According to International Investment, “Financial crime costs the global economy $2.4 trillion each year.” Financial crime is a complex challenge that needs qualified forensic accountants to help prevent financial loss impacting businesses and people all over the world.
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Fighting Fraud and Financial Crime
Forensic accountants are investigators who search for clues in numbers to detect and solve financial crimes. Forensic accountants typically investigate seven types of financial crime committed by a wide range of individuals, from employees to top executive and terrorist groups. The seven types of financial crime are fraud, cybercrime, terrorist financing, tax evasion, money laundering, bribery, and insider trading.
Notorious Masterminds of Complex Financial Crime
One of the most infamous names linked to financial transgression is Kenneth Lay, who was engaged with concealing the poor finances of the energy company Enron. He was convicted of conspiracy and bank fraud. Unfortunately, his crimes cost Enron shareholders more than $1 billion. Lay died of a heart attack while he awaited sentencing.
Another name synonymous with financial crime is Bernie Madoff. A stockbroker that worked in New York City, Madoff ran a Ponzi scheme that costs clients $65 billion. He was sentenced to 150 years in prison.
A third financial criminal is Bernie Ebbers, who built a telecommunication company called WorldCom through debt-funded acquisitions. He used accounting fraud to mislead investors, and cost clients $11 billion along the way. Ebbers was sentenced to 25 years in prison.
Tools of the Trade
With financial crimes becoming increasingly sophisticated, forensic accounting professionals are relying on various techniques and fraud detection software to conduct their investigations.
One of the big tools used is data analytics. Forensic accounting professionals use the concept to look for manipulated accounts, unusual relationships between accounts, suspicious transactions, and clues in unstructured data such as email, texts, and voicemails. The also seek out the point at which the numbers are being manipulated to understand how the deception occurred.
Another concept the professionals utilize is known as Benford’s Law. This “law” states that naturally occurring numbers occur in certain frequencies. For instance, the number 1 will be the leading digit 30.1% of the time, and the number 2 will be the leading digit 17.6% of the time. The numbers 3 through 9 will be the leading digit with decreasing frequency. Benford’s Law can’t prove fraud, but a data set that shows number deviating from the concept can point to fraudulent activity. Applying this law to data isn’t difficult. Those skilled in Microsoft Excel can look for the law by using the program’s COUNTIF function.
A third tool used by forensic accounting pros is computer-assisted auditing tools, or CAATs. These computer programs can identify unusual or abnormal trends in data that can indicate fraud. The advantages of using this tool include increased efficiency, uncompromised quality, and easy adjustment of analysis focus.
There is also a popular software solution called Faudbond by Galvanize that can be utilized. This software can give the user compete control of an auditing program that can be used to evaluate and monitor the weaknesses of internal controls as well as investigate anonymous whistleblower tips. The software can also produce automated fraud monitoring analytics, including advanced analytics and automated follow-ups. Finally, the software can conduct automated issue escalation and case management.
Top Careers in Forensic Accounting
As the name of the concept suggests, forensic accounting offers career opportunities for forensic accountants. Those in this role conduct forensic research and analyze financial data. They also produce reports summarizing findings and prepare data for legal proceedings. The skills associated with the role include interpersonal, analytical, detail-oriented, and organizational competencies. The 2018 median salary for forensic accountants equipped with a Certified Fraud Examiner credential is $104,500, and it’s $82,938 for those without the credential.
Another forensic accounting career is financial examiner. Those in the role monitor the financial condition of financial institutions, train junior examiners in the financial examination process, and prepare financial reports. Skills considered fundamental for the role include strong analytical, detail-oriented, math, and writing competencies. The 2018 median salary for the position is $80,180.
A third career in forensic accounting is an auditor. Those in this profession analyze financial statements for accuracy and compliance with laws and regulations, calculate taxes owed and prep tax returns, organize and maintain financial records, check for proper management of funds, and prepare written reports to explain findings. Auditors need strong communication, organizational, detail-oriented, analytical, and math skills to succeed. The 2018 median salary for auditors is $70,500.
Regardless of career, forensic accounting professionals can work in a host of different professional environments. These include insurance companies, government agencies, law firms, public accounting firms, and financial institutions.
Forensic accounting professionals make an impact on many organizations, government agencies and economies, uncovering financial crimes that may have otherwise remained undetected with the help of proven techniques and advanced software, forensic accountants are today’s financial detectives, following clues hidden in numbers.