Synopsis
Forensic
Accounting
By Paul Lee (HHS/OIG/OAS)
On October 31, 2006, members of the New
York Chapter of the Association of Government Accountants had the
opportunity to learn more about Forensic Accounting. Steven M. Fishner and
Raymond Dookhie of KPMG were the guest lecturers on this topic.
According to Fishner and Dookhie, news coverage of recent fraud and
misconduct cases has caused a change in the audit profession. The public
expects auditors to detect and report on these activities. As such, the
audit profession has recognized that it cannot
retain its creditability without enhancing its ability to detect fraud and
misconduct.
To make detection easier, regulatory
responses, such as the Sarbanes-Oxley Act of 2002 were established. Even
corporate responses were developed, such as the design and implementation
of programs and controls to help comply with regulatory requirements and
manage fraud loss. Although these responses have not eliminated fraud and
misconduct, they are credited for aiding in the reduction of fraud and
misconduct.
Typically, the primary goal of an audit
is to examine a sampling of financial statements based on materiality. The
end product is an opinion on the fairness of financial statements and
quality of controls. However, what if fraud is detected? This is where
forensic ac-counting comes in. Forensic accounting is the detailed
investigation of situations where fraud has been identified, or where fraud
is highly suspected. Rather than concentrating on entire financial
statements, as most audits do, forensic accounting concentrates on known
frauds or areas where fraud is suspected.
Unlike auditors, the main approach used
by forensic accountants examining a situation is to interview employees,
re-construct damages, and conduct a 100 percent examination of targeted
files. Forensic accountants build support for a court case by identifying
the fraud, calculating damages caused by the fraud, and collecting evidence
of the fraud. One major role for forensic accountants is to persuade
perpetrators to confess to their crimes.
A simple analogy used to differentiate
between auditing and forensic accounting is that auditing is a situation
where an examination is a mile wide but an inch deep. On the other hand,
forensic accounting is the examination of a situation which is an inch wide
but a mile deep. With leading technologies assisting accountants and a
public demand for fraud detection and prevention, the potential of forensic
accounting will be a growing and vital extension to the ac-counting
profession.
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