Investigating Financial Fraud Personalities & Attributes of Investigative Accountants Anthony Carro, CPA Accounting Program Coordinator - Flagler College.

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

Personality & AttributesPersonality & Attributes

What personality types and attributes match KSA?

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

Advising StudentsAdvising Students

Understanding what an investigative accountant does

Matching personality & attributes Suggested courses Career outlook and guidance