FORENSIC ACCOUNTING DEMYSTIFIED - Microsoft Shelley.pdf · Forensic accounting ... accounting and auditing standards and procedures ... examining accounting data . Forensic examination

© RSM Australia. All Rights Reserved.

FORENSIC ACCOUNTING DEMYSTIFIED

11th National Investigations Symposium Stream B: Technology / Forensics – Forensic Auditing

Adeline Shelley Fraud & Forensic Services, RSM Australia 10 November 2016


Types of forensic accounting engagements

What does a forensic accountant do?

Auditing and forensic investigation compared

Case studies

Key areas to be covered

2


About your presenter: Adeline Shelley Senior Manager, Fraud & Forensic Services.

Joined RSM in January 2015 from a ‘Big 4’ firm, to help build the firm’s new Fraud & Forensic Services practice.

Over 15 years’ forensic experience, in Australia as well as overseas.

3

Spent 10 years at the Metropolitan Police at New Scotland Yard in London as one of only two Forensic Accountants. Worked on a mixture of criminal and civil matters including fraud, drug trafficking, human trafficking, money laundering and funds/asset-tracing and the recovery of criminal proceeds.

Started career as an auditor/accountant in a mid-tier accounting firm.

Chartered Accountant (CAANZ and ICAEW Fellowship).

Certified Fraud Examiner (CFE).


Credentials

4


Forensic accounting

“Forensic” means suitable for use in a court of law. … is the integration of accounting, auditing and investigative skills and the ability to communicate financial information clearly and concisely in a courtroom setting. … is the analysis, interpretation, summarisation and presentation of complex financial and business issues in a manner that is understandable and supported by evidence. … encompasses both litigation support and investigative accounting.

5


Forensic accounting – types of engagements

Financial crime investigations: fraud; money laundering; theft; scams; insider trading; tax evasion; bribery; embezzlement

Dispute resolution: breach of contracts; construction claims; trademark and patent infringements

Quantification of losses

Forensic contract reviews

Bankruptcy, insolvency and reorganisation

Business valuation

Matrimonial disputes

Expert witness testimony

Critique of an opposing expert’s report

6



Must adhere to APES215 Forensic Accounting Services Must comply with APES 110 Code of Ethics for Professional

Accountants

Utilises an understanding of: economic theories business information financial reporting systems accounting and auditing standards and procedures data management & electronic discovery data analysis techniques evidence gathering and investigative techniques litigation processes and procedures

to perform their work 7



Perform forensic analysis: data collection -> data preparation -> data analysis -> reporting

Examine and analyse company accounts to distinguish income streams and conduct concealed income analyses

Reconstitute accounting records and reconstruct financial statements and accounts from incomplete and corrupted financial records

Provide specialist knowledge – business processes, accounting systems, trends, industry benchmarks

Valuation – income, asset and market approaches Prepare accountancy records and reports to an evidential standard and

presenting them to the Court Analyse/evaluate/critique reports prepared by accountants acting for the

other party

… look beyond the numbers and deal with the business reality of the situation.

8


Audits and different types of audit

9

What is an audit? “An official inspection of an organisation’s accounts, typically by an independent

body.” [Source: Oxford Dictionary] “ A complete and careful examination of the financial records of a business or

person” or “careful check or review of something.” [source: Merriam-Webster http://www.merriam-webster.com/dictionary/audit ]

“An auditor is a watchdog, not a bloodhound. As a matter of commercial reality, audits are performed in a client-controlled environment.” [source: Bily v. Arthur Young & Co. 3 Cal. 4th 370, 399 (Cal. 1992)]

Types of audits include: Statutory audits Internal audits Forensic audits (e.g. foreign bribery & corruption audits, compliance audits,

forensic contract audits) Etc.

http://www.merriam-webster.com/dictionary/audit


Six characteristics of professional scepticism

10

Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Presenter

Presentation Notes

Auditing standards define professional scepticism as “an attitude that includes a questioning mind and a critical assessment of audit evidence.” External auditors must apply professional scepticism when considering the risk that management may override internal controls, and take that risk into account when formulating judgments about the nature, timing, and extent of audit testing. External auditors should also be aware of judgment biases that can affect the exercise of an effective level of professional scepticism in the conduct of the audit. Management, audit committees, and internal auditors, at a minimum, should take a “trust but verify” approach with systems, methods, and communications rather than accept critical information at face value. Scepticism is not an end in itself and is not meant to encourage a hostile atmosphere or micromanagement. The word scepticism, in fact, comes from the Greek word skeptikos, which means “inquiring” or “reflective.” The exercise of scepticism requires balance. Should a participant in the financial reporting supply chain begin with an assumption of complete doubt, or complete trust? Most operate somewhere on a continuum between those poles. Lower risk circumstances may not require the rigorous examination of supporting documentation as might be required when there are higher risk factors present. Those areas that are material or that are more susceptible to fraud should result in heightened scepticism. Scepticism throughout the financial reporting supply chain increases not only the likelihood that fraud will be detected, but also the perception that fraud will be detected, which reduces the risk that fraud will be attempted. Scepticism is “particularly important” in the following circumstances: • Significant management judgments • Transactions outside the normal course of business, such as nonrecurring reserves, financing transactions, and related-party transactions that might be motivated solely, or in large measure, by an expected or desired accounting outcome • The auditor’s consideration of fraud To properly exercise scepticism, in addition to diligently pursuing sufficient appropriate audit evidence, an external auditor can employ effective interview and inquiry techniques, including how to evaluate nonverbal communications.


Auditing and forensic investigation compared Issue Financial statement auditing Forensic investigation Timing Recurring – conducted on a regular,

recurring basis Non-recurring – conducted with sufficient predication (e.g. suspicion, allegation, complaint/report)

Scope General – general examination of accounting data

Specific – to prove or disprove what is alleged by gathering the facts (evidential)

Objective Opinion – generally an expression of opinion on the financial statements or related information (whether the financial statements give a true and fair view)

Affix blame – the goal is to determine whether fraud has/is occurring, and to determine who is responsible (culpable)

Relationships Non-adversarial – the audit process is non-adversarial in nature

Adversarial – because affixing blame is adversarial in nature

Methodology Audit techniques – conducted primarily by examining accounting data

Forensic examination techniques – conducted by review of data/documents (financial & non-financial), public records, and interviews

Presumption Professional scepticism – is how auditors approach audits

Proof – fact finding (evidence) to support or refute an allegation of fraud, etc.

11

Note: adapted from the Association of Certified Fraud Examiners (ACFE) Fraud Examiners Manual


Case study – reconstitution of accounting records

12

Azwar Majeed

Ex-Chairman of Crawley Town FC in Sussex

Properties in Brighton Luxury cars: 1 x Ferrari Enzo 1 x Lamborghini Murcielago 1 x Lamborghini Diablo 1 x Ferrari 355 Spider 1 x Porsche 996 Turbo 2 x Bentleys 4 x BMW M3s 3 x Range Rovers 1 x Mercedes

Police seized £505,500 in cash from a Harrods deposit box

Cheated HMRC by about £750k Failure to keep records Money laundering

3.5 years imprisonment


Case study – concealed income analysis

13

Bernard John BURVILL BEACH

Armed robberies at London Heathrow Airport

Referral from the Flying Squad

First robbery - February 2002 £4.3m in various currencies

Second robbery - May 2004 £86m cash and gold bullion

Beach – 16 years imprisonment Burvill – 10 years imprisonment


Case study – loss quantification and restating the financial statements

14

Bernard John BURVILL BEACH

Engineering / construction company Fraud committed by the internal Travel Co-ordinator $2.8m stolen over a period of 2 years Quantified loss from the fraud Matched travellers’ names against employee

listing Ascertained purpose of travel Reconstructed the accounts Traced transactions to general ledger accounts Checked against supporting documents Prior year adjustments Result Dismissal Referral to Victoria Police Recovery of funds


15

Adeline Shelley Senior Manager Fraud & Forensic Services RSM Australia T 9286 8130 M 0423 313 183 E [email protected]


QUESTIONS AND ANSWERS?


37,500 minds, 730 offices, 110 countries, 1 network.

Documents

FORENSIC ACCOUNTING DEMYSTIFIED - Microsoft Shelley.pdf · Forensic accounting ... accounting and auditing standards and procedures ... examining accounting data . Forensic examination