Forensic Accountants: In the Fight Against the Misuse of Technology - Term Paper Example

Forensic Accountants: In the Fight Against the Misuse of Technology This paper examines the role of forensic accounting in the fight against fraud committed through the use of advanced technology. Technology gives rise to a large range of white-collar crime around the world. Most of these technology-based fraud are related to the use of computers (Krancher, Riley & Wells 12) Krancher, Riley & Wells explain that the increase in the use of computers to commit crimes are due to the following reasons (15): 1. There has been a large increase in the use of information technology systems and tools in business. 2. The largest businesses, particularly those with a global reach center their operations on technology. 3. The exploration of computers and information technology by fraudsters and cybercriminals and 4. The increased use of independent computer forensic experts have caused a corresponding increase in the detection of computer related crimes. Fraud involves an individual making a false representation knowingly to a third party, which enables him to commit a crime (Skalak et al 7). Major corporate collapses in recent times, including Enron and Worldcom are attributed to fraud (Singleton & Singleton 4). Fraud is a serious criminal offense which requires legal action. The history of forensic accounting can be traced to Ancient Egypt (Krancher et al 12). Pharaoh's officials had a responsibility to render accounts for all their stewardship duties and lapses were investigated using techniques that are similar to forensic accounting today. This was carried down by the Greeks, Romans to the England. Forensic accounting was first utilized in an English court in 1817 and a Scottish lawyer offered accounting services that sought to use forensics in investigations in 1824 (Krancher et al 14) The most popular forms of the detection of corporate fraud is usually through allegations by a third party, investigations, senior officer detecting the fraud, accidental discovery, audit and anti-fraud controls (Singleton & Singleton 7). Typically in an organization, fraud will be uncovered if someone stumbles on the situation and reports it. Most at times, this is either through insiders or an external auditor. Such discoveries can cause the case to be reported for legal action to be taken on the matter. It is interesting to note that Proviti identifies that on the average, fraud in the corporate sector goes on for 2 years before being detected. Thus most businesses go for a fraud detection system that is set up and monitored by forensic accountants (ACL 5) However, detection of a fraud is not enough to prosecute the matter. For the evidence of a given fraud to be brought to a competent court of jurisdiction, there is the need for investigations to be conducted and the main pointers of criminal action to exist. This is where the forensic accountant is needed. Singleton & Singleton (8) identify four main pointers that enables fraud to be tried in court. First of all, there should be a criminal law in place the incriminates the fraud detected. Secondly, the fraud in question must breach the law. Thirdly, the perpetrators of the fraud should be identifiable persons under law. Finally, the victim (in the case of a corporate entity, the legal company) must exist for fraud detected to be tried. In preparing the case, there is the need for the forensic accountant to investigate and put together evidence for the trial. The forensic accountant needs to acquire all details and documents related to the case and examine them against the allegations, assess the corporate environment and also try to identify the motives for the crimes (Singleton 8). The process involves looking for connected conspirators and the identification and test of targeted areas (Skalak et al 17)This findings and evidence will be put together by the forensic accountant and presented to court for trial in the fraud situation to be conducted. Currently, there several certifications for forensic accounting. There are professional accountants who specialize in forensics like CPAs and Chartered Accountants. These professionals often get certification from bodies like Certified Fraud Examiners and Certified Fraud Accounting Professionals. Most of these people study, pass examinations, practice to gain experience and also abide by ethics of their professional body. A forensic accountant can ply his trade as an auditor or as an investigator. As a forensic auditor, cases and situations that are highlighted as fraudulent are presented. They get all the legal backing necessary from the relevant authorities and then proceed with investigations. One can also be an independent forensics investigator or consultant who is called upon in cases where fraud must be investigated. In other instances, a person can work as an investigator for a public law enforcement entity like the Federal Bureau of Investigation or the police and such personnel are deployed as forensic investigators in cases of financial fraud. As indicated earlier in this paper, the use of computers has increased tremendously over the years. It is therefore no coincidence that efforts to track down fraud by the forensic accountant is going to evolve into the sphere of technologically related crimes. Technological-Related Fraud George Manning, the retired forensic accounting expert places corporate fraud into two categories, macroeconomics and microeconomics. Macroeconomic corporate fraud involves regional, national and international issues in a fraudulent activity (Manning 5). This includes the use of organized crime groups that use sophisticated techniques to defraud businesses around the country. Microeconomic corporate fraud involves individuals and units within an organization perpetrating crime (Manning 2). Typical examples of microeconomics crime involve customers, employees, managers and other stakeholders who have a direct financial relationship with the company in question. Examples of such crimes include identity theft, credit card theft and embezzlement. The use of computers and higher technology enables microeconomic corporate fraud to be linked with macroeconomic corporate fraud. This is because the computer and sophisticated technology enables people with a criminal intent to commit more crimes than normal. The Federal Bureau of Investigation identifies four main elements of macroeconomic corporate fraud that poses a challenge to the average forensic accountant. They are ATM heists, marketing of stolen Ids and credit card details, email scams and malicious software generation. In a case involving ATM heists, the FBI identified that a computer hacker generated the password of a financial institution (FBI ATM Heists). The hacker created credit cards and linked them to the financial institution's account and raised the credit limits. He informed collaborators around the world and within a 12 hour period when the bank's headquarters in the US was closed, the hacker and his accomplices withdrew $12 million in over 2,100 ATMs around the world. The FBI had to use its forensic experts and co-operation of other national police services around the world to get the perpetrators arrested. In another case, the FBI identified and clamped down on an illegal exchange system where people who stole credit card details could sell them. This clearly indicates that in the same way that IT facilitates commerce, it can also become a hotbed for fraud if insiders like employees lay hold of consumer credit card details. Also, e-scams which involve fraudulent offers sent over the Internet can really lead to serious fraud from third parties who approach organizations with fraudulent offers. Malicious software manufacturers can also lead to serious frauds and criminal activities by third parties like phishing and spyware through the use of Information Technology tools. The Role of the Forensic Accountant in Computer-Related Fraud Normally, the role of forensic accountants in computer-related fraud involves six main phases (Moeller 89): 1. Assessment of allegations 2. Examination of the IT system involved 3. Evaluation of the motives of the perpetrators 4. Identifying target areas for testing 5. Collection of evidence 6. Preparation of a forensic investigation report First of all, the computer forensic auditors will have to examine the allegations leveled against the accused persons. The legal framework within which they are to be tried must be identified and from there, the computer forensic auditors can identify the scope and approach for the investigation. After that, the computer forensic investigators will have to examine the IT system and document them. This involves authorization from the client and consultations with various stakeholders (see Exhibit 2). They will then document the system and examine where the weaknesses exist and make investigations. From thence, the motives of the perpetrators will be examined. This will be done through a modified use of the fraud triangle: Opportunity, Rationalization and Pressure. Each individual indicted in the matter will be examined and his motives will be assessed based on the facts at hand. Afterwards, weak areas and areas through which the fraud was perpetrated will be identified and documents will be collected and examined. Most times, the hard disk of the computers involved are taken out for investigations (See a sample in Exhibit 1). These ones are kept delicately and presented for further analysis and evaluation. When all these are done, the forensic investigation report is prepared and the evidence are kept and presented to courts either in hard copy or soft copies. Challenges in Computer Forensics Krancher et al (91) identify that the main challenge to computer forensics is the problem of the destruction of evidence. Due to the easy of deleting data from computers, it is easy for a criminal to delete information from criminal activities. However, Manning (198) identify that the use of audit trails and data recovery techniques makes it possible for data to be tracked. Another challenge is the physical destruction of evidence. In other words, there could be the destruction of various hard disks that can completely erase evidence. Conclusion Forensic accounting is meant to gather evidence in cases of corporate fraud. This evidence is collected through investigations that present findings that can be used in court trials. The use of information technology enables insiders to link up with organized crime groups to commit fraud against corporate entities. Popular technology-related schemes are ATM heists, ID and credit card theft, e-scams and the distribution of malware. Computer forensics use important tools and systems to gather evidence from technological systems. The ease of deleting transactions makes it difficult for computer forensic investigators to gather evidence. Works Cited ACL Services Limited. Fraud Risk Management: Developing a Strategy for Prevention, Detection & Response. KPMG. Journal. 2008. Federal Bureau of Investigation. ATM Heists. Web. October 3, 2011 Federal Bureau of Investigation. Dark Market Trackdown. Web. October 3, 2011 Federal Bureau of Investigation. Malicious Softwares. Web. October 3, 2011 . Federal Bureau of Investigation. Operation Phish Phry. Web. October 3, 2011. Krancher Mary-Jo, Riley Richard & Wells Joseph. Forensic Accounting & Fraud Examinations. Hoboken, NJ: John Wiley & Sons. 2010. Print. Manning, George. Financial Investigation & Forensic Accounting. CRC Press. 2010. Print. Moeller Robert. Brule's Modern Internal Auditing. Hoboken, NJ: John Wiley & Sons. 2009. Print. Proviti Incorporated. Fraud Prevention & Detection in a Manufacturing Environment. Proviti Inc. 2009. Journal. Singleton, Tommie & Singleton Aaron. Fraud Auditing & Forensic Accounting. Hoboken, NJ: John Wiley & Sons. 2011. Print. Skalal Steven, Golden Thomas, Clayton Mona & Pill Jessica. A Guide to Forensic Auditing Investigation. Hoboken, NJ: John Wiley & Sons. 2011. Print. Exhibit 1 A hard-disk can become an important component for computer forensics. It is typically taken out and examined by forensic accountants and presented to courts in times of trial. Courtesy: Ehow.com. Available online at: http://www.ehow.com/how_7246434_secure-computer-forensics-evidence.html Exhibit 2 Procedure for Computer Forensics Procedure of Forensic Computer Auditing. Courtesy: CyberEvidence.com. Available online at: http://www.cyberevidence.com/glossy.asp Read More