Five Skills that a Forensic Accountant Needs to Possess - Research Paper Example

Five Skills that a Forensic Accountant Needs to Possess I. Five Skills that a forensic accountant needs to possess To better answer the question about the five skills that a forensic accountant needs to posses, it would necessitate to understand what a forensic accountant do to put the answer in proper perspective. Unlike the regular accountants and auditors, forensic accountants are typically tasked to uncover fraud and provide expert opinion to help the trier of facts evaluate the financial information available or presented to him or her. The investigation and dispensation of expert opinion is required because fraud, as a form of deception, which forensic accounting is uncovering, will deliberately conceals or mislead for gainful benefit (Institute of Certified Forensic Accountants, 2012). The country’s top accredited organization of accountants, AICPA (American Institute of Certified Public Accountants) made a study on what are the top skills for a forensic accountant neeeds to possess to become effective with his or her job. The respondnets of the study were academics and practitioners. a. Analytical and detail oriented Their study revealed that a forensic accountant has to be analytical. Both the academics and practitioners that a forensic accountant must have the analytical proficiency that would provide an invaluable insight to the practitioner in its engagements than the regular auditing and problem solving skills (AICPA a, nd). Frauds are deliberately concealed and uncovering them requires analytical skills and dedication to details in addition to the usual auditing and problem solving skills of accountants. b. Interpretive skills or intuitive investigative skills The ability to interpret data and simplify them were also ranked as the second among accountants and academics (AICPA a, nd). They complement the analytical skill of a forensic accountant for this skill allows the practitioner to determine the usefulness of such data. Other respondents called this intuitive investigative skills or the ability to intuitively associate information for it to be useful in any forensic accounting investigation (AICPA a, nd). c. Soft skills/effective oral communicator The ability to communicate effectively was deemed important in the practice of forensic accounting. This is both oral and written communication. This skill is essential for a forensic accountant to possess because the nature of the work requires the practitioner to provide an expert opinion either orally (i.e. giving expert opinion in court of laws, providing consultancy advise to clients) or in a form of a formal written report (AICPA a, nd ). Forensic accounting is such a complex discipline and the ability to simplify information and language that can be easily understood by verifier of facts or clients is an essential skill. d. Skepticism In the study, some respondents wrote it as “skepticism” which is essential for an investigative work. This became an important skill of a forensic accountant in cases where the practitioner is tasked to uncover or investigate fraud. e. Ethical Being ethical is ranked as one of the top five skills of a forensic accountant because this skill is “consistent with the mission of the forensic accountant” (AICPA a, nd pg. 11). In plain language, forensic accountants are the antidote to frauds and scams and if they themselves are susceptible to unethical behaviors which they are tasked to investigate and uncover, the general public will be left with nothing to shield them from such undesirable financial practices. In addition to these five skills that a forensic accountant must profess, the practitioner must also have the ability to review large volumes of financial statements and documents. A forensic accountant must also be grounded on the various business models that companies use. The practitioner must also be able to prepare and dispense expert reports under a strict timetable (Owojori and Asaolu, 2009). II. Role of a forensic accountant Forensic accounting is a unique profession that requires an exceptional approach of applying accounting. Its function encompasses the traditional roles that accountants and auditors do and transcends to investigating, discovering and uncovering accounting anomalies, frauds and scams. Its findings assist investigations and help form legal opinion in instance where there is a court litigation. Forensic examination, just like in any other science requires the dispensation of an expert opinion (American Institute of Certified Forensic Acccountants, 2012). The American Institute of Certified Forensic Acccountants, the most recognized accredited organization of Forensic Accountants enumerated the roles that a forensic accountant does, “investigations, both criminal and civil; preparation and review of evidence; preparation of expert reports; affidavits and proof of evidence; giving oral evidence in court; expert determination, arbitration, mediation or alternative and dispute resolution” (2012). These roles definitely encompass the traditional roles of accountants of preparing financial statements and can even be said to be multi-disciplined. The rise of corporate fraud that slid this country into recession and later the world also provided the profession of forensic accounting a special role in corporate world. Companies such as Enron, Worldcom intensified the need for forensic accountants to not only discover fraud, but also as a deterrent for corporate malfeasance and financial acrobatics knowing that scams can now be uncovered through the insightful eye of a forensic accountant and that court litigation would be certain. During court litigations, the profession also became indispensable in investigating and analyzing financial evidences and assisting legal proceedings that includes providing an expert opinion during litigations. Thus, the American Institute of Certified Public Accountants (AICPA) also identified the roles that forensic accountants do in corporate setting such as proving preliminary advice during the first phase of pleading before the start of any court proceedings. Forensic accountants also identify which financial documents can be used as evidence in court either in the prosecution side or defense. Along with it is also the preparation of expert’s report, considering the myriad of information available, that can be easily understood by a lay man regardless if the content of such report are favorable or not to the client. Forensic accountants also orients legal counsels during the pre-trial phase of a court proceeding that involves finance and or corporate malfeasance. Finally, forensic accountants assess the economic computation of any damages of such fraud and to measure the indemnity of such damages (Owojori and Asaolu, 2009). III. Legal responsibility a forensic accountant The role of a forensic accountant ranges from being a consultant, financial investigator to being an expert witness to a court proceeding. All of these roles require specialized knowledge to assist the trier of facts to understand the financial statements and evidences in question (DiGabriele, 2008). During a litigation involving accounting and financial matter, forensic accountants are also hired to provide their expertise in the “valuation of business interests in shareholder and partnership disputes, calculation of economic damages resulting from a personal injury, medical malpractice, business interruption, inventory losses, matrimonial disputes” and contract disputes (DiGabriele, 2008 pg. 83). With an advice from a legal counsel, forensic accountants are often requested to prepare an expert report. To ensure impartiality and objectivity of a forensic accountant’s report, free from perjury or undue influence, he or she has to adhere to the acceptable valuation standards in accounting. Such valuation standard are explicitly expressed in the major national accrediting bodies such as the American Institute of Certified Public Accountants (AICPA) and Institute of Business Appraisers and National Association of Certified Valuation Analysts on how should a forensic accountant’s dispense their responsibility. For example, to ensure objectivity and impartiality of an expert report, AICPA enforces integrity among its members spelling it out as; 01. Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions. 02. Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle (b). In addition, the forensic accountant will also be held liable for perjury by the court if any of the facts, interpretation or recommendation of his or her report is false. In circumstances where the forensic accountant is an agent of the state such agents of the Federal Bureau of Investigation (FBI), dispensing false report can constitute an administrative and criminal charge that can lead to termination from the service and/or imprisonment and fines. IV. Cases involving forensic accountant Forensic accounting has been invaluable in investigating and discovering financial frauds and scams that would not have been otherwise uncovered without the expertise of forensic accountants. Government agencies such as the Federal Bureau of Investigation (FBI) is in fact cognizant of the importance of forensic accounting that they have forensic accounting employed in every field office which is part and parcel of its effort to solve criminality. It trains its forensic accounting units about the forensics of money which runs a six week training course that includes topics such as “legal training, and expert witness testifying techniques” (FBI a, 2012). There were even cases which were documented that forensic accountants have been instrumental of which this paper will cite two of them. a. Fair Financial Company (Fair) $200 fraud scheme involving its investors The Fair Financial Company Medicare Fraud involved the scheme of defrauding the 5,000 investors Fair Financial to the amount of more than $200 million. The defendants, Timothy S. Durham, 48; James F. Cochran, 55; and Rick D. Snow, were charged with “one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud, and one count of securities fraud” (FBI b, 2012). According to indictment charges, its CEO Timothy Durham and CFO James Cochran defrauded its investors when it misled its investors by misrepresenting about Fair’s true financial status. The accused also hid from the investors that their money were channeled to them to enrich themselves while continuing to defraud its investors by its false promises and false representations. It was also used to fund the failed business of the two defendants and to finance the expenses of their lifestyle. When Durham and Cochran acquired Fair Financial Company, they changed the way the business was run and fired its independent accountant when it pointed out that they are selling investment certificates that cannot be funded. The scheme would not have been uncovered without the help of forensic accounting because the defendants deliberately concealed the records that would point their misuse of company funds and defrauding investors by selling them investor certificates that cannot be redeemed for a profit due to the financial status of the business (FBI b, 2012). b. American Therapeutic Corporation (ATC) and Medlink Professional Management Group Inc. Another fraudulent scheme that was uncovered by FBI’s forensic accountant that made its owners plead guilty is the American Therapeutic Corporation (ATC) and Medlink Professional Management Group’s fraudulent claims to Medicare that amounted to $200 million. ATC represented itself as a corporation in Miami, Florida that operates partial hospitalization programs (PHPs) in seven different locations in Florida offering intensive care treatment for severe mental illness. It employed Medlink which posed as a management consultancy health care business which in practice has only ATC and another company ASI ( American Sleep Institute) as a client. Medlink and ATC “altered patient files, diagnoses, and medication types and levels to make it appear that patients being treated qualified for PHP treatments . . . [so that they] could fraudulently bill Medicare for more than $200 million in medically unnecessary services (FBI c, 2012). Without the help of forensic accounting, these fraudulent claims would not have been discovered. It has to be noted that the victims that the defendants are defrauding are the severely mentally ill patients who does not have the capacity to complain nor inquire into the books of ATC or Medlink. It is only through an insightful investigation that well planned scams like this can be uncovered and can only be done through the help of forensic accountants. The investigation may have been done very well that the owners of both companies pleaded guilty to the charge. References American Institute of Certified Forensic Accountant (2012), Forensic Accounting: what is forensic accounting? Retrieved from [http://www.forensicasia.org/forensic_accounting] AICPA a (nd). Characteristics and Skills of the Forensic Accountant. Retrieved from [http://www.aicpa.org/interestareas/forensicandvaluation/resources/practaidsguidance/downloadabledocuments/forensicaccountingresearchwhitepaper.pdf] AICPA b (2010). Statement on Responsibilities in Personal Financial Planning Practice Retrieved from: http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/PFPPracticeManagement/ProfessionalStandardsandEthics/DownloadableDocuments/SOR.pdf FBI a (2012). FBI Forensic Accountants: Following the Money. Retrieved at [http://www.fbi.gov/news/stories/2012/march/forensic-accountants_030912/forensic-accountants_030912] FBI b (2012), Three Former Executives Charged in $200 million Fraud Scheme Involving Fair Financial Company Investors. Retrieved at [http://www.fbi.gov/indianapolis/press-releases/2011/ip031611.htm] FBI c (2012). Two Miami-Area Corporations Plead Guilty to More Than $200 Million Medicare Fraud. Retrieved at [http://www.fbi.gov/miami/press-releases/2011/two-miami-area-corporations-plead-guilty-to-more-than-200-million-medicare-fraud] DiGabriele, J. (2008). Litigation support and the forensic accountant: ASSEMBLING A DEFENSIBLE REPORT. Forensic Examiner,17(2), 82-85. Retrieved from http://search.proquest.com/docview/207656523?accountid=30530 Owojori, A.A; Asaolu, T.O. (2009). The Role of Forensic Accounting in Solving the Vexed Problem of Corporate World. European Journal of Scientific Research, 29(2):183-187. Read More