Introduction to Forensic Accounting

Part 1
[2016/2017] 1st Semester
Tunku Puteri Intan Safinaz School of Accountancy,
College of Business, Universiti Utara Malaysia
Dr. Oluwatoyin Muse Johnson Popoola, PhD, MBA,
FCTI, FCA, CFA,RPA
Coordinator & Lecturer: A161 BKAB 3013 Forensic
Accounting

11/18/16

Topics to Be Covered

Milestone 1
Definition
and
taxonomy
of fraud
11/18/16

Milestone 3
Nature of
Milestone 2
fraud
Importance
of forensic
accounting

Milestone 4
Tutorial

What is Forensic?
The term forensic is defined as
used in or suitable to courts of law or
public debate.
Source: Nolan, J. R., Nolan-Haley, J.
M., Connolly, M. J., Hicks, S. C., &
Alibrandi, M. N. (1990). Black Law
Dictionary 6th Edition.

11/18/16

What is Forensic Accounting?

Forensic accounting (sometimes called
Fraud examination or investigative
accounting) is the specialty practice
area of accounting that describes
engagements that result from actual or
anticipated disputes or litigation.

Source: Popoola (2014); Albrecht et al. (2012); Boleigha (2011); https://

en.wikipedia.org/wiki/Forensic accounting
retrieved 30 August 2016

11/18/16

What is Forensic Accounting?

Is the use of professional accounting skills in
matters involving potential or actual civil or
criminal litigation, including, but not limited to,
generally acceptable accounting and audit
principles; the determination of lost profits,
income, assets, or damages; evaluation of
internal controls; fraud; and any other matter
involving accounting expertise in the legal
system.
Source: ACFE (2008)

11/18/16

What is Forensic Accounting?

Is the application of fundamental knowledge, enhanced skills and

mindset in the accounting profession to resolve legal issues
pertaining to the detection, prevention and response to fraud. It
entails a process of task preparation, data collection, study, analysis
and reporting organizations financial and business related issues in
a form suitable for litigation and public discussion or debate.
Source: Popoola (2014)
11/18/16

What is Forensic Accounting?

Is the use of accounting principles, theories, and
disciplines to the facts or hypotheses at issue in a
legal dispute, and encompasses every branch of
accounting information. It also consists of two major
components: (1) litigation services that recognise the
role of the Certified public accountant as an expert
or consultant and (2) investigative services that
make use of the Certified public accountant 's skills,
which may or may not lead to courtroom testimony.
Source: Popoola et al. (2015); AICPA, FSV (2007)

11/18/16

What is Forensic Accounting?

Is based on legislation,
practice and theory and the
use to which forensic
accounting services
embrace.
Is a detailed study and
analysis of business
documents and records for
use as evidence in a court of
law.

Source: Davis et al. (2010);

Houck et al. (2006); ACFE
(2004); Messmer (2004).

Source: Boleigha (2011)

11/18/16

What is Forensic Accounting?

Is a discipline that encompasses financial
expertise, fraud knowledge, and a sound
knowledge and understanding of business reality
and the performance of the legal system, its
development has been primarily achieved
through on-the-job training as well as experience
with investigating officers and legal counsel.
Source: Bologna & Lindquist (1995)

11/18/16

Why Studying Forensic Accounting?

Although forensic accounting is
currently on the hot list of client
services, there are plenty of
accountants getting involved who
shouldnt be because they dont
understand the ins and outs of the
niche...Many accountants think it
is simply fraud investigation, and
its not. It is really much more than
dealing with the numbers. Its no
longer just basic fraud work.
Source: Davis, Farrel & Ogilby
(2010); Dubinsky, B. (2006);
Kahan, S. (2006)

11/18/16

10

Forensic Accounting Designations

Expert accountant
Forensic accountant
Fraud auditor
Fraud investigator
Fraud examiner
Risk control manager

Source: Popoola (2014); Danie du Plessis (2007)

11/18/16

11

Forensic Accounting Designations

AICPA CFF (Certified in Financial Forensics) 2008

ACFE CFE (Certified Fraud Examiners) 2008
ICAN - CFA (Certified Forensic Accountants) 2009
ICFA CPFAcct (Certified Professional Forensic
Accountant)
Certified Forensic Investigation Professional (CFIP)
Certified Forensic Accountant (CR.FA)
Certified Forensic Accounting Professionals (CFAP)
Certified Valuation Analysts (CVAs)
Chartered Certified Forensic Accountants (CCFAs)

Source: Popoola (2014); Ramaswamy (2007); http://www.forensicglobal.org/;

https://en.wikipedia.org/wiki/Forensic_accountant retrieved 31 August 2016
11/18/16

12

Fundamental and Specialized Forensic

Knowledge Areas

Source: Popoola (2014); Davis et al. (2010); AICPA (2008)

11/18/16

13

Requirements for a Fraud-Fighting Professional

Source:
Popoola et al.(2016);
Albrecht et al. (2012,
p. 16); DiGabriele
(2008)

11/18/16

Negotiation or Analytical Skills

Communication Skills
Technology Skills
Accounting and Business Knowledge
Legal Knowledge
People Management Human Behaviour
Knowledge
Emotional Intelligence Skills
Deductive Analysis Skills
Cognitive/Investigative flexibility
Critical thinking
Complex/Unstructured Problem Solving
14

What is Fraud?
Fraud is a generic term, and embraces all the
multifarious means which human ingenuity
can devise, which are resorted to by one
individual, to get an advantage over another
by false representations. No definite and
invariable rule can be laid down as a general
proposition in defining fraud, as it includes
surprise, trickery, cunning and unfair ways by
which another is cheated. The only
boundaries defining it are those which limit
human knavery.

Source: Albrecht et al. (2012)

11/18/16

15

Elements of Fraud

A representation
About a material point
Which is false
And intentionally or recklessly so,
Which is believed
And acted upon by the victim
To the victims damage

Who is in the best position to con you, your parents,

your family? Remember, it is always those you trust
most who are in the best position to con you or commit
fraud.
Source: Albrecht et al. (2012)
11/18/16

16

Classifications of Fraud
There are three classifications of fraud:
Class of Fraud by Scheme
Occupation fraud (ACFE) e.g. Employee
Embezzlement (direct and indirect fraud)
Class of Fraud by Perpetrators
Fraud committed against organisation (employee
fraud victim is the employees organisation)
Fraud committed on behalf of organisations
(management fraud or financial statement fraud by
nature of perpetrators and method of deception)
Class of Fraud by Victims
Employer, organization, shareholders, investors,
government, etc.
11/18/16

17

Types of Fraud

11/18/16

Source:
Albrecht et al. (2012, p. 10)

18

Points to Note on Fraud

Fraud involves all deceptive ways in which
one individual obtains an advantage over
another by false representations.
Fraud involves confidence and trickery.
Fraud differs from robbery because of the use
of force.
Fraud can be classified in several ways: by
victim, by perpetrator, or by scheme.
Frauds against organizations are most
common, but financial statement fraud are
usually most expensive.

11/18/16

19

Criminal and Civil Prosecution of Fraud

When fraud occurs, it can be prosecuted
criminally and/or civilly.
To record success in criminal or civil
prosecution, it is necessary to show that the
perpetrator acted with intent to commit
fraud against the victim.
To support the prosecution, there is need to
gather evidential matter.

11/18/16

20

Differences between Criminal and Civil Cases

Purpose

Criminal Case
To fight a wrong

Consequen
ces

Jail and/or fines

Burden of
Proof

Beyond a
reasonable
doubt
Jury must have
12 people

Jury

Initiation

Verdict

Source: Albrecht et al. (2012, p.

11/18/16
Claims

Civil Case
To obtain a
remedy
Restitution and
damage
payments
Preponderance
of evidence

May consist of
fewer than 12
persons
Determination by Filing of a claim
a grand jury that by a plaintif
sufficient
evidence exists
to indict
Unanimous
Parties may
verdict
stipulate to a less
15)
than unanimous
verdict
Only one claim at Various claims

21

Question & Answer

Invite questions from students

11/18/16

22

Summary
Discuss topics covered in Part 1
Forensic, Forensic Accounting,
Fraud, Criminality and Civility.
Taxonomy of Frauds , 2015
(transmitted to your portal)
Reiterate welcome
Wrap-up

11/18/16

23

End of Class
Should you require further clarifications,
please feel free to see me on
CONSULTATION DAYS at TISSA-UUM
Room 3.58, 04289 7303; or
Email: popoola@uum.edu.my; or
WhatsApp 016 435 4874.
Thank you. Terima Kasih.
Dr. Oluwatoyin Muse Johnson Popoola,
PhD, MBA, CFA, FCTI, FCA, RPA

11/18/16

24