Enron, Lehmann Brothers, HealthSouth, American Insurance Group — you may have heard of these institutions, and most likely, for all the wrong reasons. These companies were some of largest embroiled in recent scandals for defrauding investors of billions of dollars. You may have even heard of the CEOs of some of these companies, like Bernie Madoff, Richard Scrushy, Kenneth Lay or Jeffrey Skilling. However, lost to history are the names of the unsung heroes in these cases: the forensic accountants.
Forensic Accounting and Law Enforcement
Forensic accounting is one of the most important financial investigative tools for law enforcement organizations. The FBI defines this profession at the intersection of “accounting, auditing and investigative skills to provide quantitative financial information suitable for a court of law.” That is, forensic accounting occurs when the objects of scrutiny may be used as evidence in litigation. While the evidence is financial in nature, the crime being prosecuted can range from fraud and racketeering to even kidnapping.
One of the most famous examples of forensic accounting was the Lindbergh baby’s kidnapping in 1932. To identify the kidnappers, authorities tracked the serial numbers of gold certificates used in the ransom. According to the FBI, “As a result, the various neighborhood banks discovered the bills close to the point at which they were passed, and it then became possible for the investigators to trace the bills to the person who had originally passed them.”
Forensic Accountants Are in Demand
While more contemporary examples abound, these heroes often must remain anonymous, as companies are hesitant to publicize that they’ve lost money somewhere. However, as the New York Times reports, forensic accounting is a growth industry. As more companies are waking up to the reality of white-collar crime, more forensic accountants are needed to investigate and help prosecute these crimes.
Often, companies are looking for managers with specific training in forensic accounting. Some online MBA programs now offer courses geared specifically toward forensic accounting. Southeastern Oklahoma State University (SOSU), for example, offers a course that “examine(s) a variety of cases of corporate fraud involving asset misappropriation and corruption.” SOSU’s MBA with an emphasis in Accounting program acknowledges the value of forensic accounting not only as a discipline, but also as an important skill for most managers to have. The first line of defense against corporate fraud, after all, will be these MBA-wielding accountants.
Forensic Accounting and Big Data
Forensic accounting has come a long way since tracking serial numbers on gold certificates. In the era of Big Data, forensic accounting algorithms flag suspicious purchases on credit cards, track international investments and alert managers to misused company resources. While computers have taken over some of the heavy lifting for forensic accountants, organizations still need people to delve deeper and find patterns that computers miss.
Modern forensic accountants must keep pace with technology and stay one step ahead of fraudsters. Credit fraud is just one area that has exploded in recent decades. Now, forensic accountants are cataloging more fraud involving mobile technologies and email. Anthony Campanelli, a partner at Deloitte Financial Advisory Services LLP, sees more and more “forensic accountants (being) called in to help identify the source of an email following a phishing attack on a business.” While computers can help track and find problems, forensic accountants are integral to both gathering evidence and preventing future crimes.
In a 2017 case involving a $4.1 million embezzlement, Marcum, LLP (a national accounting firm) was called in to investigate “a long-term employee who resigned unexpectedly and had access to the company’s financial accounts.” The investigation eventually covered broad ground: “forensic analysis of various credit card statements, bank statements, company documents and records; forensic analysis and retrieval of deleted information from a company computer previously assigned to the individual; physical surveillance; investigative due diligence and asset traces of the individual, family members and various others; and interviews of fact witnesses, including proprietors of retail establishments at which purchases were made.” Such an investigation took a team of forensic accountants working across many streams of information to find the evidence necessary to convict.
As commerce morphs with new technologies, so does the field of forensic accounting. While forensic accounting is a rewarding career in its own right, the nature of financial crimes requires that managers remain current on techniques and prevention measures.