In Focus: Forensic Accounting

By Kate Cadet

From building a tax evasion case against prohibition gangster Al Capone in the 1920s, verifying former American football player O.J Simpson's net worth in the late 1990s, to English singer-songwriter Sir Paul McCartney's divorce settlement and the highly publicised Enron scandal in 2001, the people and teams uncovering these acts of financial misconduct by "white collar" criminals are known as Forensic Accountants.

Qualified forensic accountants are commonly known for their work investigating workplace misconduct and fraud. Yet, with a highly specialised set of accounting skills, forensic accountants are also in high demand across a range of areas including  'Damages' in the context of contractual disputes, or in the 'Tort of Negligence'. As accounting experts they also play a vital role in process improvement, risk analysis, and fraud prevention.

We spoke with three alumni working in this complex field to learn more about what is involved on a daily basis providing independent expert advice and evidence as a forensic accountant.

  • Stephen Bourchier

    Manager, Forensic Accounting

    TAC (Melbourne)

    BCom 2005, Grad Cert Business Forensics 2010

  • Julie Fenton

    Fraud Investigation and Dispute Partner

    Ernst & Young (Ireland)

    BCom (Accounting & Finance) 1990

  • Ed Wilcox

    Senior Manager, Forensic Accounting Group

    Clifford Chance LLP (London)

    Master of Applied Commerce, Accounting 2006

Forensic accounting is a unique and quite fascinating area of finance. How did you come to be in this line of work?

> Bourchier: I commenced my career at a Chartered Accounting firm, and then moved relatively quickly to the Transport Accident Commission to work as an Accountant in their Claims Division.  I became interested in assessing financial losses, and also in investigations when I was dealing with and reading Forensic Accounting in the TAC’s Claims Division as an Accountant assessing the extent of financial losses that people have suffered because of transport accident injuries.

I took the proactive step of enrolling myself in the “Graduate Certificate in Business Forensics” at the University of Melbourne, which I completed part time whilst still working full time in the TAC’s Claims Division.  I then applied for an internal transfer to a “Forensic Accountant” position and was successful.

> Fenton: My career in Forensic accounting started a little bit by accident.  I was a recently qualified CA in Melbourne and had taken some time off to travel.  On my return to the firm I knew that I wanted to stay in the profession but that I wanted to do something a little different from audit.  I was thinking about looking at opportunities in Corporate Finance and sought the advice of one of my audit colleagues as to what he thought would be good for me given the skill sets I had.  What I did not know was that he was about to start specialising in forensic accounting and creating a dedicated team to work in this area.  The role appealed to me as it combined investigation and analysis, considering potential scenarios and outcomes, strategy and also business development.

> Wilcox: I first became interested in forensic accounting as a line of work when I began my career in audit at Ernst & Young, where there is a Fraud Investigation & Dispute Services (FIDS) Team. The opportunity to work in this area didn't eventuate prior to departing Australia, but when I arrived in London I specifically sought out forensic accounting opportunities and began my role within the Forensic Accounting Group at Clifford Chance.

Decision

What types of information do you look for when analysing and investigating financial statements and reports, which may indicate fraud?

> Bourchier: The information we look for when investigating financial statements and reports that may indicate Fraud can be quite different depending on the situation.

In almost all cases, it is important to establish a timeline and to focus in on when and where the potentially fraudulent behaviour may have occurred.

This timeline can be built with a combination of accounting analysis and the collection of other evidence, such as witness statements.  Inconsistencies between sets of financial data can also be telling, and lead to further enquiries.  Understanding the basic relationships between sets of accounting records and line items within them to test what “doesn’t look right” often leads to deeper enquiries.

> Fenton: When commencing an investigation my first step is to consider who will have information that is relevant and what might that be.  Since I started working in this area the volume of available data has exploded and it is really important now that the data sources that we get are clearly thought out as it can be very time consuming looking at information that may not take you anywhere.  Information is categorised into:

  • Unstructured data – emails and soft copy documents from hard drives and file shares etc.
  • Structured data – transaction information from accounting systems.  This sort of information can be analysed using data analytic techniques to look for patterns of transactions which may indicate that controls are being circumvented or that there are patterns of behaviour that raise red flags.
  • Hard copy documents information .
  • Interviews with key personnel.

The contents of this information needs to be analysed and considered as a whole and data mining techniques are becoming more and more important in understanding what may have happened when there is suspected fraud.  For example, looking at patterns of sales prices to certain customers which should be the same, and noting where they are not could be an indicator that there has been favourable treatment to a certain customer.  This would focus the investigation in that area.

Working in a firm like Ernst & Young we train regularly for giving expert evidence and it is something that needs to be practiced so you are prepared for the “game day” situations Julie Fenton

Papers

How did your Bachelor of Commerce / Masters of Accounting studies teach you to look beyond the numbers and deal with the business reality of the situation?

> Bourchier: It provided me with a strong knowledge foundation in Accounting, Auditing, Management, Economics, Business Law, Tax, and Econometrics.  Understanding the business reality of the situation is precisely what is required from the Forensic Accountant.  The degree taught me that it is important to think about why numbers appear in accounting records.  "How did they get there?  Who put them there?  What transaction do those numbers represent?  What does the relationship between the numbers suggest about the health of a business, or the possibility of treacherous activities?"  The Bachelor of Commerce also allowed me to understand the cross-over between various disciplines.

The Bachelor of Commerce at the University of Melbourne is the most important study I have undertaken, and I still look back on my old text-books and notes from time to time. Stephen Bourchier

> Fenton: I did a broad range of subjects throughout my degree and in first year took Economic History and Australian Politics.  At that stage I loved the diversity. History and politics helped me to critically analyse situations and develop skills I use every day in my forensic accounting report writing.  Overall, I enjoyed all my studies and the real mix of theory and practical application, but particularly enjoyed the courses in business administration where we worked on assignments with students from diverse disciplines.  This work really helped me understand that in business as with anything people come at problems in different ways and success is about being able to work together to get the best answer.  Something that happens in business every day.

> Wilcox: My Masters of Applied Commerce has best served me by providing a technical grounding and teaching different methods of analysis and review. It's the combination of a quality education with the experience you gain as your career develops, that makes it easier to look past the numbers and see the business reality of a situation.

Beyond the numbers, there is a human element involved with the discussions, debate and ultimately dispute resolution resulting from your work. What advice can you give to graduates in terms of separating the facts from personal ethics?

> Bourchier: Understanding the human elements involved is critical as a Forensic Accountant.  A strong ability to appreciate and deal with your own emotions and personal ethics is a trait that I highly value and have learned to develop myself in this role over time.  Often frustrations may surface when assertions are made by others that are not in accordance with your accounting analysis and other corroborating evidence.  Where this occurs, the Forensic Accountant must listen carefully and try to test the assertions against the analysis.  My advice to students is to develop and maintain a strong sense of personal and professional ethics (and to always be true to them), but to ensure that one is not “judgemental” of others in conducting their work.  One must remember that personal ethics are “personal”.

> Fenton: When we start our investigation work we are really clear on making sure we look at the facts of the situation.  We need to have a clear plan for understanding how we are going to go about our work, what we are going to look at and how we are going to collate the information so that the facts that can be evidenced are clearly set out.  This needs to be cognisant of both sides of the situation, as there are always more than one way to interpret particular events.  You can often find yourself dealing with emotive clients who have suffered a loss, people who are being accused of issues they deny.  It is important to develop an ability to step back from a situation and look at the evidence.

> Wilcox: People skills cannot be underestimated. Good relationships foster good work, both internally and when client facing. All good relationships will have times of disagreement and dilemma, and the personal integrity you can bring to those scenarios can make a big difference. I have found that my best professional relationships are based on integrity and reliability.

If you can maintain integrity in the results you produce, and do so reliably, it will serve you well. Ed Wilcox

Closing remarks

Our contributing Forensic Accountants gave us some additional answers specifically focused on their individual roles and experience to wrap up their interviews. Here's what they shared.

Stephen Bourchier Tab
Stephen Bouchier is based in Melbourne, Australia

I've heard people refer to forensic accountants as "financial detectives" - do you feel like Sherlock Holmes on a day-to-day basis?

“Financial Detectives” has quite a bit of truth to it.  As Forensic Accountants we need to work closely with Investigators, Lawyers, Barristers, Claims Staff, and others to try to uncover facts.  Depending on whether we are operating in the Civil or Criminal Jurisdiction, our task may be to piece together what has occurred in the past to establish potentially fraudulent behaviour, or it could be to forecast future financial losses in a business for the next 10 years.  This requires understanding accounting records in detail, but it also requires that broader “detective” type element to ensure we can work effectively with others in the process.  Knowledge of investigation tools and techniques are important.

How do the tasks you and your team perform at TAC compare to say, a forensic accountant working in a the private sector?

The tasks that we perform at the TAC are likely to be quite similar “at their core” to those performed in the private sector, either in a public practice accounting firm, or for example at a private insurance company.  The role and function of the TAC in Victoria requires us as Forensic Accountants to spend most of our time assessing damages in Tort due to injuries that somebody has sustained in a transport accident.  We also advise Claims Officers on the appropriate level of Statutory Compensation for Loss of Earnings and Earning Capacity payable to injured persons.  Forensic Accountants in the private sector are also engaged in similar work preparing reports for Plaintiffs who have sustained the injuries.  When we are engaged to assist with investigations, the processes and procedures, and principles are relatively similar regardless of whether you are conducting your work in the private sector or the public sector.

Julie Fenton Tab
Julie Fenton is based in Dublin, Ireland

What other industry qualifications could a graduate consider after university to succeed in forensic accounting?

My view is that if you are considering a career in forensic accounting gaining an accounting qualification through a training firm is a good start.  Getting a wide range of practical experience through a discipline such as auditing sets you up really well for the challenges of an investigation.  From there, there are a huge range of qualifications that you can take and my view is to pick the one that works with your area of interest.

You lead the Ernst & Young Women in Business Network. How does this program specifically support and mentor female graduates in the areas of forensic accounting?

The role I have in Ireland is broader than just the forensic accounting team.  In EY we are striving to assist women in our firm to see that they can have a long and successful career with us.  The EYWN creates opportunities for women across the firm to build networks, develop skills and identify mentors who can support them.  We work each quarter to a series of themes with a main event featuring a guest speaker and then a number of lunch time session for discussion topics.

Ed Wilcox Tab
Ed Wilcox is based in London, UK

How is forensic accounting different to litigation support and/or investigative accounting?

The definition of 'forensic' is 'relating to the courts', and forensic accounting covers all accounting analysis that is suitable for court. Litigation support and investigative accounting are both categories under the broader umbrella of forensic accounting. Litigation support more typically covers assignments such as quantification of loss or economic damages. Investigative accounting is more often associated with the investigations of criminal or regulatory matters.

Why is an extensive understanding of business information and all aspects of financial reporting critical in this line of accounting?

The key drivers of my work as a forensic accountant are litigation, dispute resolution, and regulatory investigations. As such, the circumstances and manner of work that will come before me are not always predictable. I have found myself advising on a broad range of financial, accounting and commercial issues across many different industries and jurisdictions. An extensive understanding of business information and financial reporting has been necessary for the provision of expertise across the diverse range of cases on which I have worked.

What are the potential areas/industries of employment a qualified forensic accountant might find work?

There are a great many businesses and business areas in which a forensic accountant's skill set can be well utilised. Most typically those will be within the big accounting or law firms, insurance or banking institutions, law enforcement and government agencies, and other such organisations. I have personally worked on cases covering areas such as economic sanctions, anti-money laundering, counter terrorist financing, anti-dumping, rate rigging, breach of contract, quantification of loss & damages, and of course fraud.

In memory of Professor Colin Ferguson a deceased former academic of the Faculty instrumental in the Forensic Accounting space, the Professor Colin Ferguson KPMG Scholarship has been established in conjunction with KPMG. 

The scholarship is open to full-time second year Bachelor of Commerce students who intend to major in Accounting and are able to demonstrate leadership, prior work experience, academic merit, and/or a rural background.