Investigating Financial Fraud Personalities & Attributes of Investigative Accountants Anthony Carro, CPA Accounting Program Coordinator - Flagler College.
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Investigating Financial FraudPersonalities & Attributes of Investigative Accountants
Investigating Financial FraudPersonalities & Attributes of Investigative Accountants
Anthony Carro, CPAAccounting Program Coordinator - Flagler College @ TCC
Former Chief Financial Investigator Office of the NY County District Attorney
Outline of This PresentationOutline of This Presentation
Background on Investigative Accounting Compare and contrast financial Investigations,
fraud detection and forensic accounting Attributes and personality traits used in selection
of investigative accounting personnel Career paths of investigative accountants
History of Investigative Accountants at NY District Attorney’s Office
History of Investigative Accountants at NY District Attorney’s Office
Thomas Dewey seeks to attack NYC racketeers by identifying and seizing their assets.
Hires a group of 4 accountants, supposedly including his brother-in-lawAfter the success of the prosecution of Capone by IRS, DA’s Accounting Bureau expanded to 15 membersBy 2001 office has a staff of 30 Financial InvestigatorsFrom 1998 – 2001 Financial Crimes Bureau has assisted in the forfeitures of over $100 million.
History of Investigative Accountants at NY District Attorney’s Office
History of Investigative Accountants at NY District Attorney’s Office
History of Investigative Accountants at NY District
Attorney’s OfficeEvolving Role
History of Investigative Accountants at NY District
Attorney’s OfficeEvolving Role
For Many Years accountant’s role was: Behind the scenes during investigation– Rarely participated in interviews & fieldwork
Expert witness for court In the ’80’s role expands:
Increased authorityInterview trainingTeam concept adopted
Auditors & InvestigatorsSimilarities
Auditors & InvestigatorsSimilarities
ProceduresAuditors do investigateInvestigators do audit
DocumentsInternalExternal
Education
Auditors & InvestigatorsDifferences
Auditors & InvestigatorsDifferences
ObjectivesAuditing –AssuranceInvestigations- proof
RelianceAuditing – document drivenInvestigations – people driven
PerformanceAuditing-Time drivenInvestigations- Outcome driven
Financial Investigations - Fraud Detection - Forensic AccountingFinancial Investigations - Fraud Detection - Forensic Accounting
Investigation = Smart BombsBased on informationTargets identifiedMoney Trial Identifiable
Detection = ShotgunBased on suspicionPerpetrator(s) unknownMethodology of fraud unknown so Go Fish!
Financial Investigations - Fraud Detection - Forensic AccountingFinancial Investigations - Fraud Detection - Forensic Accounting
Forensic = TestimonyBased on evidenceTargets identifiedreconstruct from source documents & 3rd party records admitted into evidence
According to the Random House Webster’s College Dictionary, forensic is defined as pertaining to, connected with, or used in courts of law or public discussion and debate.
Techniques - Financial Investigations Techniques used
Team approachBuilding Blocks of evidence - not just financial records
Standard Methods AdoptedGathering data
– internal & external source documents– As complete a picture as possible
Analyze Data– Know what to expect then look for unexpected– Data analysis/mining - depends on nature of investigation
Net Worth - indirect proof of illicit receipt of incomeFTMS!
Standard Auditing Procedures specifically ignoredSamplingMateriality
Follow the Money Stupid!– Step 1 FlipFollow the Money Stupid!– Step 1 Flip
Every check tells a story Every bank is different Get to know a banker Savings Banks and Credit Unions
clear through Correspondence Bank
Check cashiers require bank affiliation
Copies of checks can also be secured as deposit items
Follow the Money Step 2 - ScanFollow the Money Step 2 - Scan Cash Disbursements
Round numbersRelated partiesTime periodChoice of G/L charge
Payroll Expense checks to non-employeesShort employment periodsMany Ind. Contractors < $600 Returned W-2’s
A/R & A/pStrange allowancesUnusual creditsAging questions
Job Cost FoldersSame costs billed to multi-projectsRelated company rental chargesLarge buy-outs of subcontractors after job closed
out
Sign over my desk read:Sign over my desk read:
If you can’t flip the accountantGET OUT THE F%*& OUT OF THIS
BUSINESS!!
What the accountant knowsWhat the accountant knows
Questionable costs Revenue Recognition & Billing Irregularities Less than arms length transactions Off balance sheet items Off ledger items Off tax return items Off the wall items
Double meaning accountingDouble meaning accounting
Exchange Account =Due to/ from =Consulting Fees =Allowance =
Money Laundering Tax evasion Kickbacks Fraudulent Billing
Financial InvestigatorsRecruitment & TrainingFinancial InvestigatorsRecruitment & Training Generally investigators came to DA from several routes:
other Law Enforcement Agencies government audit positionsBig 8… 7…6… 5… 4 Firmsfinancial services industrycollege recruits
– Undergraduate– Non-CPA
Other Law EnforcementOther Law Enforcement
StrengthsExperienceTrainingContacts
WeaknessesMotivation - often ‘retired’Technical accounting skills
AuditorsAuditors
StrengthsTechnical accounting skillsOrganization
WeaknessesTraining and audit practices– Interviewing– Reliance on sampling and materiality
Interpersonal skills
Financial ServicesFinancial Services Strengths
Knowledge of operationsContactsInterpersonal skills
WeaknessesTechnical accounting skillsOrganization of evidenceMotivation – salary issues
College GraduatesCollege Graduates Strengths
Motivation – BadgesTechnical accounting skillsTrainable
WeaknessesInterviewing skillsInterpersonal skillsWriting skillsOrganization skillsSalary Expectations
Developing KSA Requirements
Developing KSA Requirements
Started with knowledge, skills and abilities required for an auditorKnowledge of accounting or auditing methods, principles and procedures. Knowledge of methods of gathering, compiling and analyzing data. Skilled in use of technology tools and electronic researchAbility to audit financial data. Ability to examine and audit financial records. Ability to prepare audit reports. Ability to probe and obtain critical facts. Ability to utilize problem-solving techniques. Ability to plan, organize and coordinate work assignments. Ability to communicate effectively.
Developing KSA RequiementsDeveloping KSA Requiements
Financial Investigator’s knowledge, skills and abilities requirement:Knowledge of investigative techniques. Knowledge of accounting or auditing methods, principles and procedures. Knowledge of methods of gathering, compiling and analyzing data. Knowledge of the criminal law and rules of evidence. Skilled in use of technology tools and electronic researchAbility to review, analyze and evaluate financial data. Ability to examine and audit financial records to recognize suspect activity or transactions. Ability to prepare financial investigative reports. Ability to effectively interview suspects, complainants and witnesses Ability to probe and obtain critical facts. Ability to utilize problem-solving techniques. Ability to plan, organize and coordinate work assignments. Ability to communicate effectively. Ability to establish and maintain effective working relationships with a team. Ability to conduct investigations
AICPA Study of Accounting StudentsAICPA Study of Accounting Students
Motivated by a challenge Strong need for structure & order Out-come & Process focused Risk-avoidant Myers-Briggs type = ISTJ
Report on finds of Student Focus Groups LM Research - AICPA, www.aicpa.org/educators
Survey of InvestigatorsSurvey of Investigators
Also Motivated by a Challenge Operate in an enviroment that is highly
structured but tend to be disorganized! Prefer to work in teams Outcome focused High risk tolerance Majority ranked as ESTP types
Myers-BriggsMyers-Briggs
Introverts - Extraverts
“How I interact with the world”
Sensing - Intuitive
“How I see the world”
Thinking - Feeling
“How I make judgments in the world”
Judging - Perceiving
“How I organize the world” Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
Myers-Briggs DefinitionsMyers-Briggs Definitions
Introverts are oriented toward the inner world and focus on ideas, concepts, and impressions. They enjoy privacy and work well alone or with just a few others.
Extroverts Stimulated by the people, things, and activities in their environment. They are sociable and enjoy active participation in tasks.
Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
How we structure the outer worldHow we structure the outer world
JudgingTake an orderly, planned approach to life. They like to organize activities, make decisions, and finish projects.
Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
JudgingJudging Prefers instructions to be clearly defined Likes to get things settled and finished Needs structure; changes can be upsetting Likes to make decisions Gets assignments in on time Is orderly, organized, and systematic Lives by a schedule
Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
PerceivingPerceiving
Take a spontaneous, flexible approach to life. They are curious and adaptable and prefer to stay open to new experiences
Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
PerceivingPerceiving Is curious May begin tasks before reading directions Acts spontaneously Likes change and copes well with the unexpected May have difficulty with planning or time
management Enjoys an activity more than the result
Source: James L. Murphy Freed-Hardeman UniversitySource: James L. Murphy Freed-Hardeman University
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