Restoring faith through forensics Featured

12:36pm EDT August 29, 2006
Say the word “Enron” and the average American thinks “corporate corruption.” While the Enron accounting scandal is not the only case of corporate fraud perpetrated by unethical management practices, it is one of the most recognizable. Cases involving management fraud, money laundering, tax evasion, bankruptcy, securities and other types of fraud, which are increasing in frequency, continue to be widely publicized by the media.

These types of scandals — coupled with the popularity of TV series such as “CSI” — have produced a culture with a collective conscience in tune with the concepts of fraud examination and “forensics.”

Smart Business talked with Thomas G. Seiler, accounting program chair and professor at Franklin University, about forensic accounting.

How pervasive is fraud?
Some reports estimate that approximately $652 billion is lost to fraud each year in this nation alone.

As an example, a Fortune 500 company recently uncovered a $436 million fraud. Because this company’s profit margin was approximately 10 percent, this organization had to generate revenue equal to 10 times the amount of the fraud, or $4.36 billion, to replace what was lost. When faced with the choice of generating billions more in revenues to replace fraud loss, or investing in measures to prevent future fraud, reducing and eliminating fraud was clearly the more effective way to spend money.

What is being done to detect and prevent fraud?
The increase in fraud cases has led to more government regulation of corporation governance and the accounting profession (i.e., Sarbanes-Oxley legislation). In addition, a growing lack of faith among shareholders in corporate ethics and business operations has created a need for companies to pro-actively address the issue of fraud and the protection of its assets.

In an effort to restore such lost confidence — internally and externally — many companies have implemented provisions beyond those required by Sarbanes-Oxley, in order to create a climate of accountability and assurance.

Antifraud measures include establishing standards that require accountants and managers to develop skills that safeguard assets and ensure the integrity of all financial information. This may even include structuring departments dedicated to detecting, preventing and resolving issues related to fraud.

What types of new job opportunities has this created?
Many different professionals are now playing important roles in ‘following the money trail’ when a potential fraud problem is uncovered. Careers that were unheard of a decade ago have become essential.

For example, fraud examiners serve companies in a capacity that can be described as a ‘financial detective.’ In addition to understanding financial aspects of fraud, a fraud examiner must also understand individual behaviors. The fraud examiner’s role is to uncover not only the motives behind the fraud, but also the opportunities — or glitches in a company’s processes — that allowed the fraud to take place.

Another indispensable role is that of forensic accountants, who dissect and analyze corporate accounting systems. A forensic accountant can combine the science of numbers with a sort of ‘sixth sense.’ Forensic accountants combine the disciplines of accounting, investigation and behavioral science — backing their intuition with facts and evidence.

Fraud personnel need to be proficient at detection skills, such as developing and implementing investigative strategies to determine why and how fraud was committed; effectively obtaining and examining documentary evidence; utilizing effective interviewing skills; writing investigative reports; and testifying as expert witnesses during court proceedings.

What opportunities does this create for those trained in the area of forensics?
This new corporate focus has created a great career opportunity for individuals who are proficient in detecting and preventing financial fraud at all levels — whether it involves cheating on an expense report or analysis of management overrides on major transactions.

Independent forensic auditors, internal fraud examiners, accounting forensic consultants, corporate accounting officers and governmental frauc assessors all well positioned to play significant roles in their organization’s path to restore stakeholder confidence.

To meet the demand for professionals qualified for these positions, universities are structuring programs that combine the basic tenets of a discipline with specialized antifraud curriculum. For example, a business forensics major provides students with a solid business background in addition to antifraud and fraud-detection training. A program focused on forensic accounting focuses on accounting skills, combined with the ability to identify and analyze fraud and forensic accounting issues.

In this way, institutions of higher education play a vital role in the nation’s ability to reduce the incidence of fraud. By preparing students to serve in positions related to fraud detection and prevention, educators can assist the corporations of today and tomorrow to restore the trust and confidence that unchecked fraud destroys.

THOMAS G. SEILER, J.D., CPA, is the Accounting Program chair and a professor at Franklin University. In addition to education, Tom has enjoyed careers in public accounting, corporate accounting and law. Visit www.franklin.edu for information on the business forensics and forensic accounting majors at Franklin University.