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Forensic Accountants Key to Solving Financial Fraud

Financial fraud has been on an upward trajectory as technology makes it easier than ever before to carry out.

From wire, card and IRS tax fraud to identity theft, it’s turning into an epidemic and everyone pays. Overall, according to the Nilson Report, a newsletter for the payment systems industry, credit card fraud losses worldwide are projected to reach $31.67 billion by 2020.

And it’s not just individuals that pay the price. In its 2016 Global Fraud Study, the Association of Certified Fraud Examiners (ACFE) found that the typical organization loses 5% of annual revenues to fraud. Total losses topped $6.3 billion; the average per case loss was $2.7 million.

It’s created a need for forensic sleuths – accountants who know how to spot the different types of fraud and fix the problem.

What is occupational fraud?

Unlike schemes that are employed against individuals, the ACFE defines occupational or internal fraud as using one’s occupation for “personal enrichment through the deliberate misuse or misuse of the organization’s resources.” There are three types:

  • Corruption. Conflicts of interest, bribery, illegal gratuities and economic extortion are some forms of corruption. One example: Kickbacks, where an employee colludes with a vendor to charge inflated prices, with part of the resulting financial gain “kicked back” to the employee.
  • Asset misappropriation involves stealing or misusing money or other company property such as inventory. One example involves creating a shell company that is approved as an authorized vendor, thanks to an employee in a position to approve invoices for phony services.
  • Financial statement fraud. It encompasses instances in that an individual’s net worth or income are overstated. It may consist of fictitious revenues or concealed or overstated liabilities and expenses.

Enter forensic accountants

Forensic accountants have developed the skills to uncover cases of financial fraud, digging into records to determine if money is missing or any laws have been broken. Accounting and law firms, law enforcement agencies, financial institutions and insurance companies are some places that employee forensic accountants. Specifically their job may entail:

  • Financial analysis for evidence and preparing search warrants.
  • Forensic research and asset identification for recovery purposes.
  • Financial investigative reports.
  • Identifying and tracking funding sources and related transactions.
  • Interaction with legal teams, law enforcement, insurance investigators and other stakeholders.
  • Preparing data for litigation and testifying in court.

The path to forensic accounting starts with education. A bachelor’s or master’s degree in accounting or a related field may be required. Candidates may also find a background in criminal justice or law enforcement helpful as well. Some accountants earn professional certifications, such as Certified Fraud Examiner (CFE), Certified Public Accountant (CPA) and/or Chartered Accountant.

The U.S. Bureau of Labor Statistics shows that accountants and auditors overall earned an average annual salary of about $76,730 as of May 2016. In general, the field is expected to grow at an 11% rate through 2024. Because salary potential and employment opportunities may vary depending on factors such as a candidate’s education and experience, as well as regional market conditions, prospective students are encouraged to conduct independent research.

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