Introduction to Forensic Accounting & Fraud Examination

Forensic Accounting Focus

forensic accounting is a broader field that involves the application of accounting principles and investigative techniques to analyze financial information for legal purposes

Importance of Forensic Accounting

essential in preventing and detecting fraud; helps organizations identify and mitigate financial risks, safeguard assets, and maintain the integrity of financial information

Fraud Examination

the process of investigating and analyzing financial transactions and records to uncover fraudulent activities

Accounting Knowledge, Investigative Skills, Legal Knowledge, Analytical Thinking, Communication Skills, Ethics + Integrity

skills required for fraud examination

Key Differences Between Forensic Accounting and Fraud Examination

forensic accounting has a broader scope, covering various financial and legal matters, while fraud examination specifically deals with fraud-related issues

Definition of Fraud

a deliberate and deceptive act involving the manipulation, misrepresentation, or concealment of information to gain an unfair or dishonest advantage

The Act, the Intent, the Resulting Damage or Loss

legal elements of fraud

Act, Conversion, Concealment

fraud triangle of action

Act

what fraud occurred

Conversion

how did the defendant benefit from the act

Concealment

how did the defendant cover up their activity

Pressure, Opportunity, Rationalization

the fraud triangle

Pressure

refers to the financial, emotional, or lifestyle pressures that individuals face; can include personal financial difficulties, addictions, or the desire for material possessions

Opportunity

involves the presence of opportunities for individuals to commit fraud; arise when there are weaknesses in an organization’s internal controls, such as lack of segregation of duties or inadequate monitoring

Rationalization

relates to the rationalization or justification that individuals use to justify their fraudulent actions; can include beliefs that they are entitled to the funds, that they will repay the money, or that the organization owes them

Capability

4th element of the fraud diamond; focuses on the individual’s capability or ability to commit fraud; can include their knowledge, skills, and access to resources

Asset Misappropriation, Corruption, Financial Statement Fraud, Fraudulent Financial Reporting, Vendor Fraud

types of fraud

Asset Misappropriation, Corruption, Financial Statement Fraud

most common fraud schemes

Asset Misappropriation

involves the theft or misuse of company assets for personal gain; ex: embezzlement, theft of inventory, payroll fraud; accounts for 30% of all fraud cases

Corruption

involves the abuse of power for personal gain or to influence decision-making; ex: bribery, kickbacks, extortion; accounts for 20% of all fraud cases

Financial Statement Fraud

involves intentionally misrepresenting financial statements to deceive stakeholders and manipulate stock prices; ex: overstating revenues, understating expenses, falsifying documents; accounts for 40% of all fraud cases

Key Differences Between Asset Misappropriation and Corruption

misappropriation takes assets directly; corruption abuses influence for gain