Balancing the Books: How Forensic Accountants Fight White Collar Crime

Fraud affects countless Americans every year and results in the loss of billions of dollars. With white collar crime such a widespread and complicated problem in the 21st century, many professionals are needed to address fraud effectively.

Enter forensic accounting — an increasingly popular accounting specialty that deals with fraud and its legal ramifications. Forensic accountants don’t just balance the books. They’re charged with investigating possible instances of fraud for individuals and businesses, and also with serving as advisors who can testify in legal proceedings. Forensic accounting is a unique field for accountants interested in preventing and fighting fraud.

What is a Forensic Accountant?forensic accounting

The Association of Certified Fraud Examiners (ACFE) is one of the world’s largest anti-fraud organizations and provides anti-fraud certification, training and education. The association works with auditors, government officials and accountants to help develop new standards for fraud investigation and prevention. The ACFE offers in-depth details on careers in forensic accounting.

Definition and Job Responsibilities

The ACFE describes forensic accountants as those who “combine their accounting knowledge with investigative skills in various litigation support and investigative accounting settings.” They are employed by accounting firms, consulting firms, banks, lawyers and even law enforcement entities. With the continuing complication and growth of fraud issues and white collar crime, the ACFE says that demand for professionals in the field is rapidly increasing.

While the job responsibilities of forensic accountants differ from case to case as well as setting, many perform the same duties. They perform forensic research and dig into transactions to trace funds and identify assets that need to be recovered. They also conduct forensic analysis of financial data to determine if any foul play occurred. Forensic accountants take their findings and use them to create reports for litigation or even testimony.

Education and Credentials Required

As with all accounting positions, a bachelor’s degree is the minimum education required. In many cases, a master’s degree in accounting can be helpful. While more and more forensic accounting programs are emerging, it is still very possible to enter this field without a degree in the specialty. Those without a graduate degree can use work experience as an alternative when applying for jobs.

Along with a college degree, forensic accountants are often required to earn and maintain accounting certifications to further demonstrate their skills and knowledge. Becoming a certified public accountant (CPA) is the most common certification. The ACFE offers the certified fraud examiner (CFE) credential, which is often encouraged by employers.

Salary

Forensic accounting is a financially rewarding field, especially for those willing to earn the CFE credential. The ACFE reports that the median salary for forensic accountants with a CFE is $105,000, and the median salary for forensic accountants without the credential is $90,634.

The Work of Forensic Accountants

As mentioned, fraud investigation and prevention are the primary responsibilities of forensic accountants. However, fraud can be incredibly varied depending on the situation. There are three types of fraud that forensic accountants often encounter in their work.

Securities Fraud

Otherwise called stock or investment fraud, securities fraud involves the seduction of investors to make financial decisions based on false information. This often results in the loss of their money and the violation of securities laws. These investments are often presented as less risky or “sure things,” but may end up being very risky or outright theft.

Securities fraud encompasses a wide range of other actions. Insider trading involves investment based on non-public information, whether that of a pending merger or unannounced earnings. Corporate fraud involves the use of dummy corporations to create the illusion of being an existing corporation for investors. A Ponzi scheme (see example below) involves the creation of an investment fund where, rather than profit being obtained via actual investment, withdrawals are financed by future investors.

Forensic accountants working on securities fraud may work for the Securities and Exchange Commission, for lawyers prosecuting securities fraud or for companies that may be the victims of fraud.

While by no means comprehensive, this example illustrates how a Ponzi scheme progresses. The scheme begins by collecting $10,000 from investors and promising to double it within a year. Instead of investing the money, the schemer pays back his investors from the first round with funds from larger, proceeding rounds.

Ponzi Scheme illustration. Tax Fraud

Tax fraud involves individuals or corporations deliberately misrepresenting their true financials in order to reduce tax liability. By dishonestly reporting tax information, companies may find themselves in serious trouble with the law. It is estimated that the federal government lost $305 billion to tax evasion in 2010, according to public policy organization Demos.

Like securities fraud, tax fraud varies extensively. Much of it occurs via the use of foreign tax havens, with individuals or companies shifting profits overseas to prevent being fully taxed. Tax evasion may also include the illegal payment of employees without proper tax filings.

Forensic accountants who work in tax fraud can find employment with the IRS or the accounting department of a company accused of tax fraud.

Money Laundering

The process of transforming the proceeds of crime into legitimate money or other assets is considered money laundering. This money can be obtained from various crimes such as extortion, drug trafficking or prostitution. Money laundering often happens on a much smaller level than securities fraud or tax fraud and is often investigated by state and local law enforcement as well as the federal government.

Forensic accountants who focus on money laundering may work for a police department, state finance office, lawyers or other employers.

Pursuing a Career in Forensic Accounting

The field of forensic accounting offers a variety of job opportunities with high salaries. With the right education, an accountant can gain the skills and knowledge to enter this growing area of accounting. Point Park University’s online Bachelor of Science in Accounting degree prepares students with relevant knowledge to succeed in the fast-paced world of accounting. The online format of the program allows students to balance both their personal and professional commitments while pursuing their education.

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