Forensic Accounting

Vidyavahini Group Of Institutions ®
Vidyavahini Post Graduation College Innovations in Accounting

Master of Commerce (M.Com)
By: Syeda Huma Nayara

Vidyavahini Post Graduation College Forensic Accounting
Forensic Accounting
Forensic:
Scientific tests or techniques used in connection with the detection of crime. It involves
examining the objects or substances.
Forensic Accounting:
Forensic accounting is the investigation of fraud or financial manipulation by performing

extremely detailed research and analysis of financial information.
Forensic accounting utilizes accounting, auditing, and investigative skills to conduct an

examination into the finances of an individual or business.
Forensic accounting provides an accounting analysis suitable to be used in legal proceedings

Role of Forensic Accountants
The main role of forensic accountants is to assist the courts, solicitors and clients
understand the complex financial and accounting issues.
Presenting that information in a manner that all users can understand.
1. Assisting in initial discovery – providing right information the first time that will provide
them with the greatest level of information. Consider top level information first and
then work down to source material.
The level of information available will depend on the complexity of the business
and the nature of the claim.


2. Applying our commercial knowledge and expertise: Financial statements and income tax
returns tell a story of a business. As forensic accountants.
Translate the details and apply it to the other information in the business.
When the details of given information do not match, finding the evidence and clues that will
support or disprove the claim for damages is one of the important roles of forensic
accountants.
3. Providing expert evidence both written and oral – As forensic accountants provide
expert evidence in written form and where necessary support those opinions and
calculations in cross examination.
Extensive experience in cross examination is vital, as the strategies used by counsel
varies considerably from case to case.

4. Independence: The experts must give an objective, unbiased opinion. This provides a
stronger argument for acceptance by the Court.
If reports are normally prepared by internal ‘experts’, there can often be questions
concerning the independence of these ‘experts’ as they are typically long-term employees of
the body concerned.
5. Due diligence:
The forensic accountant has to check whether the rules and regulations are
properly complied at the time of seeking new source of capital, recruitment, franchising,
licensing products to other companies, joint ventures, mergers, acquisitions etc.


5. Information security risk assessment:
Formulating practices, policies and procedures to prevent the loss of sensitive and
confidential information. Safeguarding the critical information from unethical use.
6. Litigation Support:
A forensic accountant provides opinions regarding accounting, audit and taxation
procedures.
It involves information relating to quantification of loss, loss of profits, insurance claims,
intellectual property disputes.

Important Terminologies
1. Forensic Investigation:
It is gathering and analysis of all crime-related physical evidence in order to come to a
conclusion about a suspect . Investigators will look into blood, fluid or finger prints, residue, harddrives,
computers and other technology etc
Types of Forensic Investigation:
 Computer or cyber Forensics

 Cyber scene forensics
 Forensic Archeology
 Forensic dentistry
 Forensic entomology
 Forensic Graphology.
 Forensic Pathology
 Forensic Phycology
 Forensic Toxicology By: Syeda Huma Nayara
 Forensic computers / cyber forensics:
It is similar to electronic discovery or e-discovery. These forensic investigators
recover data from the computers and hard drives to solve a crime or evidence of mis-
conduct.
The conditions could be wrongful termination of employee, employee internet abuse, un-
authorised disclosure of corporate information, illegal internet activity.
The information can be found on cell phones, hard drives, browsing history, emails etc.
 Forensic Archeology:
It focuses on human remains that are severely decomposed.
It mainly focuses on clues that can be found from the bones and can determine the age.
Sometimes it is also possible to determine the cause of death.

 Crime Scene Forensic:
It refers to gathering any physical document or evidence found in the crime scene in order to
solve a crime or determine whether a crime is taken place or not.
Usually this investigation includes investigators like ballistics experts, who study ammunition or
trajectory and match bullets or weapons.
 Forensic Dentistry:
This is undertaken when a victim is identified by any other means or when a culprit bites a
victim. The marks left behind from the bite will be used to identify the suspect.
The shape of the jaw will indicate age, gender, DNA etc.
 Forensic Entomology:
It refers to study of any insects found in the crime scene. The bugs can reveal where the
crime took place, whether the victim had given drugs & Time of death. The presence of larve etc.
 Forensic Graphology:
It is the study of handwriting on ransom notes, poison paper letters, suicide notes,
blackmail demands. It helps to determine the writers state of mind and time the note was penned.
Forensic graphologists are also used to verify the validity of documents such as insurance claims or
police statements.
 Forensic Pathology:
Forensic pathologists are supposed to find the cause of death, specially when the death is
suspected to be not natural. They can perform autopsy both inside and outside the victim t find the
cause of death.
 Forensic psychology:
It is the study of thoughts and plans of attacker’s actions. Forensic psychologists look into
the sources of extreme stress which will determine the emotions of the suspect. The sound of individual.
 Forensic Toxicology:
It is the study of toxic substances, environmental chemicals and poison. Forensic
Toxicologists study both illegal and legal drugs.
The reason behind the crime will be identified by investigating using blood or hair or urine samples.

Information Technology in forensic accounting
Forensic Computing is the process of identifying, preserving, analyzing, and presenting digital evidence
in a manner that is legally acceptable in a court of law
Evidence:
Evidence can be defined as various things presented in court for the purpose of proving or
disproving a question under inquiry. It includes testimony, documents, photographs, maps and video
tapes
Rules of Evidence
• Complete
• Authentic
• Admissible
• Reliable
• Believable


1. Benford’s Law: - forunded by Frank Benford in 1938
 Benford’s law analyses the data digit by digit and looks into entire account to determine the number
of the number fall.
 It works in the combination numbers, decimal numbers and whole numbers.
 This method is useful when there is no supporting document or evidences are available to prove
the authenticity of transactions.
 Benford’s Law is commonly used as an analysis tool by many auditors including internal, external
and governmental levels.
 This law helps to find actual fraudulent entries as it analyses the documents digit-by-digit.


2. ACL Desktop
Audit Command Language (ACL) is developed by ACL Service Ltd.
Foundation of ACL concepts and practices (2006) defines ACL as “a tool to read and analyse
type of files scattered across numerous database on different platforms.
It analyses entire data populations for complete assurance; identify trends, exceptions and
highlight potential areas of concern; locate errors and potential fraud.
In generic term ACL is a Generalized Audit Software (GAS).
ACL maintains data integrity by read only access to all data that they accessed, that is why
the source data is never changed, altered or deleted


3. Ultra Block
 Ultra Block is a brand name for forensic write blocker hardware.

 The purpose of this hardware is to prevent the digital forensic accounting to modify the
data that they accessed.
 It is very important for digital forensic accounting to maintain the data submitted to a
court as evidence remain authentic.
4. Passware Kit Forensic
 Passware Kit Forensic is a tool for evidence discovery, which involve finding reports of all
password-protected items on a computer and gains access to these items using the fastest
decryption and password recovery algorithms.
 Passware can recover any password in all files including difficult and strong type password
Passware Kit Forensic includes a Portable version that runs from a USB drive and finds encrypted
files, recovers files and websites passwords without modifying files or settings.
5. Theory of relative size factor (RSF):
 RSF is measured as the ratio of largest number to the smallest number in the given set.
 RSF test finds the subset where the largest number is out of the line with the remaining
numbers are possibly an error.
 RSF for subset: Largest number in subset / second largest number in subset.
 This avoids duplication of entries and data.

6. Data mining techniques:
It provides an aid for fraud detection in large volume of data.

The process of detecting fraud in data mining begins with selection, representation, data
collection, processing and data evaluation etc
NSE - Certified Forensic Accounting Professional Certification is designed to equip an

accounting and finance professional knowledge
To understand the nuances of forensic accounting and effectively make use of this knowledge
for preventing, detecting, investigating and reporting financial frauds.
Expert Witness Assignments:
Forensic expert witness plays a crucial role in determining whether the individual has
committed the crime or not based on the information and findings provided.
These assignments are based on the application of particular expertise and knowledge of
experts and relevant facts.
Expert Witness:
An expert witness is one whose opinion is to be admitted as evidence by court or tribunal

for the purpose of assisting in the resolution of dispute or in arriving at the truth.

Forensic expert witnesses on the following topics;
Criminal Investigative Analysis – Acc. To FBI, it involves investigation of a crime with the hope of
identifying the responsible party, based on Crime scene analysis, investigative psychology.
Medical malpractice - Medical malpractice occurs when a hospital, health care professional,
through a negligent act or omission, causes an injury to a patient. The negligence might be the
result of errors in diagnosis, treatment, aftercare.
Skeletal remains
Autopsy review
Forensic social review
Litigation report – It is a report, certified to be true, correct and complete by an Authorized
Officer of Borrower and each of its Subsidiaries

Role of expert witnesses:
1. Expert evidence presented to the court should be independent of the expert and uninfluenced as to
the form or content.
2. An expert witness should provide independent assistance to the court by way of objective unbiased
opinion in relation to matters within his expertise.
3. An expert witness should state the facts or assumptions on which his opinion is based.
4. He should not omit to consider material facts which could detract from his concluded opinion.
5. An expert witness should make it clear when a particular question or issue falls outside his
expertise.(Justification)

person who carries out a harmful, illegal act.
Fraud is an intentionally deceptive action designed to provide the perpetrator with an

unlawful gain.
Types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud, and
bankruptcy fraud.

Steps to investigate a fraud:
Step 1: Receive and react to an allegation

Allegations that management receive directly from employees, whether written
or verbal form, should be documented and communicated to appropriate parties for
further investigation.
organizations should establish a method by which individuals can report allegations
anonymously.
Step 2: Establish an investigative team

The team comprises of internal and external parties, depending on the nature of
the allegations, the magnitude of the potential financial or business risk, and the
organization’s size.
Team members should have clearly defined roles and responsibilities
 Internal audit team members

 Compliance officer
 External counsel
 External consultants such as forensic accountants, technology specialists, public relations
professionals, and other subject-matter specialists
Step 3: Conduct a preliminary assessment

Conduct initial discussions to obtain background information about the fraud allegation.
• Understand the context of the issue
• Reveal the identity of individuals with relevant information
• Establish the availability of evidence
• Define the organization’s end goal as a result of conducting the investigation
Step 4: Preserve and collect evidence

Once an organization is aware of a fraud allegation, it is important to take steps to preserve
any electronic and hard copy evidence that might exist. Evidences can be found in:
• Network files
• Documents stored on a subject or employee’s hard drive
• Email
• Email archives
Step 5: Analyze financial, business, and electronic records

Investigative teams also should consider an effective approach to analyzing electronically
stored information.
Analysis can be conducted in-house or through a third-party using software that can extract and
analyze data - financial, business, and electronic records that are applicable to the fraud investigation.

Step 6: Conduct interviews

Interviews of fact witnesses and the subject under investigation should be planned carefully.
It is a good idea to conduct interviews after most of the financial, business, and electronic records have
been analyzed.
The defaulter should be given a chance to describe or for explanation.
Step 7: Report the findings

Once after the investigation is completed, the investigating team should draft a report
considering the audience involving; internal stakeholders such as management and the board, external
stakeholders such as insurance companies, law enforcement bodies, and regulatory agencies

Prevent the occurrence of fraud:
• Analysing allegations of corporate fraud

• Analysing potential financial mismanagement
• Addressing whistleblower allegations
• Responding to government regulatory requests
• Detecting problems before they occur

Theft is the taking of another person's property or services or scrap money without that person's
permission or consent with the intent to deprive the rightful owner of it.
Identification of theft in forensic accounting:
It refers to the practical steps that the forensic accountant takes in order to gather evidence relevant to
theft activity to identify who is involved in the crime.
•Cash theft stealing of physical cash, for example petty cash, from the premises of a company.
Cash larceny refers to the act of stealing cash that has already been recorded in the books of
accounts.
•Misappropriation of assets: Asset misappropriation can be defined as using company or

client assets for personal gain. This is also known as “stealing.”

Types of Cash Larceny / Cash theft
1. Stealing cash from the register

A high percentage of employee cash theft occurs at the cash register because that is where the cash and
receipts are stored.
Since the employee steals cash that has already been recorded at the register log, an imbalance
between the cash recorded and the cash stored indicates possible cases of fraud.
2. Reversing cash transactions

After stealing money from the employer, some employees may reverse certain transactions as a way of
hiding the cash larceny. They achieve this by recording fraudulent returns and false voids.
Reversing the transaction serves as a way of decreasing the balance shown on the register log so that it
equals the cash on hand.

Types of Cash Larceny / Cash theft
3. Altering cash counts

Employees may alter the cash count, if they are in charge of recording the cash payments and
reconciling the cash on hand in the cash register log. This, allows them to steal without getting noticed.
4. Writing personal cheques to cover theft

It involves covering the cash balance with a personal cheque as a way of reconciling the cash difference.
This practice aims at concealing the cash shortage in the cash register with the cash on hand.
5. Destroying cash register logs

If employees are unable to balance the cash recorded on the cash register and the cash received, they
may resort to destroying register logs to avoid being implicated in a crime.
Destroying the logs would prevent the auditors from reviewing the logs to identify any discrepancies
with the cash received.

Forensic Accounting

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Vidyavahini Group Of Institutions ®

Vidyavahini Post Graduation College Innovations in Accounting

By: Syeda Huma Nayara