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Chapter 1



Some things are certain in this world: like death and taxes, as the old saying

goes. Just like how much most of the people are scared of dying and wanting to

avoid them, they do the same with their taxes. People want to minimize their taxes

to the littlest amount possible to make the most out of their income, or so they call


There are two ways to lower the tax liability. First is tax avoidance, which is

a wise and legal way of decreasing the tax bill by structuring the various

transactions that occurred in the taxable year to come up with an amount with the

largest tax benefit; then, there is tax evasion, or excessive tax avoidance, which is

an attempt to intentionally deceive the authority, and conceal their true tax liability.

According to, “tax fraud occurs when an individual or

business entity willfully and intentionally falsifies information on a tax return in order

to limit the amount of tax liability.”

Under tax fraud was tax evasion which is done by deliberately

underreporting income, falsifying records, claiming of false deductions, overstating

expenses, creating fictitious transactions and hiding or transferring assets. This is


not only a misconduct that holds the offender personally accountable, but is a

crime against the society and the democracy as it limits the government’s ability to

meet the demand of its nation. As a result, it creates a ‘shadow economy’.

In a research conducted by Tax Justice Network, an equivalent of 5.1

percent of global gross domestic product never reaches the government in the

form of taxes on a global scale. This is equal to a $3.1 trillion loss in annual

revenue; where in Asia alone costs about $665 billion.

In the Philippines, meanwhile, based on the 2014 presentation submitted

by the Former Bureau Internal Revenue (BIR) Commissioner Kim Henares to the

International Monetary Fund, there are 327 cases filed where 283 is still pending

at the Department of Justice, 39 at courts and only 5 was dismissed with finality

which totaled to an estimated tax liability of P64.98 billion through the Run After

Tax Evaders (RATE) program of the BIR and Department of Finance. In the

present year, a total of 492 RATE cases have been filed since 2010 but there we

no recorded convictions.

Governments of different countries have their ways of fighting this issue.

Some imposes higher penalties on tax evaders, while some enforces longer

sentence for imprisonment to discourage them. The Philippines, on the other hand,

aside from using the RATE program, also uses different strategies to ensure

proper tax compliance. But despite these, there are no prominent reports about

significant improvement on tax evasion. In order to improve their investigation

process, the researchers aim to determine what steps in forensic accounting are

deemed useful by the Bureau of Internal Revenue.


Forensic accounting was first introduced to investigate matters and provide

evidence that could be used in legal proceedings which in effect changed the way

frauds are assessed. This method may give rise to combatting the ever-growing

cases of tax evasion through thorough investigations combined with the knowledge

in accounting. It may either help discover fraud that audits might not have sufficed

on, or assist in the prosecution stage prior to filing them to the court.

The former Prime Minister of the United Kingdom, Gordon Brown, once

stated that "what the use of fingerprints was to the 19th century, and DNA analysis

was to the 20th century, so financial information and forensic accounting has come

to be one of today's most powerful investigative and intelligence tools available.”

Forensic accountants have been used as expert witnesses as far back as 1817

but had just been gradually being known in the industry.

In fact, one of the most notable utilization of this accounting investigative in

nature was the case of Al Capone’s tax evasion. Lawyers back then simply cannot

provide evidence, while the group of forensic accountants assigned to this specific

case was able to convict Al Capone. This imparts the strong foundation of this

department that could end the most notorious of activities.

Locally, there is a 90% tax evasion rate among professionals, particularly

doctors, engineers, lawyers, architects, and accountants, among others. This

implies concerns as there are inevitably countless suspicious activities that

question the credibility of the concerned people, most especially the auditor. This

primary employee that must ensure the reliability, verifiability and accuracy of

financial statements provided to intended users can also be subject to these

This infers a rise for future availability of specialty accountants to perform investigative procedures. Everyone is susceptible to this deceit. the demand for practitioners has been predicted to increase by 6. are not safe. businesses seek for a more capable method to assist them in terms of legal matters. This only indicates an unethical management. Although the diversity of laws and implementations of accounting principles around the world tried to fix this issue. 4 maliciousness because fraud that are being detected are under the supervision of an auditor. and failure as whole. which virtually would already have an appropriate system to detect-and-prevent them.7% from 2013 to 2018. Here is where forensic accountants take charge upon the influx of this issue to investigate granular information that might not have been easily detectable without thorough analysis undergoing a normal course of action. who are large taxpayers. . so they could not simply draw conclusions and opinions on seemingly compliant reports. incompetent personnel. The need was also contributed by the fact that there were no convictions despite the multiple filed cases which shows the incompetence of current personnel and programs that combat tax evasion. There is a conflict between the Tax Code and GAAP where the former prevails for taxation purposes. Even the big-time corporations. it simply cannot be solved without one specifically pronounced on these kinds of events. Due to these explanations. the scope of their work is only within the pages of generally accepted accounting principles. Also. Thankfully.

it stated that there is an international food service industry. forensic accounting has been in existence for several decades.” It is a rapidly growing field of accounting that describes the engagement that results from an actual or anticipated dispute or litigations. which is headquartered in two major cities on two continents that was under criminal investigation for tax evasion. 5 Background of the Study Forensic Accounting According to the “Forensic Accounting Demystified” by Zysman (2016). “Forensic accounting is the use of accounting knowledge and skills in collecting. an accounting and advisory firm. Forensic Accounting is an investigative style of accounting used to determine whether an individual or an organization has engaged in any illegal financial activities. He monitored the international business through forensic accounting and investigative procedures concentrated on the entities’ . it has evolved over time to include several types of financial information scrutiny.5 million in underreported taxes”. In the case study provided by Tilly (2015) entitled “Forensic accounting techniques unveiled $7. Although. evaluating and interpreting evidence that could be used for legal proceedings. implying that it attains information based on the accounting standard and will be used as evidence in legal cases. “Forensic” means “suitable for use in a court of law”. analyzing. Professional Forensic Accountant may work for the government or a public accounting firm.

the aforementioned study specifies who are the people involved in the application of forensic accounting or who benefits from their service. This investigation led to the discovery of underreporting of taxable income and underpayments of taxes and resulted in $7. legal counsel and other key personnel to ensure correct tax treatment of various items. particularly in the Philippines in terms of detecting different types of financial fraud. he discussed the It was successfully investigated and the case had been filed up to the extent that penalty and sending to jail occurred. (2009) entitled “Characteristics and Skills of the Forensic Accountant. . present and future of forensic accounting in terms of its usefulness to the society. In which they also lengthily interviewed the client’s tax preparer. forensic accounting as a means of investigating method is useful in detecting tax evaders. An article made by Smith (2015) “The CPA Journal”. In relation to the study.” the primary professions of forensic accounting practitioners are Certified Public Accountants (CPAs). 6 financial reporting and tax compliance. Based on the case study made by Baker Tilly. This helps in determining who are qualified to provide a relevant perception regarding on the use of forensic accounting as an investigation method. Based on the research of Davis et. It only supports that forensic accounting will be having a significant role in the society.5 million repayment of taxes owed. Attorneys and Academicians. And they also reviewed the financial statements provided by the client to ensure transparency in financial reporting.

As forensic practices followed their own separate path. and it is worthwhile to speculate how much it will change in the future. According to the Finance Magazine. This article reviews the history of forensic accounting. and fraud investigation and litigation services began to be offered. the practice of forensic accounting was not recognized as a separate practice area distinct from auditing. the auditing function separated itself from fraud detection. Matignas discussed the details of forensic accounting. Malaysian Business Article (2011) “LJM among ‘Who’s Who’ in forensic accounting”. It had helped the researchers to easily distinguish the role and the usefulness of forensic accounting practice and how influential it is in giving information in solving such fraudulent cases. including the risks involved in investigating allegations of fraud. Today's forensic accounting is very different from the search for fraud at the turn of the twentieth century. Leonardo J. He compared this specialized branch of accounting to Crime Scene Investigation where information is unveiled one by one as represented in the company’s records and studiously reviewed for quality in the event of any resulting legal implications. the services provided changed into those of an investigative nature. This article reviews the contractions and expansions that have occurred in the field of forensic accounting. forensic practice began to develop. and makes predictions about what the future holds for this practice area. 7 According to him. The field is still changing today. It also gave them a clear vision about . As occurred. But over the decades.

Based from the website entitled Tax Law Lawyer by Hartsock (2009) a tax lawyer. Forensic Accounting Seven-Step Method One of the procedures of criminal investigation applied by forensic accountant used to resolve fraud is the “Seven-Step Method” popularized by Richard Nossen. This information had given them a strong belief that this method of detecting fraud will be a great help to the world. he stated that the interviews performed by the Special Division .” Forensic accountants should carefully construct the interview process because its results will be a vital influence in court and legal proceeding. 8 the emphasis of their study. This procedure is considered because it matches the approach used by the Bureau of Internal Revenue in conducting tax fraud investigation. According to Golden and Dyer (2006) “Forensic accounting evaluations often use interview techniques designed to obtain an admission of guilt by the person(s) involved with the fraud scheme. country and the society. Interview and Interrogation The first step is the interview and interrogation that show the personal aspect of data-gathering which is obtained through personal interviews and interrogation under law enforcement authority and labeled as source of primary data. And the evaluation of the interview must undergo a legal process with the coordination of an attorney. nation.

or a memorandum. unsworn statement. Primary data were gathered personally by the forensic . and may be in the form of an affidavit. existing case evidence. A third-party interview can also be conducted by the special agent where it gathered evidence and information from other witnesses other than the taxpayer. Criminal Investigation interviews are rarely conducted by the special agent alone. such as tax return preparers. unless it is necessary. tax returns. The taxpayer who is subject to the investigation must not be present during third-party witness interviews. Interviews are recorded in written form by the special agent. it is usually led by another IRS agent or employee. and other information available in IRS databases. employees of financial institutions or the taxpayer’s business associates. Under this type of interview the special agent must not disclose a particular detail relating to the investigation against the taxpayer. 9 Investigation of Internal Revenue Service (IRS) under a criminal investigation are thoroughly planned in advance after the special agent had researched all publicly available evidence. Background Research The second step is background research involving the primary and secondary data. a transcript of the questions and answers.

According to the website called Investigative Knights (2016). and analyzing personal. This is also where the data are collected and reviewed from various databases and the access of an information system for verifying information related to the person subject of investigation. Under this step. 10 accountants while the secondary data were collected from public databases. and professional organizations for verification of information. “ Background Research also involves conducting thorough and complete investigations. the forensic accountant may also contact other agencies. financial and educational documents. professional. verifying. Electronic refers to internet surveillance and e-mail while the physical is through a surveillance camera. internet and corporate official records. Electronic and Physical Surveillance The third step based on seven-step method that was being practiced by forensic accountants is the electronic and physical surveillance. It involves inspection if there are any criminal records that exist for the person or any complaints against the company. governments. Physical surveillance is . It is also the procedure of gathering. Based on the research study of Knoesen (2012) entitled “The Use of Physical Surveillance in Forensic Investigation”. “Background Research is the collecting of evidence about the legal status of a person or company.

and private individuals. Electronic surveillance is a tool in order for the government to hunt suspect and to detect and to prevent crime. the National Security Agency. pen register. photographic surveillance and wired agents and informers. The evidence or information gathered is used to determine if probable cause exists to warrant further action. 11 information that is obtained without being noticed. Physical surveillance is conducted to gather intelligence that can be used as admissible. The techniques and methods of electronic eavesdropping. (2007) entitled “Electronic Surveillance: Unlawful Invasion of Privacy or Justifiable Law Enforcement. the Treasury Department. . the Central Intelligence Agency. Under this step.S. manufacturing and corporate concerns. Postal Service. they must use the aids of binoculars and satellite cameras during the investigation and have a good observation and listening skills. Internal Revenue Service. private detective services. And another important aspect of physical surveillance is the fact that it can determine the suspect’s behavioral patterns. This procedure has been used by state and congressional investigative committees. the U. Such techniques are wiretapping. a suspect can physically be followed and use it to trace his movements and activities. bugging. the military establishment. This can also mean that the footage is captured by a security surveillance system obtained by a person. offer the possibility of gathering evidence which would otherwise be unobtainable.” Electronic surveillance is the method of using electronic devices to overhear or of an individual. According to a study by Elder Jr. In order for forensic accountants to be successful in implementing physical surveillance.

that the confidential information provided by the informer must definitely state the facts of a fraud committed by the person. Based on Internal Revenue (IR) manual. former employees. 12 Confidential Informants Fourth step is having confidential informants such as current employees. 16 released by the Bureau of Internal Revenue (BIR). According to Revenue Regulations No. it stated that confidential informants provide useful and credible information to a special agent regarding criminal activities. and from whom a special agent expects or intends to obtain additional useful and credible information regarding such activities in the future acts at the direction of the IRS. It also stated. . Confidential Informants must be expecting their identity to remain confidential. e-mails. informers are any qualified person who voluntarily provides definite and sworn information not yet in the possession of the BIR nor of the public knowledge that leads to discovery of frauds upon the internal revenue laws or violation of the NIRC of 1997. And the identity of the confidential informants is legally protected by the law. facing the potential of any type of retaliation and receiving payment or other compensation for future information or services. letters and customers that could give relevant information on the investigation.

Therefore. According to the Internal Revenue Service (IRS). money laundering. political corruption. ink sampling. . 13 Undercover The fifth step is going undercover to obtain first-hand subject data which should only be used under special circumstances. It is also stated that the cooperation of the team is vital for the continued success of the undercover program. The successful use of undercover techniques rests on the prudent and the judicious application of the technique. Laboratory Analysis The sixth step of the Seven-Step Method is the conducting of laboratory analysis in accordance with the jurisdictional rules. Undercover operations may be controversial and potentially dangerous undertakings requiring significant financial and personnel resources. To ensure the success of undercover operations the management must demonstrate unwavering support and concern for the welfare of the undercover agents. document dating and with the help of computer forensics. It includes physical examination of fictitious documents. narcotics trafficking. questionable return preparers. the use of undercover operations is a lawful technique used in the detection and investigation of tax fraud. fingerprint analysis. identifying forgeries. and other priority areas related to tax crimes. judicious decision making must be practiced with regard to the use of undercover techniques. organized crime.

dedicated special agents to ensure the integrity and fairness of their taxation system. forgery or counterfeiting. the Internal Revenue Service created the IRS Criminal Investigation (CI). 14 Cole (2009) states that forensic accountant should have special skills in inspecting documents for authenticity. item listing. Such analysis that can be used are horizontal/vertical analysis. Internal Revenue System (IRS) In order for America to protect its people from the individuals who intentionally break the tax code. link analysis. stratification percentage comparison and Benford’s Law. entity charts. and the use of cash method. management override of controls and knowing the different reviews based on known industry fraud schemes. proof-of-cash method and digital analysis such as duplicate numbers test. . Forensic accountants can also use computer assisted audit techniques such as data mining. timeline analysis. source. analysis of sales returns and allowance account. Analysis of Financial Transactions And lastly the analysis of financial transactions where it compares transactional and pattern-sensitive data measures to provide a record for forensic analysis. net worth method. This special division hires highly trained. alteration. rounded numbers test. comparison of employee and vendor addresses. And enables the forensic auditor in carrying out his duties and can easily detect errors and omissions thereby preventing and reducing fraudulent activities.

such as (1) Oplan Kandado Program. which temporarily shuts down business operations due to failure to comply with certain grounds. discovering tax lapses and tracking down fraudsters. They also analyze financial records that have a potential criminal violation of the Internal Revenue Code in order to find indications of money laundering. The researchers would be able to measure the usefulness of forensic accounting procedures as an investigation method against tax fraud as perceived by their employees who had experience using the same forensic investigation method and serving as a reference as they have same objective of convicting tax violators. (2) Tax Compliance Verification Drive or more commonly known as tax mapping where . rules and regulations. In connection to this. It stated that governments from America are using forensic accounting in order for them to have protection from fraudulent tax activities. Some of these are geared towards stricter tax compliance. which is the one responsible here in the Philippines in resolving tax fraud cases. 15 IRS Criminal Investigation special agents applied forensic accounting with more traditional law enforcement investigation methods to build legal cases against those who commit financial crimes. the setting of the study is a government agency specifically the Bureau of Internal Revenue. Bureau of Internal Revenue: Their Actions and Punishments Against Tax Evaders The Bureau of Internal Revenue has several programs that are intended to improve the system enforcing tax laws. fraud and other financial wrongdoing by following the money trail to track down both criminals and their locations.

on the RATE Program. programs intended precisely on the catching of tax evaders can still be limited by certain conditions and situations. implemented through Revenue Memorandum Order No. hence. . (5) Run After Tax Evaders (RATE) which is a joint program of the Bureau of Internal Revenue and Department of Justice to prosecute and convict tax evaders for their criminal violations of the Tax Code. the difference of investigation being conducted by prosecutors from a forensic accounting practitioner could provide for a substantial piece of material evidencing the need for such a specialized professionals. prevention of possible tax fraud. (3) Benchmarking. The actions that the Bureau of Internal Revenue is undertaking and implementing are focused on stricter tax compliance. This part of the program may need extensive investigations involving accounting works that forensic accountants could offer. The Tax Reconciliation System which makes use of documents in the Revenue District Office are narrowed to those that are filed which can still be subject to willful misrepresentation because they do not submit source documents like official receipts and sales invoices. (4) Taxpayers Reconciliation System (TRS) which utilizes the tax returns. is the development of industry benchmarks to be used as a reference in determining the extent of compliance. On the other hand. 16 officers of the BIR visits taxpayers’ business establishments to confirm and verify the compliance of taxpayer on requirements under existing regulations. 4-2006. and finally. Additionally. reports and attachments and third-party information to catch a tax evader.

dismissal from public office or disqualification of holding them. Penalties on criminal offenses cover deportation for aliens. Additionally. or a proceeding in court for the collection of such tax may be filed without assessment. and is professionally skeptical. the tax may be assessed. mere suspicions and doubts do not present attestation. “In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return. Section 204 of the Tax Code states that any willful attempt to evade or defeat any tax imposed by the NIRC or the payment thereof has a fine ranging from P30. supporting evidence must be provided through a reliable investigation method combined with auditing and accounting functions.000-P100. which forensic accounting is in congruence with since it always assume the occurrence of fraud. Even with these punishments and penalties imposed by the government. and revocation or cancellation of the Certified Public Accountant certificate. This means there is a need for a more effective type of investigation method. cases of tax fraud are still prevalent. 17 Under Section 222 of National Internal Revenue Code.000 and imprisonment of not less than two years but . since fraud cases do not apply presumptions. Because the burden of proof lies on the BIR. at any time within ten (10) years after the discovery of the falsity. However. evidenced by the continuous growth of filed tax evasion cases. fraud or omission…” Actions without assessment equate to a prejudice of tax fraud.

stated in the Revised Schedule of Compromise Penalty (RM0 19-2007) are in agreement with Section 204 of the National Internal Revenue Code. 18 not more than four years. as well as reviews and evaluates all audits/verification reports except those involving erroneous or illegal collection of taxes and tax fraud criminal prosecution. Violations that cannot be compromised are those that are already filed in the court and those that involve fraud. Assessment Division of BIR The Assessment Division of Bureau of Internal Revenue (BIR) conducts original investigation of office audit returns under the region's jurisdiction. More importantly. since “forensic” means “being suitable in the court of law” and the nature of tax evasion being fraud. In relation to the study. they are can be apt as an investigation method because as described by Investopedia. this cannot be compromised because it involves fraud. forensic accounting applied their knowledge of all the accounting procedures in financial reporting systems. “Forensic accounting provides an accounting analysis suitable for court… They are frequently used in fraud cases. specifically violations involving fraud. accounting as well as auditing standards along with various other procedures in order to help the government agencies as well as various private organizations in getting information about the various inconsistencies as well as irregularities in the financial operations of the company. . Based on Accountant Search (2016).

Documents generally can be divided into broad categories: those that exist in electronic form or media and those that are physical in nature. Derived from A Guide to Forensic Accounting Investigation by Clayton et. And conduct arrests and seizures in relation to the violation of any penal law. such as paper documents. in forensic accounting investigations. guidelines and procedures relative to the investigation of tax fraud cases and the conduct of intelligence work. 19 Financial Parlance (2016) also stated in forensic accounting audit includes the use of the latest technology in order to locate various anomalies in an organization. and most of them are documentary in (2006). several types of evidence are normally relevant. the researchers believe this would help prove the importance of the perception of the assessment division in determining the steps of forensic accounting in assessing tax returns. standards. One should always begin an investigation as if the matter may end up in a criminal court and for this reason take all appropriate steps to gather and preserve the evidence. rule or regulation administered by the BIR. the investigation. work programs. Special Investigation Division of BIR The Special Investigation Division of the Bureau of Internal Revenue formulates policies. It also conducts preliminary investigation of confidential information filed by an informant with the BIR. In relation to the study. . collection as well as analysis of the evidences regarding the frauds and other irregularities in the company to the people who matter.

Legal Division of BIR The Legal Division of Bureau of Internal Revenue (BIR) is responsible for preparation and issuance of legal opinions based on established precedents. 20 With this. institute civil and criminal cases/actions to effect collection of taxes and punishment of tax violators within the region's area of jurisdiction and processes claims for tax credit/refund involving erroneous or illegal collection of taxes and protests involving questions of law. the researchers aimed to prove the relevance of the opinion from the legal division to determine the steps of forensic accounting used in the courts. It is also stated that their expertise can be used for defending witnesses involved in financial issues. the study was provided with the steps used by the investigators or field workers that are useful in gathering the evidence they deem appropriate in evaluating cases with regards to tax violation. bankruptcy fraud and tax (2006). misapplication of funds. embezzlement. . As stated in the book entitled Fraud Auditing and Forensic Accounting written by Bologna et. In connection to the study. forensic accountants provide testimony in litigation support matters and criminal prosecutions in which their services are utilized to support investigations of crimes relating to financial frauds.

imprisonment. as in someone who is charged with the crime of tax evasion. And one possible treatment to avoid such unethical act is through the practice of using the skills and knowledge in forensic accounting. According to the website entitled “The Ferraro Law Firm” represented by Knott et. or hiding money and its interest altogether in offshore accounts. tax evasion schemes involve an individual or corporation misrepresenting their income to the Internal Revenue Service. tax evasion is a subset of tax fraud. Misrepresentation may take the form either of underreporting income. tax evasion constitutes a crime that may give rise to substantial monetary penalties. Tax evasion is using illegal means to avoid paying (2007). Individuals who try to report these earnings as coming from a legitimate source can face money laundering charges. In the United States. Typically. And tax fraud still occurs as believed by some scholars because there is no strong enforcement of rules against it. in . Section 7201 of the Internal Revenue Code reads. inflating deductions. “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall. 21 Tax Fraud The incidence of tax fraud continues to increase through private and public sector organizations across the nation. Individuals involved in illegal enterprises. often engage in tax evasion because reporting their true personal incomes would serve as an admission of guilt and could result in criminal charges. or both. "Tax evasion" is typically used in the criminal context.

non-recording of sales.000 in the case of a corporation). or both. false or fictitious entries in books. Common practices of tax evasion include: underreporting of income. Tax evasion as it was defined by the local author is prevalent. Hence. With the rising expenses to maintain the order of things in the society. 22 addition to other penalties provided by law. it has always been a major problem in any taxing jurisdiction. be guilty of a felony and. upon conviction thereof. overstatement of expenses. the taxman cannot allow revenue to slip because of tax evasion.000 ($500.” According to Manasan (1980) the author of “Tax Evasion in the Philippines” Tax evasion may be defined as the act of reducing taxes by illegal or fraudulent means. like its counterparts abroad. though they are in different cultures but since it has the same cause and effect. Most of the country has the same treatment in facing this kind of case. together with the costs of prosecution. shall be fined not more than $100. it leads them to adapt the ways and means of other countries in minimizing if not eliminate one’s tax liability. the Department of Finance issues from time to time measures intended to ensure effective tax enforcement and prevent and curtail tax evasion. and others. Many accused tax evaders have had been disclosed to the society but the regime has no sufficient evidence to support the accusation. Moreover. fictitious transactions in the name of dummies. Just to remind everybody tax evasion leads into a great loss in a certain . use of fictitious receipts. the keeping of double sets of books. or imprisoned not more than 5 years. It simply tells that there’s a great need of other tool or method to make the evidence strong in the court.

50 of these cases are pending before the Court of Tax Appeals. But one may wonder. 23 country. but higher than a mere preponderance of evidence.R. L- 17962 (1962) the Court found that failure of the taxpayer to declare for taxation purposes his true and actual income derived from his furniture business for two consecutive years is equivalent to tax fraud. it must be supported by clear and convincing evidence. It also brings gigantic damages to the society for being unable to support the project of the government for the people. however. In case.R. In the case of Republic v. According to an article by Calayag (2016) “Henares files 11 cases vs tax evaders. in the case of Republic v. Gonzales. one on the Court of Appeals and 17 others before the regular . Based on the archived case of Republic v. This evidence is just a little lower than proof beyond reasonable doubt. how does tax evasion arise? To illustrate. that is – proof beyond reasonable doubt. G. Opinions of the supreme courts are important. Gonzales the evidence was a little lower than proof beyond reasonable doubt which results to the defendant being acquitted. of criminal prosecution for tax evasion the quantum of evidence remains the same. L-21609 (1966) the Supreme Court held that fraud is a serious charge and to be sustained. Accordingly. G. Ker. For a more formal and legal way of detecting tax evaders there should be specific means or methods to win the case against tax evaders. but the evidence should be strong enough.” There are a total of 492 RATE cases that have been filed since 2010 but there were no convictions.

four out of five criminal complaints filed under the leadership of Commissioner Henares remained at a prosecutorial level with the DOJ. where the two are by the DOJ and the remaining one. 24 courts. yet a significant percentage of them are still unresolved in the different courts in the Philippines. Three were junked by CTA and other regular courts. based on the data shown by the Department of Finance. and another three were dismissed with finality. The report shows how the number of tax evasion cases continuously grows through the years. In reference to the figures. This implies that cases are still trapped in the hands of prosecutors because they cannot provide evidence which might be limited by their lack of accounting practice. for a case to be considered. Forensic accountants may be able to contribute great help here as they have accounting and auditing skills. In conjunction. . 80% are being held at the prosecution office. probable cause must be found as determined by the prosecutor. half of which were junked. in a report on the Business World Online by Patag (2016). In the span of six years. According to “Process Map on the Criminal Prosecution of the Tax Evasion in the Philippines” by Asian Development Bank (2009). probability of bringing them to the court remains hanging. by the Supreme Court. In the 219 cases submitted for resolution where prosecutors yet to issue their findings. only 1.21% has been dismissed.

Under the RATE Program. Such violations include failing to file returns. having one book of accounts. 25 Run After Tax Evaders (RATE) Run After Tax Evaders (RATE) is a combined effort of the Bureau of Internal Revenue (BIR) and Department of Justice (DOJ) to investigate. It stated that the BIR will be responsible in investigating and prosecuting tax evaders. failing to pay taxes. The objectives of the RATE Program is to discourage the taxpayers from committing tax evasion and emphasize the fact it is illegal and any violators will be caught and punished. the BIR has a Memorandum Agreement executed with the National Bureau of Investigation and Criminal Investigation and Detective Group (CIDG). The Criminal Investigation operates the tax fraud investigation which divided into National Investigation Divisions found within the BIR National Office and the Special Investigation Divisions which are set up at every BIR Regional Office. deliberating of under-declaration of income and over-declaration of expense by more than 30%. non-remittance of withholding tax and others. the NBI is involved in providing effective and efficient investigative and support services and while the CIDG is charged with the . And to improve the voluntary compliance of the taxpayers and to show that the tax systems of the Philippines are fair to anyone. prosecute and convict individual or entities that committed tax evasion and other criminal violations of the National Internal Revenue Code (NIRC) of 1997.

” With their final list of 30 federal at 10 state tax cases. 75% have been determined that tax issue is the primary reason of involvement of forensic accountants. percentage method and unit and value method. the BIR executes a direct or indirect approach method.” The assignments of forensic accountants were concluded into governmental compliance. NBI and CIDG shall it bring maximum results in the RATE of investigating. fraud investigation and determination of commercial damages. testimonies of forensic accountants were effective. “as tax cases are about government revenue. Direct Approach Method is the direct evidence while the Indirect Approach Method composed of different types of methods such as the net worth method. Similar Study In a study by Burnaby et al (2012) “The Use of Forensic Accounting Experts in Tax Cases as Identified in Court Opinions.76%. Stated herein. And with this cooperative effort between the BIR. investigation and prosecution of all crimes involving economic sabotage. enforcing and prosecuting tax evaders. However. one would expect that forensic accountants be presented by the government in order to secure its revenue and by the taxpayer to prove that the methods used to determine their tax payments were within the law. it was noted here that . the study found out that 23 out of 42. 26 monitoring. Furthermore. which equals to 54. expenditure method. In order to prove the commission of fraud in tax cases.

there is 100% success rate of the forensic accountants used by the government.5% (25 out of 40) of the cases are in favor of the government. examining witnesses. As mentioned in the same study. This means that prior to raising the case to the appropriate courts. prosecution period can be lessened thus increasing the number of cases being filed. That way. 27 even if the party lost. As stated in Section 220 of NIRC. On the other hand. the side of taxpayers can also be helped by the effectivity of testimonies deemed by it giving life to theoretical justice. 22. Based on the research study conducted by Enyioko et al (2015) entitled “The Relevance of Forensic Audit and Investigation Resolving tax Related Fraud and Malfeasance” concluded that accountants should specialize in forensic . It was also noteworthy that 62. on an article by Schainbaum (2012) entitled “The Assistance of Forensic Accountant in a Criminal Tax Investigation. Likewise.” forensic accountants help in the prosecution by developing technical defenses. organizing evidences and testifying as a summary or expert witness. forensic accountants can have the privilege to perform investigative measures to the cases. creating accounting analyses for use in trials. This shows how essential forensic accountants can be in the prosecution stage of tax evaders. their testimonies were still effective which resulted to lesser penalties and tax owed.5% favored the taxpayers and the remaining 15% was with partial outcome. no action shall be filed without the approval of the BIR Commissioner.

It helped the researchers to understand further the usefulness of forensic accounting in resolving tax evasion. . secretary state of website. Third step based of seven-step method is the electronic and physical surveillance (EP). It also said the need for forensic auditing should not be underestimated because there is an increase in global perpetration of fraud in organizations. internet and corporate official records. And it acted a reference for the researchers because it has same nature as their study. 28 accounting in order for them have the power to detect tax evasion that is crucial to tax compliance. Theoretical Framework The study was anchored on the Seven-Steps Method of Forensic Accounting in conducting fraud investigation by Richard Nossen. The first step is the interview and interrogation (I&I) that show the personal aspect of data-gathering which is obtained through personal interviews and interrogation under law enforcement authority and considered as source of primary data. Electronic refers to internet surveillance and e-mail while physical is through surveillance camera. Primary data were gathered personally by the forensic accountants while the secondary data were collected from public databases. The second step is background research (BR) where it is made of primary and secondary data.

And lastly. The fifth step is going undercover to obtain first-hand subject data. usually a recommendation to use in special circumstances and can be done if carefully planned. Since the issue regarding tax fraud is undying. letters and customers that could give relevant information in the investigation. management override of controls and knowing the different reviews based on known industry fraud schemes. It includes physical examination of fictitious documents. the analysis of financial transactions (AT) where it compares transactional and pattern-sensitive data measures to provide a record for forensic analysis. former employees. e-mails. ink sampling. analysis of sales returns and allowance account. identifying forgeries. The researchers believed that this theory is greatly suitable to the study since this aims to determine and evaluate forensic accounting in tax fraud based on the given factors. the use of forensic accounting will be defined by the perception of the people in the BIR handling and concerned with the cases. comparison of employee and vendor addresses. fingerprint analysis. document dating and with the help of computer forensics. Such analysis that can be used are horizontal/vertical analysis. 29 Fourth step is having confidential informants (CI) such as current employees. The sixth step is to conduct investigation laboratory analysis (LA) where it should be done conscious of jurisdictional rules plus what the chain of custody best practices. In that way possible actions can be .

community and individuals. . 30 implemented which will benefit the government. industry.

31 Conceptual Framework INPUT PROCESS OUTPUT I. Profile of the respondents:  Age  Sex  Administering  Division questionnaires  Profession  Interview  Years of  Checklist Employment Analysis  Interpretation of Forensic Accounting as II. Questionnaire FEEDBACK Figure 1 Conceptual Framework on the Forensic Accounting as an Investigation Method on Tax Fraud as Perceived by the Bureau of Internal Revenue Delta.  Electronic and  Determining the Quezon City Calendar Physical appropriate Year 2016 determined Surveillance statistical  Confidential treatment to be Informants used  Undercover  Laboratory Analysis  Analysis of Financial Transaction III. Quezon City Calendar Year 2016 . Perception on forensic gathered data an Investigation accounting in terms of:  Interview and  Thorough Method on Tax Fraud Interrogation appropriate as Perceived by the  Background statistical Bureau of Internal Research treatment Revenue Delta.

It includes administering questionnaires. 32 A conceptual framework is the structure of the research idea or concept and how it is put together. Background Research. interview. The output represents the end-product of the study which is the Forensic Accounting as an Investigation Method on Tax Fraud as Perceived by the Bureau of Internal Revenue Delta. Laboratory Analysis. checklist analysis. interpretation of gathered data. The study used the Input-Process-Output or Coomb’s System Approach. process. Analysis of Financial Transaction. The input comprises the study’s raw data which are to identify. lastly determining the appropriate statistical treatment to be used. It was designed to help and guide the researchers in making the project study. It illustrates the input. Figure 1 shows the illustrated model of the study. Confidential Informants. The feedback shows the interaction of the variables with one another. Quezon City Calendar Year 2016 determined. thorough appropriate statistical treatment. and the perception of the Bureau of Internal Revenue employees on forensic accounting in terms of: Interview and Investigation. Electronic and Physical Surveillance. The process refers to procedures in converting the data gathered into meaningful information. the profile of the respondents. Undercover. . The lines or arrows connecting the different parts of the model represent relationship and sequence. output and feedback as the interrelated parts in developing the system.

and .3 Electronic and Physical Surveillance. 2.1 Interview and Interrogation.5. 1. 33 Statement of the Problem In this study. 1. What is the profile of the respondents in terms of: 1.3. and 1. 2. Age. 2.2 Background Research. the researchers tried to find out the Forensic Accounting as an Investigation Method on Tax Fraud as Perceived by the Bureau of Internal Revenue Employees. Profession. Sex. 2.4 Confidential Informants.4. How does the respondents perceive forensic accounting in terms of the following parameters: 2. 2. 1. Years of Employment? 2. Division. Undercover Operations.6 Laboratory Analysis of Physical and Electronic Evidence.

The information was limited to perception of the employees on different departments of BIR. The researchers tried find out whether the steps of forensic accounting as an investigation method were useful to prevent and detect tax fraud better.7 Analysis of Financial Transaction? 3. 34 2. and assist in the prosecution. The researchers tried to determine the use of forensic accounting in relation to tax fraud. Supreme Court Reports Annotated (SCRA). Legal and Assessment. Is there a significant difference on the respondents’ profile and their perceived usefulness of investigation method of forensic accounting? Hypothesis There is no significant difference on the respondents’ profile and their perceived usefulness of investigation method of forensic accounting. on the contentions of covering necessary opinions that are aligned to the goals of this study. . namely Investigation. Scope and Limitation This descriptive study extended to the information that was gathered from the Federal Bureau of Investigation Vault. interviews. the information available from the library and studies found on the internet about tax fraud. How do the respondents perceive forensic accounting as an investigation method in relation to their division? 4.

To enhance the forensic accounting method against tax fraud and for the improvement of the system of investigating and prosecuting tax violators. the researchers included the views of the BIR employees according to their division with the intention of finding out whether there was an implication as to their nature of work purposely selecting ten (10) from each of the division. To the Bureau of Internal Revenue (BIR). Significance of the Study The researchers believe that the study will be a great help to the following group of people: To the Government. To let the businesses be aware on the importance of following the taxation system implemented by the government. To let the society experience a better system in their health care. To increase awareness of the usefulness of the forensic accounting profession especially in the field of resolving tax fraud and to improve the demand rate of their occupation. To the Future Researchers. . education and public transportation as a result of better taxation. To the Society. To the Certified Public Accountants. This research study will serve as a basis and reference for future researchers undergoing the same nature of study. To the Businesses. 35 For the purpose of this study. To raise government revenue that will be beneficial in implementing programs needed for governance.

It is a formal declaration that someone is guilty of a criminal offense. The use of accounting skills to investigate fraud and to analyze financial information for use in legal proceedings. made by the verdict of a jury in a court of law. Electronic Surveillance. expenditures method or proof-of-cash method. A person who conceal his identity while providing reliable information about criminal activity to law enforcement officers. Accounting process of examining a transaction such as net worth method. A surveillance or the gathering of information with the use of electronic devices. Bureau of Internal Revenue (BIR). . and financial records of an individual or an organization. Is an agency of Department of Finance and it collects more than half of the total revenues of the government in the Philippines. Confidential Informants. 36 Definition of Terms The following terms were defined operationally and conceptually for further understanding of the study: Background Research. Financial Transaction Analysis. It is the process of looking up and compiling criminal records. commercial records. Forensic Accounting. Conviction.

Physical Surveillance. . It is a careful examination or search in order to discover facts or gain information. It refers to the verbal questioning of a suspect by law enforcement authorities for the purpose of producing a statement or useful information. responsible for handling and solving major high-profile cases that are in the interest of the nation. Interview. The act or process of holding a trial that determine if the person who is accused of a crime is guilty. National Bureau of Investigation. It is the protection and validations of documents either through physical examination or with the aids of computer forensic techniques. Prosecution. It is a form of monitoring where the subject is kept under physical observation. It is an agency of the Philippine government under the Department of Justice. Laboratory Analysis. Method. It is a means or manner of procedure usually in a regular and systematic way of resolving issues. A wrongful or criminal deception intended to result in financial or personal gain. It is the process of obtaining information from people who possess knowledge about a particular offense. Investigation. 37 Fraud. Interrogation.

Tax Fraud. services. 38 Supreme Court Reports Annotated (SCRA). . levied by the government on workers' income and business profits or added to the cost of some goods. It is compilations of Supreme Court decisions and a source for searching cases. Undercover. It involves covert means of discovering information based on the actions of a human agent. and transactions. It occurs when an individual or business entity wilfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability. A compulsory contribution to state revenue. Tax.