10 Sep

Fraud Investigations vs. Traditional Audits

After management becomes aware of a potential fraud and decides that a fraud investigation is necessary, the process of creating a team, mapping the investigation plan, and requesting information begins. An organized approach is the best way to ensure that all facets of the investigation flow smoothly, that staff is properly assigned and supervised, and that all critical evidence is analyzed.

Many of the administrative parts of a forensic accounting or fraud investigation project are similar to those in a traditional auditing assignment. For those who have played an active role in managing audit engagements, some of this information will be familiar. Read More

06 Sep

What Happens After a Fraud Investigation?

After an internal fraud is discovered and fully investigated, a company and its employees must move forward. That might seem like a simple thing to do, but it is not always quite that easy. The financial blow of an internal fraud can be devastating. Employees have long-term memories that may not allow them to forget about the violation of their trust by someone who worked side-by-side with them or by someone who was responsible for their future.

The most obvious potential long-term effect from an employee theft is financial devastation. Companies lose something on the order of 4% to 5% of revenue to internal fraud each year. Imagine how many companies could be put out of business with a fraud of that size.

The first step to moving beyond an internal fraud, especially a significant fraud, is repairing the financial damage. Often, cash reserves have been depleted and debts have mounted while the dishonest employee was filling her or his pockets. A plan to repair the company’s finances should be established quickly. Read More

04 Sep

The Forensic Accountant as Consultant

Forensic accountants are usually retained in family law cases as expert witnesses, with the intention that they will provide expert opinions and testimony on behalf of the client. Although retention as a consultant is less common, it is an important option to consider. Sometimes, the work of the consultant can be even more important than the work of the testifying expert. The consultant may be able to dig deeper into sensitive issues because there is no fear of testimony or of disclosing the consultant’s work.

Maintaining privilege
One of the biggest benefits to retaining a consultant is the fact that the consultant’s communications and work product enjoy privilege. Because the consultant is essentially an extension of the law firm, the identity of the consultant, the scope of work, the evidence examined, and the results of the work need not be disclosed to opposing counsel. (Note that documents examined by the consultant may very well need to be disclosed as part of the discovery process, but the consultant’s work or impressions of the documents should not be disclosed.) Read More

30 Aug

Qualifying as an Expert Witness

You are only an expert if the judge says you’re an expert. No matter how many times you may have testified in court as an expert witness, each time you must prove all over again that you’re qualified to provide expert testimony.

In this video, Tracy Coenen talks about how she presents herself to the court as a forensic accountant so that she will be qualified to provide expert testimony. It is a combination of education, credentials, and experience.

28 Aug

Why Is It So Easy to Commit Fraud?

It sometimes seems like it’s easy to commit fraud at work. Why is that so?

One of the main reasons is that employers must put trust in their employees and give them access to data and assets. It’s also important to remember that employers give responsibility to people who are trusted. If someone wasn’t deemed trustworthy enough to take money to the bank, she or he wouldn’t be handed the bank deposit. That trust inherently means that opportunities to commit fraud are handed to employees each day. Read More

20 Aug

Tax Returns and Divorce Cases

One of the most common documents utilized in a financial investigation is the income tax return. It’s a key document in any divorce case, so the personal income tax return is always examined. And if there is a business, the tax return for that entity should be examined too.

What can we learn from the tax return? Maybe more than you imagine. Today I’m going to walk through the lines on the personal tax return (Form 1040) and some ways that these items can be analyzed to search for hidden income and hidden assets. Read More

17 Aug

What to Do After a Fraud Investigation

After a fraud investigator is done with her work and has issued the expert report, company management and retained attorneys must decide what to do with the information presented. If the case is already in litigation, the use of the report is obvious. If the company has not yet taken action, a few options should be considered.

Internal Discipline

It is natural to want to dismiss an employee as soon as it is apparent that the person has committed a fraud. It is often safer for the company to have the suspect off-site, so that no more fraud can occur, but it is important to realize that this may also hamper the gathering of information. For this reason, some companies decide not to immediately terminate the employee. If the employee is still actively employed by the company when the fraud investigator’s report is issued, a decision must be made about her or his future. The company could decide to do nothing if sufficient evidence is not available or if the evidence exonerates the employee. Read More

14 Aug

Net Worth Method of Proof for Unreported Income

When an IRS auditor or criminal investigator suspects that a taxpayer has unreported sources of income, he or she looks for ways to calculate that unreported income. One way is the net worth method of proof.

Forensic accountants and fraud investigators can use the same method to calculate unreported income in other types of cases, such as divorce. In this video, Tracy describes how the calculation is done and how the results may be used.

10 Aug

Skills of a Fraud Investigator

How do I become a fraud investigator? What skills does a forensic accountant need? I get asked these questions a lot, so today I’m going to give my thoughts on some of the important qualifications and skills a fraud investigator might have.

The educational background of a good fraud investigator can fall into a wide range of disciplines. Fraud investigators have degrees in accounting, finance, police science, law, and criminal justice. There is no widely accepted course of study for fraud investigators, although those degree programs that offer a strong foundation in accounting and finance seem to prepare students well for the numerical component of investigations.

Many excellent fraud examiners have a work history that is far more important than their educational background. On-the-job experience as a police detective, federal agent, insurance claims analyst, financial statement auditor, or financial analyst can lend itself well to a career in fraud investigations. It’s not unusual for practical experience in the field to play a much bigger part in the fraud investigator’s skills than any type of classroom training. The field of fraud examinations has an extremely varied range of educational and work experience. Other careers often have a few well-defined career paths, but the road to success as a fraud investigator can lead in many directions. Read More

08 Aug

Behavior of Upper Level Executives Who Commit Fraud

A while back we talked about behavioral red flags of fraud, which are the signs that someone might be involved in a fraud at work. Some of the most common red flags are living a lifestyle that exceeds a person’s earnings and unusual attitudes on the job (being combative, possessive of their work, etc.)

The same red flags don’t necessarily apply to upper-level executives, or they’re just not as easy to spot. In this video, Tracy talks about some of the warning signs we might see with top executives who are committing fraud. Most commonly, we see a higher level of greed and arrogance when committing fraud (which, coincidentally, may lead to the person’s downfall).