures equate to money problems for the individual, often times people who commit fraud are in debt, have unmet financial responsibilities, or have a sense of need towards providing a “better life” for their families. Bad habits basically constitute addictions, such as gambling, drugs, and other vices. Finally, job related pressures can be primarily defined within job dissatisfaction, i.e. not getting promoted, having a low wage, not being admired by supervisors.

2) Opportunity factors are tied back to top management decisions on ctronl and operations of the company. If a distinctive and decisive control structure of the company is not established, there is a direct correlation with increase in fraud. If fraudsters believe, “[If] you can get away with it”, then they will commit fraud in some manner. A statistic provided within the article states that within the first three years of employment, 30% of employees will commit fraud in some manner.

3) Justification of fraud is within the fraudsters’ psyche, in the fact that the justification is a defense mechanism which allows them to believe that they are warranted in their choices.

Being able to identify the typical fraud committer, as well as the factors that lead a person to commit fraud are vital for companies, especially larger ones because the amount of opportunity increase with the size of the employer. For forensic accountants, it is important to understand the demographics of fraudsters in order to effectively investigate and implicate the fraudulent behaviors, as well as the fraudster.

Ulucan Ozkul, Fatma, and Ayse Pamukuc. “Fraud Detection and Forensic Accounting.”Emerging Fraud XXV (2012): 19-41

But, What Can A CPA Do?

The beginning of the article covers historical examples of Ponzi schemes that were perpetrated in New York State. Specifically, Patrick Bennet, John McNamara, and Nicholas Cosmos.

Patrick Bennett
Bennett Group of Syracuse was the front for Patrick Bennett in which he recruited 10,000 investors, the majority of which were elderly, and defrauded them for an amount of more than $600 million.

John McNamara
Used a Ponzi-like set up to establish fake businesses in multiple locations across the globe, in order to swindle over $436 million through financing of nonexistent cars. Internal auditors detected McNamara’s fraud.

Nicholas Cosmo
The principal for Agape World Inc, encouraged investors to reinvest their dividends into the fraudulent fund in order to increase the amount of money he made. The Agape fund was flaunted as being a private fund for construction, but was instead being pocketed in large amounts by Cosmo.

These three examples are effective in demonstrating that with attention to the details and reading between the lines during audits, auditors can be successful in detecting and reporting fraudulent behaviors. According to Allan Brown, director of internal audit for the colleges of the State of Louisiana,

At a minimum, auditors should be alert to: whether or not the investment exists; its value, if material; the collectability of the investment; and the rate of return… [T]he rule of thumb is this: If the investment is not easily understood and is a material balance sheet and/or income statement item, it should be examined by experts; it’s that simple. (Wells 6)

The foremost red flag identified within this article is the promised return on investment. The author briefly discusses Bernard Madoff, perhaps the most notorious Ponzi schemer in current times. Bernard Madoff was able to continue a Ponzi scheme for over a decade, but was eventually discovered through auditing. Madoff’s scheme was detected through the use of trends in ratios. Typically an investment will have highs and lows, in congruence with the trends in the market typically, but Madoff’s investments were not fluctuating with the market.

The article reports that for CPA’s, tracking and careful investigation into the return on investment measures, as well as red flag indicators will significantly help identify Ponzi schemes during audits. In addition, the article lists how CPAs can educate individual and businesses on Ponzi schemes, in order to decrease the amount of people being “duped” into fraudulent activities.

The article gives multiple historical examples of Ponzi schemes, a few were mentioned in the review but many were omitted from the review. The examples effectively demonstrated the range of investments that can be considered Ponzi schemes. The author, Joseph T. Wells, is a CPA and a Certified Fraud Examiner, as well as the founder of the Association of Certified Fraud Examiners.

 

Wells, Joseph T. “Ponzis and Pyramids: What CPAs Need to Know.” The CPA Journal(2010): 6-10.

What Is A Ponzi Scheme, Anyway?

Charles Ponzi, the namesake for the Ponzi scheme, was an Italian born American Immigrant. What he established is a pyramid scheme with few differences, where initial investors and the top investor see returns on their investments, but the dividend payments were coming from new investors, and not from actual profit made on investments. Ponzi’s scheme lasted roughly eight months and he is attributed with swindling over $10 million from over 40,000 investors (Peterson-Kramer and Buckhoff 48).

This graph, taken from the article Beware of False Profits by Bonita K Peterson Kramer and Thomas Buckhoff, depicts how the number of investors continues growing in order to increase revenue generation. Another problem with the sustainability of a Ponzi scheme is that little to no funds are actually invested into legitimate investments, instead all of the invested money being dispersed as dividends to early investors. Eventually, as the amount of new investors dwindles, the ash flow ceases and the scheme is exposed.

Previously in the article, Ponzi scheme’s were compared to pyramid schemes. A pyramid scheme is fairly infamous due to “to-good-to-be-true” money opportunities where a new investor or salesperson is recruited in order to recruit more people.  A Ponzi scheme is promoted as an investment opportunity; in contrast the pyramid scheme pushes the ability to rise through the ranks of a pyramid organization for a higher return on products or services sold.

Alas, have no fear, there are some warning signs that will help potential investors identify Ponzi schemes. The most obvious warning sign comes from the age-old adage, “If it seems too good to be true, it probably is.” If an investment promises excessively high rate of return, it is probably a risky investment. The second warning sign is if an investment makes consistent returns, with no adjustments being taken for the state of the economy. So, if an investor is seeing all of their other investments decrease or stop dividend payments and stock prices continually decrease, yet one investment continues to pay out, it is probably a risky investment. Other warning indicators may be guaranteed returns with little to no risk to the investor, promises of quick payoffs, and incomplete, vague descriptions of how the investment is actually generating revenue.

This list, provided again by Peterson Kramer and Buckhoff, shows a list of red flags for Ponzi Schemes.

The article by Peterson Kramer and Buckhoff continues to provide action steps to help an organization avoid investing in a Ponzi scheme. Including skepticism, verifying information, analyze the information, and resist the temptation of large returns through sacrificing investment research.

The article effectively covered a brief background of the Ponzi scheme and its operations, as well as how to recognize, avoid, and exit a Ponzi scheme. There is a further discussion of what happens when a Ponzi scheme fails. The authors appear to have the credentialing to be authoritative resources on the information provided.

 

Peterson Kramer, Bonita K., and Thomas A. Buckhoff. “Beware of False Profits: The Ponzi Scheme Is Alive and Well and Seeking Your Money.” Strategic Finance(2012): 47-52.

A Case Study in Fraud and Auditing: Fund of Funds

On almost a weekly basis, the public is hearing news of fraud, embezzlement, money laundering, or some other type of white-collar financial crime. The increased need for forensic accountants id directly proportionate to the increasing amount of public accounting scandals. I am going to take a look at a case study of one of the first international fraud cases that spanned multiple continents, involved public officials, and eventually had vast implications for the accounting profession as a whole. Case studies were identified in the research discussed in Forensic Accounting: What is it? And How to be an Effective Forensic Accountant, identified case studies as an important tool for forensic accountants to further hone their skills.

The case study covers the Fund of Funds (FOF) fiasco beginning from the inception of Investors Overseas Services (IOS) in the 1950’s, which comparatively to today’s scandals is minor. Two parts were addressed while looking at FOF, one the perpetration of the fraud itself and then the charges brought its auditor.

Bernie Cornfeld, a salesman, incorporated IOS in Geneva, Switzerland in the mid 1950’s in order to capitalize untapped market of the mutual funds in Europe. Eventually, after growing through the use of web of foot salesman selling door-to-door, Cornfeld developed the idea of a mutual fund that only invested in profitable American mutual funds, thus powering the inception of FOF in 1962.  FOF quickly expanded and Cornfeld became notorious as “The Great Money catcher”, a name that he would rather quickly lose. FOF was used as a shell company for IOS in order to allow IOS to profit off of “Black Money”, money must be hidden and kept secret, especially profiting off of wars, revolutions, mutinies, and massacres in developing countries. Throughout the profits acquired by FOF and IOS, the sales commissions were surpassing the fees earned by the fund sales, so Cornfeld was essentially building a Ponzi scheme.

By the mid-1960’s, Cornfeld had had successful IPOs in Canada and Europe with IOS, and was on the hunt for a way to produce stronger financial statements to bolster stock prices. The hunt would bring together Cornfeld and John King, owner of King Resources and millionaire. King offered claims on oil drilling land in the Arctic, which after purchase by FOF were deemed entirely useless due to being completely underwater with sheets of ice shifting regularly. Here comes into play a very important aspect of this case, during the sale of the land, auditing firm Arthur Andersen & Co. (AA) represented both King and IOS, but more on that later. The purchase of the land was not reevaluated for the books, and AA was forbidden by FOF to verify the permits and surveys on which the value was based on. In a convoluted mess, King purchased the land back in conjuncture with some of his friends and board members in order to increase the value of the land, thus driving up the stock of FOF. From there IOS charged FOF a $10 million performance fee from FOF for increasing the value of FOF investments, but on the books FOF only made $600,000 from the sale. IOS attempted to claim the shift of $10 million from FOF to its own as profit, which alert market participants quickly noticed and grew concerned.

Investors began to redeem their shares in FOF, and within half a year the bottom had fallen out from IOS. King’s business was maintaining primarily on the investments in IOS, so he eventually fell into financial ruin and was jailed for making phony deals.

A troubled IOS fires Cornfeld and began searching for a replacement, so in came Robert Vesco. Vesco, by pretending to have large name insurance backers, conned his way onto the board of IOS. Vesco promised increases in stocks just by the association with him, but this never came to fruition. In fact, Vesco quickly came under the SEC radar for looting, fraud, and financial statement misrepresentation. Vesco jumped shipped quickly after and lived the rest of his life on the run. After the Vesco section of the fiasco, which spanned more than I’m going to cover, FOF sought legal action against Arthur Andersen, a standard move when a company is looking to recover lost assets because the auditor is typically the only entity left with any assets.

Here is the most interesting aspect of the case because society has seen many scandals similar to Funds of Funds, but not many had such a strong implications for ethical accounting. Arthur Andersen & Co was charged with fraud and breach of contract for its involvement in the FOF purchase. The jury found that Arthur Andersen had a legal and ethical obligation to report the discrepancies between the book value of the purchase versus the group cost, or AA needed to have resigned at least one account. The fact that AA did not attempt to make the discrepancies known or addressed allowed them to become liable. In the end, greed outweighed the morals and the Generally Accepted Accounting Principles were over looked for the sake of revenues.

Struach, Bruce A., and Sheila D. Foster. “Auditing Cases That Made A Difference: Funds of Funds.” Journal of Business Case Studies 8.5 (2012): 493-508. Print.

What Role Do Forensic Accountants Play in Fraud Investigations?

The Journal of Finance and Accountancy provides a brief article by Linda Bressler from the University of Houston, in which she covers the importance of accounting information systems, the application of electronic data, and the importance of communication skills to convey the Accounting Information Systems (AIS) data effectively.  Financial cases are often times convoluted, leaving a layman ineffective as a jury member without proper elaboration on all the complex aspects. Forensic investigative accountants are the missing tie, in many rights, between the data derived from AIS and the judge and jury understanding the data and implications therein. This article connects to my previous post, titled Is Forensic Accounting Even a Profession?, where it is discussed on the increasing belief of some in the accounting profession of the CPA licensure being excessive and unneeded.  In this article is discussed how forensic accountants need “various specialized auditing techniques” in order to identify fraud indicators. This, again, brings me back to my surprise that some accounting professionals would incite arguments against requiring CPA licensure for forensic accounting, especially if forensic accountants require specialized auditing techniques.

Some issues addressed in the article regarding the use of forensic accountants as expert witnesses are the ability of forensic accountants to establish credibility with the judges and counteracting the “CSI Effect” of the jurors. The “CSI Effect” is an interesting theory which proposes that popular TV crime dramas that “focus on forensic science, may affect the behavior and expectations of jurors in real-life cases.” Often times, accountants are seen as “the number people”, while in this instance they need to be specialized in a variety of business and legal aspects, in addition to understanding the psychology of jurors.

The article provides an example of a forensic audit where investigators, “used spreadsheet software and the use of statistical and database analysis” to facilitate the evaluation of the AIS systems to examine the cash flow reporting of HealthSouth Corporation. Unfortunately, the author fails to provide details of the case more extensively on how forensic accountants effectively utilized the AIS data analysis findings when communicating that information to a judge and jury in persuasive manner. The verdict of the case is identified as HealthSouth being charged with fraudulent financial reporting, primarily with inaccurate revenue and expenses and improperly accounting for business combination activities. It would have been helpful for the reader to have a more in-depth analysis of the article, especially since it is the only case example throughout the entire article. The author seems to have written an entire literature review article, without every truly introducing new ideas into the discussion. The flow of the argument is steady enough for the article to be easily grasped by those within the accounting profession, but information that would be applicable to non-accounting professions is also available in an easily understandable format.

The propose the need for future research into the perceptions of fraud attorneys and judges on how to make AIS forensic evidence more convincible, as well as identifying needed skill developments for forensic accountants. Similar to my first post, Forensic Accounting? What is it? And How to be an Effective Forensic Accountant, where the post focused on research conducted to identify perceptions of forensic accountants from attorneys, I agree with Bressler in the importance to expand upon that to the perception of judges.

Bressler, Linda. “The Role of Forensic Accountants in Fraud Investigations: Importance of Attorney and Judge’s Perceptions.” Journal of Finance and Accountancy 9 (2012): n. pag. Print.

Why is Prosecuting Money Laundering so Hard?

Kenneth Murray, the head of Forensic Accountancy at the Scottish Crime and Drug Enforcement Agency, published an article in the journal of money Laundering and Control covering the international concept of “predicate offense” when prosecuting money laundering cases, “where there is a distance between the crime that rendered the money criminal and circumstances of its actual laundering.” Investigators and prosecutors in such cases have a difficult time proving the recipient or accused laundering corporation has knowledge upon receipt of money that the money is illegal.

There are several case examples in Scotland law, which demonstrate the inability of prosecutors to provide arguments depend on more than circumstantial evidenced. These cases provided a ground point, but the more interesting section for this blog’s purposes, are the examples regarding the US.

Similar to Scotland, the US uses predicate offense, where the accused money launderer had to be privy to the criminal status of the funds prior to the interactions involving the money to be laundered. Meaning, the person laundering the money had to have known about the criminal activity that generated the funds at the beginning of money laundering.  Murray identified that in the US, even when there is a seemingly obvious case for money laundering prosecution, it is difficult to provide conclusive evidenced of the bank’s knowledge of the predicate offense.

The author provides examples of US banks that engaged in observable cased of money laundering, where the chare of money laundering fails to see fruition.  For instance, in the case of Pampro Saving Bank, were the bank accepted and cashed a large amount of checks from one client, all under the $10,000 mark that would require the bank to complete a currency transaction report to the government. Eventually, it was determined by the court that Pampro failed to report the suspicious activity and willfully allowed this client to cash roughly 590 checks in the excess of three million dollars.  While the court could prove a failure to report the suspicious activity, they are unable to provide convincing evidenced to establish knowledge of criminal activity, thus leaving Pampro with little more than an “administrative offense of failing to file reports.”

If prosecutors are unable to adequately argue the case for money laundering charges towards banks, then this begs the question, “Is the crime of money laundering a independent, and enforceable offense?”

The most interesting information discussed in the article is how Australian courts, as of 2003, are approaching money laundering. Australia differentiated the level of offences based on the amount of money involved and the degree of knowledge of the offender. According to Australia, there are three classifications

1. Knowledge – The defendant is aware or believes that money or property is the proceeds of crime or will be used to commit an offence
2. Recklessness – The defendant is aware of a substantial risk that money or property is the proceeds of crime or will be used to commit an offence
3. Negligence – The defendant has failed to exercise a reasonable standard of care to ensure that money or property is not proceeds of crime.

This approach removes the need for predicate offence, because now individuals and corporations are liable for the “handling [of money] in a manner and context that implied [the money] [was] criminal.”

Following the implementation of the new criminal classifications of money laundering, Australia saw an increase in money laundering convictions. The overall focus for prosecutors shifts from the ability to prove the predicate offense rendering the money illegal, to the nexus of the crime. Murray defines the nexus of crime being embedded in the deception process required of money laundering.

… At some point in the process there will be introduced an element of deception where the knowledge of what the money represents is replaced by a different, manufactured, false knowledge. (p. 192)

This shift from predicate offense to the nexus of the crime can be a viable way for courts to address the failures of current money laundering criminal statutes.

Murray, Kenneth. “A Suitable Case for Treatment: Money Laundering and       Knowledge.”Journal of Money Laundering Control 15.2 (2012): 188-97. Print.

Is Forensic Accounting Even a Profession?

Wm. Dennis Huber, at Capella University professor, wrote an article for the Journal of Forensic and Investigative Accounting in which he explores the possibility of forensic accounting being established as a stand-alone profession, separate for the public accounting distinction. The current status of forensic accounting is as a niche, as defined by Huber, “a specialized market” within public accounting. The premise of the argument lies primarily on the comparison between the development of public accounting as a profession and the current progress of forensic accounting as a “fledgling” profession.

The article makes claims regarding the “dramatic” expansion of degree programs in forensic accounting, but fails to elaborate on what constitutes “dramatic” as well as providing evidence regarding the expansion. I would have liked to have more information on the amounts of schools providing forensic accounting, especially since the issue is current, in order to research deeper into the differential education between programs.

The author initially appears to take an overall neutral stance regarding the defining of forensic accounting as a profession by defining. He elaborates sufficiently on the sociological theories behind what characteristics define a profession, and ultimately identifies the components he uses in his stance. The author goes on further to provide an appendix illustrating the comparisons of the core characteristics of profession theories and how forensic accounting fulfills those requirements. The chart provided in the appendix is adequate in providing an overview of the required traits in order to be defined as a profession within each sociological theory, but it

The an interesting aspect identified is that a CPA license is not necessarily required to be a forensic accountant, and furthermore, some forensic accounting certifications do not require CPA licensure. I found this intriguing because I had previously assumed a CPA license was required due to the complexity of forensic accounting needing GAAP expertise, especially auditing in litigation and investigations. I would be surprised to see a forensic accountant in larger corporations or working in litigation without a CPA licensure. The article clarifies the distinction between a licensure and certification, and in my mine this further solidified the importance of having a CPA license prior to certification in forensic accounting. An example, which provided the opposite response in me than I believe the author intended,  “distinguish[ed] forensic accounting from fraud accounting” by explaining that a fraud auditor is specialized in auditing and fulfills only that specialized role, while forensic accountants may engage in fraud auditing but goes further into other roles, i.e. legal, consultation, etc. At this point, the author’s veiled hostility towards the AICPA is becoming palpable. First, in accusing AICPA of contradicting its Code of Conduct by only providing Certified Financial Forensics (CFF) because, essentially, there is a profit to be gained instead of to provide a service to fulfill a need. Then, he goes on to discuss the restrictive membership policies of the AICPA, as well as their diminishing justifications for requiring a CPA for the CFF. The information presented continues to feel slanted for the entire article, with continued roundabout lighting of the AICPA in a negative light. Huber does not specifically identify any comparing certification corporation as a better selection, which, unfortunately, continues to paint the article in a biased light.

Huber, Wm. Dennis. “Is Forensic Accounting in the United States Becoming a Profession?” Journal of Forensic and Investigative Accounting 4.1                  (2012): 255-84. Print.

Forensic Accounting: What is it? And How to be an Effective Forensic Accountant

The profession of forensic accounting is relatively new, with credentialing from the American Institute for Certified Public Accountants (AICPA) first being offered in a Certified in Financial Forensics (CFF) certification program in 2008. The forensic accounting profession is an expanding niche where services generally involve:

• The application of specialized knowledge and investigative skills possessed by Certified Public Accountants (CPAs)
• Collecting, analyzing and evaluating evidential matter
• Interpreting and communicating findings in the courtroom, boardroom, and other legal/administrative venue

These services are typically be used in fraud prevention, economic damages calculations, bankruptcy or insolvency, family law, financial statement misrepresentation, valuation, and computer forensic analysis.

According to the AICPA, fundamental forensic knowledge required to be an effective forensic accountant, including:

• Professional responsibilities and practice management
• Laws, courts and dispute resolution
• Planning and preparation
• Information gather and preservation (documents, interviews/interrogations, electronic data)
• Discovery
• Reporting, experts and testimony

These are in addition to the core CPA skills of:

• Education, training and experience with generally accepted accounting principles (GAAP) and its application
• Attest services
• Tax
• General knowledge of business law and ethics

All of this information is covered in the article by Davis, Farrell, and Ogilby, in which they research the “current perceptions of what it means to be an effective forensic accountant.” There were three types of responders CPAs working primarily as forensic accountants, attorneys who hire CPAs, and accounting professors. The researchers wanted to look if there were any variances between the perceptions of forensic CPAs and accounting professors versus the attorneys who hire forensic CPAs in regards to:

• Essential traits and characteristics for a forensic accountant
• Core skills that a forensic accountant needs to possess
• Most relevant enhanced skills that a forensic accountant should posses
• Most frequent reasons why forensic accountants are ineffective

Overall the findings presented similarities in the perception of essential traits, the importance of credentialing between the respondents. On the other hand, the research indicated larger differences between the respondent groups regarding core skills, enhanced skills, and reasons why forensic accountants are ineffective (only pertains to attorneys and CPAs). Analytical was the number one trait among the respondent groups, and the groups shared identification of ethical as an essential trait.  Attorney’s identified the top two core skills as “oral communication” and “simplifying the information”, with professors having neither ranked out of their top five and CPAs ranking oral communication as third. As for enhanced skills, all groups identified “analyze and interpret financial statements and information” and “fraud detection” within their top five, but demonstrate a difference in perceptions with the remaining rankings.  The implications for this demonstrate the need for accounting professors and academia to increase focus on the needs of the forensic accounting market in order to prepare future graduates. The most important difference between respondent group answers is the perception of reasons why forensic accountants are ineffective. The top two answers from attorneys are “inability to simply the information” and “ineffective oral communication” Attorneys, who hire forensic accountants, use them in expert testimony during legal proceedings, so if a forensic accountant is unable to communicate and simply complex financial information for juries, then they are essentially useless.

I believe the findings of this research are important, as I previously noted, for academia because of the rapid expansion of forensic accounting and the needs of accounting graduates. Being able to align the needs of those hiring forensic accountants, and the skills of forensic accountants, increases the continued viability of forensic accounting as a profession. The article does provide a look at forensic accounting educational issues, which I found to be particularly interesting. The researchers questioned the professor and CPA respondent groups regarding types of resources that would provide an effective education for a forensic accountant. “Case studies” and “Traditional classroom educational programs” were close in strength of response as the effective education, indicating it is perceived that a combination of case study examination within the traditional classroom provides the most effective education. As forensic accounting continues to expand and demand increases, academic accounting programs will need to develop curriculum to match.

Source: http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/PractAidsGuidance/DownloadableDocuments/ForensicAccountingResearchWhitePaper.pdf