No, it is not
counting the dead bodies or keeping track of all the numbered evidence tags at
a crime scene. It is the use of accounting and auditing procedures to discover,
analyze, organize, and present evidence of a financial nature for use in a
legal, administrative, or other official proceeding. "Forensic" means
suitable for use in court. In addition to employing accounting principles and
audit standards, the forensic accountant must obtain and preserve financial
evidence in accordance with the rules of criminal or civil procedure. Not
unlike a detective, the forensic accountant must obtain the facts in a legal
manner, maintain the integrity and chain of custody of documentary and physical
evidence, and be able to testify and be cross-examined as to the facts his
investigation uncovered. Forensic accountants may look beyond the mere
transaction to reveal the true economic substance - unscrambling a financial
shell game. Even the lack of accounting records will not deter a forensic
accountant. The forensic accountant may use the net worth and expenditures,
bank deposits, or source and application of funds methods of reconstructing
income to reveal the fruit of illicit activity, even if the perpetrator has
dealt exclusively in cash. Proof of proceeds in this manner can be used to
establish an element of the offense in money laundering or tax evasion cases,
or to corroborate a substantive offense such as fraud, embezzlement, drug
trafficking, racketeering, or another income-producing enterprise.
While every
Certified Public Accountant (CPA) should be able to examine financial records
and prepare a report of findings, not every CPA has the unique skills and
experience necessary to perform forensic (acceptable in court) accounting. The
Certified Fraud Examiner (CFE) designation together with a CPA license
indicates that the holder should possess a level of education, experience, and
knowledge of accounting and auditing principles, investigative procedure,
criminology and law to perform the forensic accounting function.
Forensic
accountants are employed by public accounting firms, private investigation
agencies, law firms, insurance companies, police and law enforcement agencies,
banks and other financial institutions, government regulatory agencies, and the
internal audit staffs of businesses and non-profit enterprises. Forensic
accountants in private practice are usually retained by the attorney for the
client requiring the services.
Money
laundering is the term used to describe any scheme whereby "dirty"
(illicit) money is made to look "clean" (legitimate). It is done to
avoid the detection of and prosecution for criminal activity, to evade taxes,
and to prevent the forfeiture of assets acquired with illicit proceeds. Money
laundering is accomplished by camouflaging or cutting the paper trail
connecting the proceeds to the true owner and illegal source. Money laundering
is a federal crime, proscribed by Title 18
Regardless of
the scheme employed, money laundering follows a three-step process:
Placement -
disposal of illegal proceeds into banking or business systems to make them more
manageable
Layering -
separating the proceeds from the illegal source and true owner through
financial transactions
Integration -
the return of, or the constructive use of, apparently legitimate funds to the
owner
Although money
laundering traditionally refers to the "washing" of illegal funds,
the same process can be employed for other motivations, such as the concealment
of assets from a spouse, a creditor, or a claimant, or to evade payment of a
civil judgment. (Ever wonder why O.J. has plenty of money to play golf, yet has
nothing to pay a wrongful death judgment?) Most recently, terrorist
organizations have used money-laundering methods to conceal funds used to
support their operations.
Although the
term "money laundering" was popularized during the "Miami
Vice" era of drug
smuggling cartels, the process has been practiced ever since one person has
wanted to hide wealth from another. French aristocrats stashed their funds
abroad during the French Revolution. Nazis placed their loot in numbered Swiss
accounts as a hedge against losing World War II. Prudent dictators have always
kept a supply of untraceable "flight capital" to insure a comfortable
lifestyle in exile after a coup-de-etat. At a more personal level, spouses
often conceal assets and income during divorce proceedings. The methods employed change with the times.
As authorities develop procedures and laws to defeat existing money-laundering
schemes, new schemes evolve. Money launderers take advantage of new
technologies and changes in business and banking practices to keep their
activities hidden. On the other hand, money launderers can revert back to the
most basic exchange systems, such as the hawala, black
market peso exchange, and similar alternative or parallel remittance systems.
What makes
economic crime investigation challenging compared to other types of
investigation?
- The
investigator must understand the legal framework, business procedures, industry
norms, technical aspects, and accounting principles involved in order to
uncover the scheme and prove the case.
- The
investigator often deals with educated, savvy perpetrators who understand the
industry, business environment and processes in which they operate. They may
have plenty of ill-gotten funds available to obtain first class legal
representation.
- Unlike some
mysteries, the investigator may start off with knowing the culprit, but must
work to uncover whether a crime has occurred, and determine that the matter is
not a result of mistake or error.
The
methodologies employed in a financial investigation are not unlike that of any
other type of investigation. There is a victim - an individual, a business, or
the people as a whole represented in their government. There is a crime scene,
although it may be in the accounting records or computer system. The
investigator follows leads, uncovering clues that lead to the next inquiry.
Interviews, searches, undercover operations, informants, surveillance, evidence
preservation, laboratory analysis, and other techniques common to other types
of investigation can be found in a financial or fraud investigation. In
contrast, financial investigations often involve large amounts of data and
documents that require expert analysis by forensic accountants to uncover the
clues they hold. A financial investigation is an objective search for the truth,
wherever the trail leads.
What qualities
make a good financial investigator?
- The financial
investigator should be technically knowledgeable as to legal matters,
accounting principles, business methods and industry norms. They should be familiar
with the indicators of illegal activity and common fraud schemes. They should
have earned the appropriate professional credentials, such as a Certified
Public Accountant (CPA) license and the Certified Fraud Examiner (CFE)
designation.
- The financial
investigator should have a skill set that includes the ability to think like an
accountant, which means attention to detail, being methodical, basing opinions
and conclusions on facts and evidence, and exercising professional skepticism
(not believing everything you are told). They should possess the ability to
clearly communicate verbally and in writing, be familiar with accepted
investigative methods and techniques, be skilled at interviewing and
interrogation, and have the ability to direct and supervise others who assist
in the investigation. The investigator must also have the ability to sell - to
convince reluctant witnesses to cooperate, guilty suspects to confess, and to
get prosecutors to accept cases when warranted.
- The financial
investigator must have the personal qualities of possessing integrity, of being
ethical, objective, believable, creative, and self-confident in their
abilities. They must have a positive work ethic; investigation is no 9 to 5
activity. Professional appearance and the overall image they project are
critical. When appropriate, the investigator must have the ability to be
assertive and be willing to confront hostile witnesses and suspects. They must
be able to see the whole picture and not get bogged in detail.
An interview is
a conversation with a purpose. An investigative interview is contrasted to an
interrogation in that an interview may be conducted of victims, witnesses, and
even suspects to obtain facts to further the investigation. An interrogation is
conducted of a suspect at or near the end of an investigation, once the facts
have established a reasonable probability of culpability, in an effort to
obtain an admission or confession. There are other types of specialized
interviews, such as multiple suspect elimination. This discussion is confined
to that of an investigative interview.
There are five
steps to an investigative interview:
THE
INTRODUCTION is where the investigator introduces himself and his partner, if
any. The interviewee/witness is identified and provided the purpose for the
interview. The information given to the witness is only that necessary to
establish a framework for the contact and the line of questioning to follow. It
may or may not be the true purpose - a plausible ruse may be necessary with
some witnesses.
ESTABLISH
RAPPORT, which breaks the ice and conditions the witness to talk. It may
consist of general small talk before the main line of questioning begins. It
also has the purpose of establishing a behavioral baseline to assist the
investigator in evaluating verbal and non-verbal behavior indicative of
deception by the witness during the questioning phase of the interview.
In the
QUESTIONING phase, the investigator starts out with general questions, such as
"tell me about..." or "describe to me..." This type of
question should result in a narrative response by the witness about the matter.
To the extent the narrative omits these details, the investigator follows up
with specific questions covering the who, what, when, where, why, and how of
the matter.
The
investigator gives an oral SUMMARY of the information provided by the witness.
The summary is an important part of the interview as it allows the investigator
to be sure he has all the information. Often the witness will add to or clarify
previous information. Generally, the investigator should repeat everything
given by the witness to verify the information received. The witness may be
asked to restate key answers. The investigator may ask new questions during the
summary as missing, unclear, or inconsistent information becomes apparent. If a
written statement is to be taken from the witness, it is obtained at the end of
the summary.
The CLOSE is
where the investigator thanks the witness, even if they have been uncooperative
or deceptive ("Thank you for your time."). Rapport is important at
this stage as well - leave on a positive note. The investigator will provide
the witness with a means of contact (business card, etc.) and discuss how and
when the witness may be recontacted if necessary.
Investigative
interviews comprise a critical part of any financial investigation. They
require careful planning, as there may be only one opportunity to interview the
witness during the investigation. Skill in interviewing is a fundamental
requirement of forensic accountants and other financial investigators.
Due diligence
is the level of care a person would reasonably be expected to take in a
particular situation. In financial matters, it includes knowing about those
with whom you seek to do business or are about to employ in a key position.
What you don't know can hurt you. You want to find out if a potential business
associate, critical new vendor, significant new customer, or a candidate for a
key company position has ethical lapses or other "baggage" BEFORE you
place trust in them. A key position is any position that involves access to
sensitive information or company assets. Besides putting a business at risk for
loss, failure to exercise due diligence can result in criminal charges in some
cases. For example, a person in a financial institution can commit the offense
of money laundering under Title 18 United States Code Section 1957 by engaging
in "willful blindness" (a serious lack of due diligence) when
conducting a transaction with a another person involving certain criminal
proceeds. A financial institution is defined to include auto, boat, aircraft
and other vehicle dealers, real estate agencies and others involved in
closings, travel agencies, money transmitters, pawn shops, and others, in
addition to traditional banks, insurance companies, and credit card companies
(Title 31, United States Code Section 5312). Even if loss and liability are
avoided, your company's good name and reputation can be put in jeopardy by
association with others involved in scandal or criminal activity.
Exercise of due
diligence includes knowing the background of persons and businesses with which
you plan to do business or employ. A qualified investigator can perform
database searches, verify address and employment history, check public records
for judgments, liens, criminal records, and property, conduct personal
interviews of associates, references and others who know the subject, and
confirm the existence of professional licenses and academic degrees. The scope
and depth of the inquiry depends of the nature of the business relationship
contemplated.
Litigation
support by a forensic accountant means providing assistance to law firms in the
preparation and presentation of financial-related evidence in court or before an
administrative body. This assistance can take the form of determining economic
gains or losses from activities or events, analysis of financial information in
discovery materials, assisting in the interviews of potential witnesses
regarding financial matters, providing testimony as to facts and evidence
uncovered by the forensic accountant in a financial investigation, acting as an
expert witness regarding accounting and financial matters, and providing advice
to the attorney in matters of accounting and auditing for the purpose of
developing lines of questioning. The scope of litigation support is limited
only by the needs of the attorney and the individual competencies of the
forensic accountant. Attorneys for the government, the plaintiff, and the defense
use forensic accountants in support of litigation or potential litigation. A forensic accountant in private practice may
at times work for each of these parties (of course, not in the same case!).
Copyright 2012.
William Studdard. All Rights Reserved