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Journal of Money Laundering ControlBetter, faster, smarter:
developing a blueprint for creating forensic accountantsYogi
Prabowo Hendi
Article information:To cite this document:Yogi Prabowo Hendi ,
(2013),"Better, faster, smarter: developing a blueprint for
creating forensicaccountants", Journal of Money Laundering Control,
Vol. 16 Iss 4 pp. 353 - 378Permanent link to this
document:http://dx.doi.org/10.1108/JMLC-05-2013-0017
Downloaded on: 13 June 2015, At: 10:54 (PT)References: this
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Users who downloaded this article also downloaded:Jeanette Van
Akkeren, Sherrena Buckby, Kim MacKenzie, (2013),"A metamorphosis of
the traditionalaccountant: An insight into forensic accounting
services in Australia", Pacific Accounting Review, Vol. 25 Iss2 pp.
188-216 http://dx.doi.org/10.1108/PAR-06-2012-0023Zabihollah
Rezaee, E. James Burton, (1997),"Forensic accounting education:
insights from academiciansand certified fraud examiner
practitioners", Managerial Auditing Journal, Vol. 12 Iss 9 pp.
479-489 http://dx.doi.org/10.1108/02686909710185206Kay C. Carnes,
Norman J. Gierlasinski, (2001),"Forensic accounting skills: will
supplyfinally catch up to demand?", Managerial Auditing Journal,
Vol. 16 Iss 6 pp. 378-382
http://dx.doi.org/10.1108/02686900110395514
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Better, faster, smarter:developing a blueprint for
creating forensic accountantsHendi Yogi Prabowo
IsCentre for Forensic Accounting Studies,Islamic University of
Indonesia, Yogyakarta, Indonesia
Abstract
Purpose The purpose of this article, which is based on authors
study, is to highlight the essentialattributes of forensic
accountants and to construct the forensic accountant blueprint as a
referencefor forensic accounting education and training.
Design/methodology/approach This study uses primary and
secondary data on forensicaccounting profession in Indonesia and
the USA. Such data were collected by means of literaturereviews,
in-depth interviews, and a focus group discussion with a number of
forensic accountingprofessionals in Indonesia and the USA.
Findings The author establishes that the problem-based nature of
forensic accounting requires aunique approach in producing forensic
accountants compared to ordinary accountants. The
essentialattributes that a forensic accountant needs to possess are
mentality, method, and experience.Mentality consists of elements
such as ability to differentiate the right from the wrong, courage
tostand up for what is right, ability to withstand pressures from
the works, and puzzle solving mindsets.Methods refer to the
understanding of the fraud investigation process such as fraud
detection,evidences, investigation methods, and investigation
report. Experience as the third attribute isgained primarily
through involvement in fraud investigation process in which a
forensic accountantutilizes his or her knowledge previously
acquired through education and training.
Research limitations/implications Forensic accounting is a
problem oriented skill that maydiffer across countries. Due to the
time and financial resource constraint, this study is limited only
on twocountries and a small number of respondents. For future
study, more countries and respondents shouldbe included in analysis
to gain a more complete picture on what constitute a forensic
accountant.
Practical implications The results of this study contribute to
the development of human resourcein the forensic accounting
profession. More specifically, they serve as a reference in the
development ofcurriculum for forensic accounting education and
training especially in Indonesia.
Originality/value This paper sees forensic accountant skill
development from the demand pointof view by highlighting what that
the profession expects from a forensic accountant.
Keywords Education, Universities, Fraud, Forensic accountant,
Forensic accounting,Fraud investigation
Paper type Research paper
IntroductionA decade had passed since Enron collapsed and yet
fraud remains a major internationalproblem. Efforts have been made
to fully identify the types of fraud for prevention and
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/1368-5201.htm
The author would like to acknowledge the support provided by the
US Indonesia Society(USINDO) through its Sumitro Fellowship Award
and the Directorate General of HigherEducation of Indonesia (Dirjen
Dikti) through its Doctorate Development Program for thefunding of
this study.
Journal of Money Laundering ControlVol. 16 No. 4, 2013
pp. 353-378q Emerald Group Publishing Limited
1368-5201DOI 10.1108/JMLC-05-2013-0017
Blueprint forcreating forensic
accountants
353
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investigation purpose without success as there appears to be new
kind of fraud emergingevery day. This has created a high demand for
forensic accounting skills globally(Kranacher et al., 2008). Such
demand has been responded widely by higher educationinstitutions
all around the globe in the form of forensic accounting programs or
courses(West Virginia University, 2007; Kranacher et al., 2008).
Similarly in Indonesia, numerousuniversities have been trying to
set up their own forensic accounting programs to copewith the
rising demand. The lack of agreed upon standard has been among the
majorchallenges particularly in academically developing forensic
accounting discipline. Thisunderscores the need for more studies on
what a forensic accountant really is, what theprofession demands,
and how to fulfill such demand in particular through education
andtraining. Funded by the US Indonesia Society (USINDO) and the
Directorate General ofHigher Education of Indonesia (Dirjen Dikti),
this study represents an effort to fulfill thisneed. Based on
extensive literature review and in-depth interviews with
forensicaccounting practitioners in Indonesia and the USA, this
study aims primarily atidentifying the essential attributes of a
forensic accountant as a reference for designingeffective forensic
accounting education and training. As will be discussed in this
paper,due to its nature, forensic accounting has a wide coverage of
areas. Therefore, for the sakeof this study, the discussions will
focus on fraud investigation as a service that can beperformed by
forensic accountants in public and private sectors.
The fraud problemsFraud has been in existence for generations.
For example, the so-called financialscandals have plagued the
worlds economy since before the Industrial Revolution(Pearson and
Singleton, 2008). Many of the scandals (such as that of the equity
fundingin 1970 where computers were used to as a means in
perpetrating fraud) becamemilestones with historical importance in
our journey in combating fraud (Pearson andSingleton, 2008).
According to the Blacks Law Dictionary (2009), fraud is:
A knowing misrepresentation of the truth or concealment of a
material fact to induce anotherto act to his or her detriment [. .
.] A misrepresentation made recklessly without belief in itstruth
to induce another person to act.
As argued by Ramamoorti (2008, p. 522):
Fraud involves intentional acts and is perpetrated by human
beings using deception, trickery,and cunning that can be broadly
classified as comprising two types of misrepresentation:suggestio
falsi (suggestion of falsehood) or suppressio veri (suppression of
truth).
The essential part of any fraud is the use of deception to
obtain benefits. As defined byWells (2005, p. 8), four general
elements must be present for an offence to be called fraud:
(1) a material false statement;
(2) knowledge that the statement was false when it was
uttered;
(3) reliance on the false statement by the victim; and
(4) damages resulting from the victims reliance on the false
statement.
There are many types of fraud in the society and so far as
literatures are concerned,no single classification system in the
world can comprehensively identify all of them.The Association of
Certified Fraud Examiners (ACFE), for example, has been using
theFraud Triangle system in its biannual global studies on fraud
(Association of Certified
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Fraud Examiners, 2012b, a). The system divides fraud into three
major categories:corruption; asset misappropriation; and financial
statement fraud (Association ofCertified Fraud Examiners, 2012b).
From the existing cases, there are many ways fraudcan be
perpetrated, from the simple misuses of trust to the sophisticated
computer basedoffence. Also, by nature, fraud is an
interdisciplinary issue requiring the understandingof a number of
different areas of knowledge for prevention and investigation.
Often mentioned as white collar crime, losses from fraud have
been estimated by theACFEs global study to be around $3.5 trillion
in 2011 alone (Association of CertifiedFraud Examiners, 2012b, p.
4). In this study, asset misappropriation is considered asthe most
common fraud category with 87 percent of reported cases during the
studyperiod (Association of Certified Fraud Examiners, 2012b, p.
4). According to the study,the most costly type of fraud is
financial statement fraud which, despite making only8 percent of
the cases in the study, it caused median loss of $1 million
(Association ofCertified Fraud Examiners, 2012b, p. 4).
Over half a decade ago the term white collar crime was not
largely known evenamong criminologists and sociologists. Edwin H.
Sutherland was credited as the firstand criminologist who
integrated crimes of the upper white collar class with economicsand
business activity (Dorminey et al., 2012, p. 557). During
Sutherlands time, whereaseconomists were, naturally, very familiar
with business issues but were much less so tocrime, sociologists
were well acquainted with crime but were not used to see it
frombusiness point of view (Sutherland, 1940, p. 1). Sutherland
(1940, p. 1) argued that theseemingly low crime incidents among
member of the upper class was attributed to theinaccurate depiction
by the crime statistics of the time. He was of the opinion
that(Sutherland, 1940, p. 1):
The criminal statistics show unequivocally that crime, as
popularly conceived and officiallymeasured, has a high incidence in
the lower class and a low incidence in the upper class; lessthan
two percent of the persons committed to prisons in a year belong to
the upper class [. . .]The criminologists have used the case
histories and criminal statistics derived from theseagencies of
criminal justice as their principal data. From them, they have
derived generaltheories of criminal behavior. These theories are
that, since crime is concentrated in the lowerclass, it is caused
by poverty or by personal and social characteristics believed to
beassociated statistically with poverty, including
feeblemindedness, psychopathic deviations,slum neighborhoods, and
deteriorated families. This statement, of course, does not
dojustice to the qualifications and variations in the conventional
theories of criminal behavior,but it presents correctly their
central tendency.
Sutherlands apprentice, Donald Cressey, later proposed, based on
his PhD study, whatis now known as the Fraud Triangle in which he
believed that fraud is a convergenceof three factors, pressure or
motivation, opportunity, and rationalization (Cressey,1950). In his
original work, Cressey used the term trust violation in describing
theoffence in question embezzlements. For his PhD study, Cressey,
in the late 1940s,interviewed nearly 200 incarcerated embezzlers,
including convicted executives[1].Despite formulated over a
half-decade ago, Cresseys theory, currently known as theFraud
Triangle, remains highly regarded to date particularly in the
discipline offorensic accounting. It provides explanations for many
fraud related phenomenon.
From the pressure or motivation point of view, as suggested by
various studies, greedhas always been thought as a driving factor
behind many fraud cases (Prabowo, 2011c).This is often seen in what
is known as the living beyond means phenomenon. The 2012
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global study by the ACFE, for example, put ones desire to life
beyond means as a themost observable behavioral symptoms from fraud
offenders (Association of CertifiedFraud Examiners, 2012b, p. 57).
The offenders lavish lifestyle is evidenced mainly bytheir personal
assets such as large houses, fancy apartments, luxurious cars, top
of theline jewelries, etc. The possession of such assets is part of
what is known as theconversion element of the Fraud Element
Triangle (Albrecht et al., 2012, p. 81).Whereas the Fraud Triangle
explains about the why element of fraud, the FraudElement Triangle
focuses more on how it is perpetrated. According to the
framework,three essential elements of a fraud are: act;
concealment; and conversion (Albrecht et al.,2012, p. 81). The act
is where offenders stole the assets, concealment is
concerningoffenders efforts to hide fraud from others, and
conversion is when offenders spendsor convert the proceeds of their
crime (Albrecht et al., 2012, p. 42).
Opportunity for committing fraud may come from ones position in
his or herorganization that can be misused for obtaining unlawful
benefits (Dorminey et al.,2012, p. 565). According to the ACFEs
biannual study, generally, the higher a fraudperpetrators position
in his or her organization, the more damaging his or her fraudwill
be (Association of Certified Fraud Examiners, 2012b). To be able to
misuse theirpositions successfully, fraud offenders need to know
how to overcome the existingbarrier such as his or her
organizations internal control. In this case, a
potentialperpetrator must be sufficiently knowledgeable about the
internal control weaknessesand be able to use position, function,
or authorized access to his or her advantage(Dorminey et al., 2012,
p. 565). Based on the latest global fraud study by the ACFE,around
54 percent of fraud offenders had a college degree or higher
(Association ofCertified Fraud Examiners, 2012b, p. 50). The above
definition of fraud by Joseph Wellsimplies that only those with
sufficient degree of intelligence can utter convincing
falsestatements by which they can deceive others into doing their
bidding.
Rationalization in ones fraud is a more (sometimes much more)
subtle causal factor tobe observed in the Fraud Triangle framework.
It is simply a way for the offender to justifytheir actions.
According to Cressey (1950, p. 201), rationalizations are not
merely ex postfacto justifications for conduct which have already
been enacted, but are pertinent and realreasons which the person
has for acting. This is to say that offenders may have
theirjustifications before or after their actions. Clark et al.
(2006, pp. 135-136) are of the opinionthat rationalization can take
various forms, such as: its just temporary, managementdoesnt care,
management participates in, expects and rewards this kind of
behavior,no one is hurt and the company is helped and I deserve
this.
When planning a fraud, a potential fraud offender will commonly
perceive aninconsistency between what is right and what I am about
to do which needs to bereconciled in order for the offence to
progress (Dorminey et al., 2012, p. 558). It is
throughrationalization that such reconciliation can be achieved
(Dorminey et al., 2012, p. 558). As away of justifying misconduct,
fraud rationalization is thought by many behavioralscientists as a
complex psychological process inside ones mind. It includes not
onlyoffenders deceiving others but also deceiving themselves into
thinking that what they dois not a crime. To ease the guilt from
committing fraud, they justify the crime by usingsituation-specific
perception. As argued by Murphy and Dacin (2011, p. 610):
An individual who rationalizes a behavior still holds the same
overall attitude toward thatbehavior, but justifies it with
situation-specific perceptions. Individuals who
rationalizefraudulent behavior are able to sleep at night,
believing they are honest and ethical.
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Cressey, in his work highlighted that, despite the fact that
what they do is a crime,fraud offenders simply does not want to be
seen as a trust violator since they believethat their case is an
exception by which they may view themselves not in a negativemanner
(Cressey, 1950; Dorminey et al., 2012). In fact, there are cases
where fraudoffenders think that they are helping their organization
or fellow employees in solvingtheir financial problems. An example
is financial statement fraud where the offendersmanipulate their
companies financial statements so as to attract more investors
fromthe stock market in order to avoid bankruptcy (Murphy and
Dacin, 2011, p. 610). Inother cases, fraud offenders argued that
their misconducts are not too bad compared toother more damaging
frauds (Murphy and Dacin, 2011, p. 610). Even men of integritymay
have their morality be temporary overwhelmed by certain situational
factors suchas obedience to their superiors and organizations
ethical climate and normalizationand choose to commit fraud (Murphy
and Dacin, 2011, pp. 604-605).
Fraud is a complex and dynamic problem. Every nation has its own
specific fraudproblem. In Indonesia, corruption is known to be the
most common or at least the mostexposed type of fraud. The
Indonesian Corruption Eradication Commission (KPK) in itsfraud
statistics classifies corruption into five categories: procurement
of goods andservices; bribery; budget misappropriation,
unauthorized collection and inappropriatelicensing (Corruption
Eradication Commission, 2012). Among these categories,procurement
of goods and services is known to be the most prevalent offence.
Onething worthy of a note is that despite the high level of
corruption in Indonesia, it is only thetip of a huge iceberg. This
is so since media coverage is focusing primarily on corruption
inpublic sectors whereas, in reality, it is also a pandemic in the
private sectors. In publicsectors, it seems that new corruption
cases emerge everyday perpetrated by high profilepublic figures
such as members of the parliament, political figures, ministers,
etc.
A noticeable trend in the corruption cases in public sectors is
that the perpetratorsare seemingly getting younger and smarter by
the day. For example, GayusTambunan, a low-level government tax
official had engaged in money laundering andembezzlement for major
companies in Indonesia is evidence that young professionalsmay have
been exposed to the corruption culture of the country (Kimura,
2012, p. 187).In the case of Gayus Tambunan, among the things that
made him famous was his actof bribing police and immigration
officials so as to be able to take frequent trips abroadduring his
detention time (Kimura, 2012, p. 187). In November 2010, he was
accidentlyphotographed at an international tennis competition, the
Commonwealth WorldChampionship, in Bali during his detention time.
Despite early denials, he eventuallyadmitted that it was really him
in the photograph. Another high profile case involvingyoung public
figure is that of Muhammad Nazaruddin, a Former Treasurer of
theDemocratic Party who allegedly arranged kickback deals for the
2011 SEA Games inPalembang, Sumatra (Kimura, 2012, p. 188). Similar
to Gayus, Nazaruddins casecaught media attention for his
adventurous escape to Singapore, Vietnam, Cambodia,Spain, and the
Dominican Republic before his arrest in Colombia (Kimura, 2012, p.
188).
At the regional level, there have been many cases of corruption
in Indonesiaperpetrated by the head of the regions. Corruption
commonly occurred in the areassuch as goods and services
procurement[2], budgetary misappropriation and bribery.Such areas
are prone to corruption due to, among other things, the need for
politicalfunding in particular during the regional elections.
According to the Ministry ofInternal Affairs, there are
approximately 36 percent of the heads of regions who are
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having legal problems related to the goods and services
procurement, 44 percent areinvolved in budget misappropriation and
the rest are involved in bribery, unauthorizedcollection and
inappropriate license granting (Kompas, 2012). According to the
data ofcases investigated by the Corruption Eradication Commission
(KPK), procurementfraud and bribery appear to be the most common
types of major corruption (more thanRp. 1 billion or
US$104,000).
In private sectors, the Citibank embezzlement case uncovered in
2011 perpetrated byone of its own senior managers indicates that
severe fraud problems also exist within theprivate sectors. In the
Citibank embezzlement case, Malinda Dee, a bank senior
manager,managed to misuse her wealthy customers trust and embezzled
US$1.95 million(Prabowo, 2011b). In her fraud scheme, Malinda, who
was once known as a modelemployee at Citibank unlawfully
transferred huge amount of customers fund to her ownaccounts using
several companies as intermediaries. At least 30 accounts have
beenidentified by the authorities as being used by Malinda to
facilitate her criminal activities.In Citibank, Malinda was
assigned to handle the VIP customers with account balances ofRp.
500 million (US$51,000) or more. Before transferring customers
money to her ownaccounts, Malinda often forged their signatures so
as to be able to access the fund. Shealso used her close
relationship with her customers to acquire blank signed forms
orblank checks which were then used to withdraw funds at higher
amounts than whatwere actually requested by customers.
Combating fraudUnderstanding the problemsIn order for us to be
able to formulate the most effective solution to combat fraud in
thesociety, we first need to gain sufficient knowledge about it.
Although Enron andWorldCom have always been used as references when
discussing fraud and forensicaccounting, they are only representing
part of the problem. To be able to solve thegrowing fraud problem,
one needs to comprehend the nature and dynamics of fraud.
Many literatures have attempted to define fraud in the way that
is best representingthe actual structure and dynamics of the
offence. In practice, the definition of fraud is oftendetermined by
the existing legal system which, in many cases, differs across
countries.For example, according to Section 380(1) of the Criminal
Code of Canada provides thegeneral definition for fraud in Canada
is (Department of Justice of Canada, 2012):
380(1) Every one who, by deceit, falsehood or other fraudulent
means, whether or not it is afalse pretence within the meaning of
this Act, defrauds the public or any person, whetherascertained or
not, of any property, money or valuable security or any
service:
(a) is guilty of an indictable offence and liable to a term of
imprisonment not exceedingfourteen years, where the subject-matter
of the offence is a testamentary instrument or thevalue of the
subject-matter of the offence exceeds 5,000 dollars; or
(b) is guilty:(i) of an indictable offence and is liable to
imprisonment for a term not exceeding two years; or(ii) of an
offence punishable on summary conviction.
where the value of the subject-matter of the offence does not
exceed 5,000 dollars.
In Indonesia, fraud has often been narrowly defined as
synonymous to corruption.According to the Law No. 31 Year 1999,
only offences which cause losses to the state are
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considered as corruption. As defined by the Law No 31 Year 1999
(Article 2) (TheRepublic of Indonesia, 1999):
Anyone who illegally commits an act to enrich oneself or another
person or a corporation,thereby creating losses to the state
finance or state economy, is sentenced to lifeimprisonment or
minimum imprisonment of 4 (four) years and to a maximum of 20
(twenty)years, and fined to a minimum of Rp200,000,000 (two hundred
million Rupiah) and to amaximum of Rp1,000,000,000 (one billion
Rupiah).
This implies that the efforts to combat fraud in Indonesia are
mainly focused on thecorruption perpetrated by public
officials.
In reality, fraud comes in various sizes and shapes. The ACFE,
for example, hadformulated a classification system known as the
Fraud Tree. In this classificationsystem fraud is broadly
categorized into corruption, asset misappropriation andfinancial
statement fraud (Association of Certified Fraud Examiners, 2012b,
p. 7). TheFraud Tree itself has been used by the ACFE in its
biannual studies over the past fewyears. Such classification is an
important first step in combating fraud as understandinga crime is
a prerequisite to understanding about how to mitigate it.
Prevention, detection, and investigation and prosecutionIn
general, solving the fraud problems requires decision makers to
consider a numberof major elements: prevention; detection;
investigation; and prosecution. Preventionshould be designed so as
to reduce the possibility of fraud to occur. A commonapproach is by
reducing the opportunity of potential fraud offender to perpetrate
theiroffences which is also known as the situational crime
prevention method (Sutton et al.,2008; Hayward, 2007).
Detection involves recognizing the symptoms of fraud from the
existing red flags.Such red flags can be in the forms of accounting
anomalies, weak internal control,operational anomalies, extravagant
lifestyle and behavioral symptoms (Albrecht et al.,2012, pp.
137-155). According to ACFEs latest biannual global study on fraud,
tip isthe most common way a fraud is detected in the first place.
This signifies theimportance of, among other things, a whistle
blowing system in an organization as ameans for reporting fraud
(Association of Certified Fraud Examiners, 2012b, p. 14).
Despite a organizations efforts to prevent fraud, in many cases
fraud perpetratorsstill manage to commit their crime which calls
for fraud investigation. Althoughfinancial auditing services may
have been used in detecting material misstatements,ordinary
auditing skills are often deemed to be insufficient when dealing
with fraudrelated issues. This is where the so-called forensic
accounting plays its role. Asdefined by Smith and Crumbley (2009a,
p. 62):
Forensic auditing is focused on the identification,
interpretation, and communication of theevidence of underlying
strategic economic and reporting events. It not single-event based,
likea fraud examination, and a forensic audit is not used to render
an audit opinion. As such,forensic audits are easily adapted to a
principles-based accounting environment with broadguidelines
applied to a variety of accounting investigations without using
rule-based auditapproaches or more narrowly-focused fraud
practices.
Major corporate scandals such as Enron, WorldCom, and Olympus,
to name a few,have raised concern about the effectiveness of
traditional financial audit to provideoversight of financial
activities (Smith and Crumbley, Defining a Forensic
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accountants
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Audit, 2009a, p. 62). There have been differences in the
definition of the fraud relatedaudit. The terms forensic audit,
forensic accounting, fraud examination andfinancial forensics to
name a few are often used to describe processes that are similarin
some cases but are different in others. The Founder of the ACFE,
Joseph T. Wells,for example, argues that (Wells, 2005, p. 4):
Resolving allegations of fraud from tips, complaints, or
accounting clues is the discipline offraud examination. It involves
obtaining documentary evidence, interviewing witnesses andpotential
suspects, writing investigative reports, testifying to findings,
and assisting in thegeneral detection and prevention of fraud.
Fraud examination has similarities to the field offorensic
accounting, but the two terms are not precisely the same. The
latter is the use of anyaccounting knowledge or skill for courtroom
purposes. Forensic accounting can thereforeinvolve not only fraud,
but also bankruptcy, business valuations and disputes, divorce, and
ahost of other litigation support services. Conversely, although
fraud examinations are typicallyperformed by accountants, they can
also be conducted by professionals in other fields, such aslaw
enforcement officials, corporate security specialists, or private
investigators.
Despite the differences in how process is being defined across
literatures, essentially, everyfraud investigation is a process of
finding the answers to a set of predetermined questionsbased on
facts and evidences and conducted using legally accepted methods. A
forensicaccountant needs to be able recognize early indications of
fraud from the red flags such asexcessive life styles, accounting
anomalies, and unusually close relationship with vendorsand clearly
determines what is it that he must investigate. In other words, he
needs to beable to formulate the so-called investigation questions
to guide him throughout the courseof the investigation. Such
questions will keep a forensic accountant from straying fromthe
goals of the investigation. Unlike the financial auditors, forensic
accountants do nothave the luxury of an agreed upon technical
standard and thus their ultimate tool inperforming their tasks is
no other than their own logic. When presenting their findings inthe
court or in front of the people who commissioned the investigation,
for example,a forensic accountant needs to be able to explain the
entire course of his or her fraudinvestigation in a logical way
that will make sense even to laymen.
Human resource problemsThe nature of the tasks forensic
accountants perform is different from those of financialauditors.
Such tasks are often considered to be more difficult (i.e. without
generallyaccepted how-to standard) and often with more pressures
than normal financialauditing works. As stated by Dr Peter Hughes,
a forensic accountant at Orange CountyCalifornia, in a discussion
with the researcher, a forensic accountant needs to be readyfor the
pressures that come with the job (Hughes, 2012). Such pressures may
come in theforms of intimidation from the offenders in particular
those who hold high positionswithin their organizations (Hughes,
2012). Such pressures are among the reasons whynot every accountant
can be a forensic accountant.
Ron Durkin, a Former FBI Special Agent now a Forensic Accountant
atClifftonLarsonAllen LLP, in a discussion with the researcher
argued that even incountries such as the USA there is only a small
number of forensic accountants availablecompared to the existing
demand. In Indonesia, with the current level of fraud, inparticular
corruption, the need for more forensic accounting professionals is
eminent.For example, in 2011 a forensic audit was conducted on the
Century Bank scandal but itsreport was considered in particular by
the members of the parliament to be insufficient
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to solve the case due to the quality of the work performed by
the fraud investigators(Prabowo, 2011a). Moreover, in recent
Corruption Perception Index report by theTransparency
International, Indonesia only ranks 118th out of 176 which suggest
thatmore still need to be done to combat corruption in the country
including improving theskills of the forensic accountants
(Transparency International, 2012). To keep pace withthe existing
demand, more forensic accountants are needed and forensic
accountingeducation is an option for the solution.
Recently, many Indonesian universities are attempting to fulfill
this demand by at leastoffering some forensic accounting courses as
part of their accounting programs. However,despite the growing
interest in forensic accounting education in Indonesia, many seem
tohave failed to recognize its unique problem-based nature which
sets it apart from therest of the accounting disciplines. This
leads to the difficulty in designing an appropriatecurriculum for
forensic accounting education in the country which may lead to
failure infulfilling the demand for skilled professionals in the
field. This suggests the need for morestudies such as on how to
design an appropriate curriculum for forensic accountingeducation
in Indonesia to ensure that the skills taught at universities are
what theprofession actually needs. As mentioned above, forensic
accounting has been developed toaddress the problems in particular
related to fraud in the society. Principally, it seeks toreduce if
not eliminate various forms of fraud. Such problems will greatly
rely on thecircumstance of the environment (e.g. country, state,
city, etc.) in which forensicaccounting practice exists. In other
words, different environment will create differentfraud problems
and thus may require different forensic accounting approaches to
solve.General accounting disciplines, on the other hand, are
historically speaking rule-basedsciences whose practical
application is mostly based on the so-called accountingstandard.
This makes education easier to conduct as everyone has similar if
not the sameidea of the kind of skills and knowledge required to be
a competent accountant. So simplyput, the biggest challenge in
forensic accounting education is how to integrate aproblem-based
discipline into a rule-based environment.
Reverse engineering a forensic accountantMost if not all
accountants gain their first accounting knowledge during
college.Essentially, during this time, they learn about how to
practice accounting according to theexisting standard. According to
the International Accounting Education Standards Board(IAESB),
accounting educations primary goal is to produce competent
professionalaccountants able to contribute to their profession as
well as to the society (McPeak et al.,2012, p. 744). This way,
universities may serve as the suppliers of accountingprofessionals.
An accounting programs curriculum is commonly developed according
tothe professional standard applied to a particular country (McPeak
et al., 2012, pp. 748-749).
In practice, according to this studys literature review and
in-depth interviews with anumber of forensic accountants in
Indonesia and the USA, three important ingredientsare needed to
create a forensic accountant: mentality, method, and experience.
The firstfactor, mentality, is possibly the most difficult to
cultivate. Mentality concerns ones wayof thinking in performing
forensic accounting tasks. This is built upon fundamentalelements
such as the ability to differentiate the right from the wrong,
courage to stand upfor what is right, ability to withstand the
pressures from the works, and puzzle solvingmindset. Second, a
forensic accountant needs to understand various methods usedin
fraud investigation. Such knowledge can be acquired through
education and training
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conducted by universities or other institutions. A forensic
accountant also needs to havesufficient experience in fraud
investigation in which he or she will have a chance toutilize the
knowledge previously acquired through education and training.
Ability to differentiate the right from the wrongTo build an
understanding of the right and wrong paradigm, one may start
fromunderstanding the foundation of morality which is often used as
a standard to judge therighteousness of an action. In reality,
however, such standard can be differentlyconstructed across
societies which also mean that an action may be right from
theperspective of one existing morality system but wrong from
another (Tannsjo, 2007, p. 130).
Literatures have long been debating about what causes such
variations of moralitystandards. Many believe that culture plays an
essential role in shaping the moralitystandard which also means
that each culture has its own set of values which influencemoral
decision making and may include from laws and regulations to the
notions ofpride, honor, and justice (Tucker, 2009, p. 21). There
are, however, those who believethat at least parts of our moral
system have been coded into our genes since we wereborn (Hales,
2009, p. 234; Tucker, 2009, p. 23). There are also others who
believe thatthere is a grammar like mechanism which guides humans
in their moral decisions.Hauser (2006), for example, argues
that:
[. . .] our moral faculty is equipped with a universal moral
grammar, a toolkit for buildingspecific moral systems. Once we have
acquired our cultures specific moral norms a processthat is more
like growing a limb than sitting in Sunday school and learning
about vices andvirtues we judge whether actions are permissible,
obligatory, or forbidden, withoutconscious reasoning and without
explicit access to the underlying principles.
A forensic accountant does not need to be drowned in the
seemingly endless debates onwhy moral standards are what they are
and what causes the variations as he or she onlyneeds to know which
moral system is accepted in a particular area. In
practice,understanding of moral standard is not going to be enough
to be used in a fraudinvestigation to decide whether an act is
fraud or not. According to Miftah Muttaqin,a senior investigator at
the Indonesian Corruption Eradication Commission (KPK), in
adiscussion with the researcher, a forensic accountant needs be
able to recognize theboundaries between fraudulent and
non-fraudulent acts in a particular environmentthrough an
understanding of the existing regulatory framework (e.g. criminal
codes,business law, and professional code of conducts) within which
he or she works (Muttaqin,2013). Such framework usually sets the
baseline definition for fraudulent acts.
As Cressey (1950) proposed in what is known today as the Fraud
Triangle thethird factor that may cause an otherwise hones person
to commit fraud is the so-calledrationalization. As evidenced in
many fraud related corporate failures, for example,organizational
culture became a determining factor behind the decision to
commitfraud. Excuses such as I am helping my organization, everyone
is doing it, nobodygets hurt, to name a few, are commonly used to
justify such a decision. Of course, notall excuses for corporate
failures are part of fraud rationalization. A competent
forensicaccountant needs to be able to identify which of them are
legitimate and which arefraud rationalizations. The understanding
of the moral system as well as the existinglegal and regulatory
framework will help a forensic accountant in identifying fraud
redflags by assessing the rationalizations thereof to construct
investigation hypotheses tobe tested later on.
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Ability to withstand pressure from the worksCourage to stand up
for what is right. In addition to being a meticulous task,
fraudinvestigation can also be a risky work. Forensic accountants
perform their tasks inadversarial environments where they are up
against people who often feel threatened bytheir mere presence, let
alone their work. This is particularly true especially when
aforensic accountant is part of an organization where he or she
performs his or her tasks(i.e. internal fraud investigation).
Within an internal fraud investigation, for example,a forensic
accountant may have to investigate his or her own colleagues for
fraud whichcan create conflicts of interests. Dr Peter Hughes[3],
the Director of Internal Audit for theOrange County, in a
discussion with the researcher argued that people in internal
fraudinvestigation related professions are often those who are
courageous enough to face theirown co-workers and possibly the
entire organization in order to expose fraud (Hughes,2012).
Therefore, to perform his or her task effectively a forensic
accountant needs to besomeone who has courage to stand up for what
is right. For this, Dr Hughes believes thathaving a strong sense of
morality is important in building a forensic accountants
strongcharacter (Hughes, 2012). A good forensic accountant will not
be able to sleep well atnight knowing there is fraud in his or her
organization (Hughes, 2012).
Loneliness, intimidation and not being liked. It is generally
known that unlikefinancial auditors, forensic accountants perform
their tasks in adversarialenvironments. Such nature of works comes
with many potential serious problems(Wells, 2009, p. 56). The
Founder of the ACFE, Joseph T. Wells, was of the opinion thata
forensic accountant in his or her works will likely to encounter
uncooperativeindividuals or even the likes of liars, cheaters and
thieves (Wells, 2009, p. 56). As thefraud investigation progresses,
the pressure from, for example, intimidation will likelybecome
higher by the day. One of the most stressful times in a fraud
investigation aforensic accountant is during the expert witnessing
in the court. For example, AsJoseph T. Wells shared in his
biography book (Wells, 2011, p. 234):
SOFEs lawyers portrayed me as unscrupulous and dishonest. It
took a lot of restraint toavoid getting up and shouting at them,
but I remained outwardly calm. The judgesinstructions to the jury
were complicated and long. They were required to render a verdict
onroughly a dozen questions related to trademark infringement. The
courtroom was nearlyempty during the jurys deliberations just me,
one of my lawyers and several people fromSOFE at the opposite
table. It was deathly quiet until I erupted in laughter. Without
saying aword, I sat there and laughed. My attorney and the SOFE
people perhaps thought Id lost mymind. The truth, though, is that
this kind of behavior goes to the heart of my personality.When
under pressure, I dont throw tantrums or sulk; I laugh.
According to Dr Peter Hughes in a discussion with the
researcher, particularly for aninternal fraud investigator in an
organization, pressures and intimidation fromco-workers can be part
of daily routines (Hughes, 2012). Furthermore, as said byDr Hughes,
such intimidation may have an impact for the investigators career
in his orher organization (Hughes, 2012). Dr Hughes believed that
due to the nature of the job, thelife of a fraud investigator can
be a lonely one and thus some people believe it is just notthe path
for them (Hughes, 2012). External forensic accountants may also
face enormouspressures from their investigative works. In
Indonesia, for example, according to NajibWahito, the Head of
Wealth Report Examination Unit of the Indonesia
CorruptionEradication Commission, in a discussion with the
researcher, forensic accountants whowork for the Indonesian
Corruption Eradication Commission (KPK) often have to face
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intimidations from people in high positions in the government
due to the fraud case theyare working on that involve public
officials (Wahito, 2013). Even for forensicaccountants in private
sectors, pressures often come from the adversarial environmentof
their investigations. A focus group discussion with forensic
accountants from theFraud Investigation and Dispute Services Unit
of Ernst & Young Jakarta revealed thatunwillingness to provide
the required documents, indirect intervention from high
profilepeople within the organization, and the disappearance of
evidences are examples ofwork pressure sources in investigation
works (Siantury et al., 2012). Only those withstrong moral compass
may choose to live such a challenging life of fraud investigator.Dr
Hughes was of the opinion that such people strongly believe that no
matter how smallwhat they do may seem like, they believe it will
contribute into creating a better world orat least a better
organization (Hughes, 2012).
Puzzle solving mindset. By nature, fraud can be very complicated
as well asconcealed. Fraud investigation is like searching for
missing pieces of a puzzle andpiecing it all together to form a
complete picture. Essentially, the work of fraudinvestigator is not
so much different from that of a researcher trying to find answers
tohis or her research questions. In the course of the
investigation, a fraud examinergenerally follows the steps such as
problem identification (from preliminary data),predication,
hypothesis formulation, hypothesis testing, acceptance or
refinement ofhypothesis and conclusion drawing (Wells, 2008, pp.
5-7). Before searching for themissing pieces of a puzzle, an
investigator need to know based on the existing datawhat the puzzle
is all about. Finding the pieces of the puzzle is an analogy to
findingfacts and evidences of fraud. When all the pieces have been
found, a fraud investigatorneed to be able to see the connections
between them and be able to put them backtogether so that a clear
picture of the case will emerge.
Although for some it may look simple, evidences suggest that not
all accountants havewhat it takes to be forensic accountants. Ron
Durkin, a Former FBI Special Agent now aForensic Accountant at
CliftonLarsonAllen LLP in a discussion with the researcher was
ofthe opinion that a good forensic accountant needs to know the
proper procedures,techniques and tools (including technology) to
conduct fraud investigations (Durkin, 2012).Additionally, according
to Ron, the so-called investigative mentality is also an
importantingredient in creating a competent forensic accountant
(Durkin, 2012). Jennifer Ziegler,a Forensic Accountant and a
Partner at Hemming Morse LLP in a discussion with theresearcher
shared the same believe (Ziegler, 2012). According to Jennifer,
manyaccountants are good at doing financial audit works but not all
of them are doing well whenit comes to fraud audit. This is because
not all accountants posses investigative mentalityto uncover
stories behind the numbers. For those who do, generally they will
find moresatisfaction in their fraud investigation works compared
to that of financial audit.For example, Singway Young, a Forensic
Accountant at CliftonLarsonAllen LLP, in adiscussion with the
researcher, stated that he enjoyed his investigative work due to,
amongother things, the challenges in solving fraud cases (Young,
2012). Singway also said that heenjoyed the process of learning new
things in his investigative works (Young, 2012).
As defined by Bologna and Lindquist (1987):
Forensic and investigative accounting is the application of
financial skills and aninvestigative mentality to unresolved
issues, conducted within the context of the rules ofevidence. As a
discipline, it encompasses financial expertise, fraud knowledge,
and a strongknowledge and understanding of business reality and the
workings of the legal system.
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According to Singleton and Singleton (2010, p. 24):
Along with their accounting knowledge, forensic accountants
develop an investigativementality that allows them to go beyond the
bounds set out in either GAAP or GAAS. Thefollowing three tenets in
forensic accounting are driven by the necessity to prove intent
incourt in order to prove there was a fraud. The investigative
mentality develops in the searchfor best evidence, for competent
and sufficient evidence, for forensic evidence.
Further, Singleton and Singleton (2010, p. 24) were of the
opinion that such a mentality isdeveloped primarily through
experience from which forensic accountants gain familiaritywith the
real challenges in their profession. As ones experiences grow, he
will graduallydevelop such a mind-set that sees fraud as they are
(Singleton and Singleton, 2010, p. 29).He will come to know that
under the right circumstance fraud could be perpetrated byanyone,
anywhere, and anytime (Singleton and Singleton, 2010, p. 29).
MethodIn terms of methodology, despite their similarities, fraud
investigation and financialaudit are essentially different in
nature. As described by Arens et al. (2012, p. 4):
Auditing is the accumulation and evaluation of evidence about
information to determine andreport on the degree of correspondence
between the information and established criteria.Auditing should be
done by a competent, independent person.
A key term in the above definition is the established criteria
which suggests that thewhole process is of a rule-based nature.
Further, regarding the established criteria,Arens et al. (2012, p.
4) explained:
The criteria for evaluating information also vary depending on
the information being audited. Inthe audit of historical financial
statements by CPA firms, the criteria may be US generallyaccepted
accounting principles (GAAP) or Inter-national Financial Reporting
Standards (IFRS).This means that in an audit of Boeings financial
statements, the CPA firm will determinewhether Boeings financial
statements have been prepared in accordance with GAAP. For anaudit
of internal control over financial reporting, the criteria will be
a recognized framework forestablishing internal control, such as
Internal Control Integrated Framework issued by theCommittee of
Sponsoring Organizations of the Treadway Commission (widely known
as COSO).
These implied that a financial auditor need to first recognize
what criteria (e.g. GAAP,IFRS) is applicable to a particular
auditee. In using such criteria to assess the financialstatements
degree of correspondence to the criteria, financial auditors are
also guidedby the existing auditing standard (e.g. GAAS, IAS) which
provides the how-toframework to assist them in achieving the
intended work quality. On the contrary, theprevious definition on
forensic accounting from Bologna and Linquist expresses
moreflexibility in how the process is being performed. They did not
mention that such aprocess should adhere to a specific rule or
standard. A focus group discussion withforensic accountants from
the Fraud Investigation and Dispute Services Unit of Ernst&
Young Jakarta revealed that financial auditors may use the same
audit checklists forall kinds of financial audit engagements
whereas forensic accountants often have toutilize different work
procedure for different audit work (Siantury et al., 2012).
There are good reasons for the absence of the universal agreed
upon how-to rules inforensic accounting. First, in practice, fraud
investigation is more of a problem-basedrather than a rule-based
process. According to Miftah Muttaqin, a senior investigator
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at the Indonesian Corruption Eradication Commission (KPK), in a
discussion with theresearcher, despite the similarities, there are
more than a few differences across fraud caseswhich require fraud
investigators to apply different approaches, methods, and
technology(Muttaqin, 2013). As suggested by the puzzle solving
analogy discussed above, a fraudinvestigation is basically similar
in many ways to a research in which the researcher firstclearly
identifies the research problems before seeking for data and
information to be usedto formulate the answers. In a fraud
investigation, the end product of the process is acompleted picture
of the fraud puzzle. Professor Richard Riley[4] from the West
VirginiaUniversity, in a discussion with the researcher explained
that the main purpose of anyfraud examination anywhere in the world
is to build a strong case of the alleged fraud,grounded in the
evidence (Riley, 2012).
To be able to properly work through all steps of investigation,
a forensic accountantmust be equipped with at least basic skills
of: fraud detection, evidences, investigationmethods, and
investigation report. In terms of fraud detection, a forensic
accountant musthave sensitivity to spot event the slightest sign of
any potential fraud in an organization.
Sensitivity to fraud is important for a forensic accountant.
Evidence suggests thatthere are many ways fraud can be detected in
the first place. The ACFEs latest globalfraud survey, the 2012
Report to the Nations, for example, suggests that there are at
least12 ways fraud can be detected: tip, management review,
internal audit, by accident,account reconciliation, document
examination, and external audit, notified by the
police,surveillance/monitoring, confession, IT controls and other
sources (Association ofCertified Fraud Examiners, 2012b, p. 14).
Additionally, red flags can also be associatedwith factors
seemingly unrelated to fraud (Albrecht et al., 2012, p. 78).
Althoughaccording to AFCEs study tip is the most common way fraud
is detected in the firstplace, there have been many cases where
individuals who knew or suspected that fraudhad taken place were
not reporting it due to factors such as that they are not entirely
sureabout it and thus they do not want to wrongfully accuse others
or the lack of means toreport it (Albrecht et al., 2012, p. 78).
Fear of the consequences from reporting fraud isalso a factor why
some frauds were never reported (Albrecht et al., 2012, p. 78). A
goodforensic accountant possesses the ability to recognize
available sources of fraud redflags and uses his or her resources
to gather relevant information.
A forensic accountant must realize that his or her resources are
anything but unlimited.This requires him or her to be able to
carefully plan his or her investigation so as tomaximize the
limited resources. In the planning stage, a forensic accountant
needs todetermine the focus of his or her investigation based on
early fraud indications. He or shewill then need to formulate the
investigation questions and hypotheses (Wells, 2008,pp. 5-8). To
test his or her hypotheses, a forensic accountant may use the
what-if scenariofor which evidence will be gathered to prove or
disprove the proposition (Wells, 2008, p. 6).To be able to properly
construct the what-if scenario, a forensic accountant needs
befamiliar with how an organization works including its business
activities (banking,insurance, manufacturing, etc.). He or she must
gain, for example, sufficientunderstanding on the types of
transactions in the organization and how they relate toone another
to be able to decide which facts and evidences need to be gathered
in relation tothe what-if scenario.
Fraud knows no boundaries as it may originate from various areas
of organization suchas marketing, accounting, finance, production,
just to name a few. For this, unlike theconventional financial
audit, in many cases fraud investigations are interdisciplinary
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by nature. It means it often takes more than just accounting
skills to find the stories behindthe numbers and uncover the fraud.
The skills required to solve fraud cases may includeaccounting,
information technology, business, marketing, finance, sociology,
criminology,etc. To construct a good what-if scenario for insurance
fraud, for example, a forensicaccountant needs to be familiar with
at least how insurance business works. Najib Wahito,the Head of
Wealth Report Examination Unit of the Indonesia Corruption
EradicationCommission (KPK), in a discussion with the researcher
stated that in searching for anyfraud red flags in wealth reports
from public officials or public official candidates,knowledge about
public administration (e.g. vehicle registration system and land
system)is essential (Wahito, 2013). Knowledge on vehicle
registration system, for example, can beused to check whether the
declared vehicle in a given asset declaration report is really
whatit is said it is (i.e. types, models, value) (Wahito, 2013).
Any inaccuracies in the report mayindicate the possibility of fraud
(Wahito, 2013).
Surely there is no single forensic accountant in the world
capable of mastering all therequired expertise in fraud
investigation. An investigation team consisting ofmultidisciplinary
experts may solve this problem. Additionally, a forensic
accountantmay also need to gain familiarity with skills and
expertise beyond accounting throughtraining and education. For
example, Ryan Merryman, a Forensic Accountant and aSenior Manager
at CliftonLarsonAllen LLP, in a discussion with the researcher,
arguedthat mastery of information technology is important for
extracting and analyzingtransaction data (Merryman, 2012). He
emphasized the importance of data miningtechnology in fraud
investigation (Merryman, 2012). This is mainly due to the fact that
thenumber of transaction a forensic accountant needs to work with
can be overwhelming dueto which manual analysis will be time
consuming and ineffective (Merryman, 2012).
Finding evidences to support facts in testing the investigation
hypothesis is at thecore of any fraud investigation. In order to
properly do so, a forensic accountant needsto be able to identify
the available sources of evidences as well as the means to
obtainthem. He needs to be familiar with the three common ways
evidences can be gathered:document review; interview and
observation (Wells, 2008, pp. 6-8).
In terms of document analysis, as mentioned above, different
fraud case mayrequire different methods to solve which also
suggests that there may also be differentkinds of documents to be
analyzed. In practice, fraud evidences can be gathered frompaper,
computers, and other written or printed sources (Albrecht et al.,
2012, p. 80). Forthis, a forensic accountant needs to be skillful
in examining relevant documents suchas financial statements, books,
records, and supporting documents (Wells, 2008, p. 6).Methods to
analyze information in the documents include financial statement
analysis,net worth analysis, data mining, just to name a few
(Albrecht et al., 2012, p. 80).Basically, a forensic accountant
needs to be able to look through all the informationwithin the
documents and find the missing puzzle pieces.
Investigative interview is where a forensic accountants
communication skill ismostly used in gathering evidences and in
some cases eliciting voluntary confessionsfrom individuals (i.e.
witnesses and suspects). As a good communicator, a
forensicaccountant knows how to push for evidence and confessions
as well as how tostructure questions and interviews (Albrecht et
al., 2012, p. 16). Communication skill isa necessary skill for a
forensic accountant without which performing fraudinvestigation
effectively will be difficult to do (Albrecht et al., 2012, p. 16;
Singletonand Singleton, 2010, p. 240).
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Part of a forensic accountants communication skill is the
ability to spot lies duringinvestigative interview. An
investigators ability to spot lies has always been thought
asinstrumental in particular to elicit confession from the
suspects. In the world of lawenforcement, law enforcers have been
commonly perceived as the best lie spotters.Nevertheless, studies
show that it is not always the case (Kassin et al., 2005; Narchet
et al.,2011; Meissner and Kassin, 2002; Aamodt and Custer, 2006). A
study by Kassin et al.(2005), for example, revealed that students
are more capable in distinguishing betweentrue and false
confessions compared to police officers. This is believed to have
beencaused by the existence of preconception (i.e. from training
and previous investigationexperience) in investigators minds that
had clouded their judgments (Kassin et al.,2005). Similarly, a
forensic accountant must avoid preconception before commencing
hisor her investigation to ensure its success. As Singleton and
Singleton (2010, p. 18) put it:
As with any other pursuit, a healthy mind in a healthy body is a
solid foundation. Beyondthat, one should have generous proportions
of common sense, inquisitiveness, skepticism,and an ability to
avoid the natural tendency to prejudice that is, to be fair and
independent.In addition, because forensic work ultimately can lead
to court appearances, good posture,grooming, vocal projection, and
stamina can all be valuable attributes.
To elicit the truth from the interviewees, it is essential that
a forensic accountantknows how to read both verbal and non-verbal
cues (Wells, 2001; Albrecht et al., 2012;Wells, 2008, 2009). In an
investigative interview, a forensic accountant needs to pay hisor
her attention to verbal signs such as wordings, expressions, and
responses toquestions as well as nonverbal ones such as various
body movements and postures(Albrecht et al., 2012, p. 295).
To complement evidences from document analysis and investigative
interviews, byrelying on senses (i.e. hearing and seeing) a
forensic accountant may observe behavior,look for displays of
wealth, or observe some specific offences (Wells, 2008, p.
7;Albrecht et al., 2012, p. 214). Such observations can utilize
means such as videosurveillance or undercover operations to watch
and record the physical facts, acts, andmovements that suspected as
part of a fraud (Albrecht et al., 2012, p. 214). In
conductingsurveillance, a forensic accountant must know the ethical
and legal aspects thereof(Wells, 2009). He must carefully choose
the most appropriate means of observation thatis both effective and
legally accepted. Failure to do so may cause legal issues
especiallyduring expert witnessing in the court.
Part of the final works in fraud investigation is fraud report
generally in the form offormal written report covering information
on the investigation engagement(Wells, 2008, p. 386). As an outcome
of a fraud investigation, investigation reportmust be carefully
written in which all facts, despite which side they favor
(prosecutor ordefendant), must be completely and accurately
presented within the report (Wells, 2009,p. 58). Although the
report is analogous to a completed puzzle in which a
forensicaccountant explains the who, what, where, when, how and why
of the fraudin question as well as recommendations to future
prevention, he must refrain fromexpressing legal opinions such as
those related to the suspects guilt and the legal actionsthereof
(Albrecht et al., 2012, p. 309). Finally, when needed, a forensic
accountant willpresent his or her findings in his report in the
court which requires him or her to befamiliar with the existing
legal framework. Since a forensic accountant is generally not
alawyer, he or she may consult with his or her lawyers about the
expert witnessingprocess to avoid, among other things, legal
problems.
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ExperienceOne may spend four years in college to study financial
accounting and financial audit,but due to its problem-based nature,
it may take a life time to master forensicaccounting. This is so
since fraud is anything but static as it evolves over time. A
forensicaccountant needs to continuously update his or her
knowledge of current fraud issues.Therefore, despite all the
education and trainings a forensic accountant had
undergone,experience will always be the best teacher. According to
Merriam-Webster (online)dictionary, experience is pertaining to
(Merriam-Webster, 2013):
. direct observation of or participation in events as a basis of
knowledge;
. the fact or state of having been affected by or gained
knowledge through directobservation or participation;
. practical knowledge, skill, or practice derived from direct
observation of orparticipation in events or in a particular
activity;
. the conscious events that make up an individual life;
. the events that make up the conscious past of a community or
nation orhumankind generally;
. something personally encountered, undergone, or lived through;
and
. the act or process of directly perceiving events or
reality.
The two essential elements in ones experience are event and
involvement. A forensicaccountants involvement in fraud
investigation will build and strengthen his or her fraudknowledge
as well as his or her investigative mentality. Ron Durkin, a Former
FBI SpecialAgent now a Forensic Accountant at ClifftonLarsonAllen
LLP, in a discussion with theresearcher argued that his previous
training and experience as a special FBI agent hadshaped his skills
in fraud investigation (Durkin, 2012). Similarly, Najib Wahito, the
Headof Wealth Report Examination Unit of the Indonesian Corruption
EradicationCommission (KPK), in a discussion with the researcher
also stated that his skills infraud red flags identification has
been honed by years of experience in his previous worksat the
Financial and Development Supervisory Agency (BPKP). As his or her
experiencedevelops, a forensic accountant will become more
knowledgeable in various fraudinvestigation processes including
investigative interview, investigative report writing,and expert
testimony (Singleton and Singleton, 2010, p. 12).
The blueprint of a forensic accountantFrom the literature review
and in-depth interviews conducted for this study, using aComputer
Assisted Qualitative Data Analysis Software (CAQDAS), NVivo, to
organizequalitative data and to identify patterns within it, a
framework is developed to serve as areference in developing human
resources in the area of forensic accounting. The NVivosoftware was
used primarily to organize and highlight patterns and connections
inqualitative data as well as to identify the central themes within
the data. Prior to thein-depth interviews, a preliminary model was
developed based on the existing studiesand literature on forensic
accounting and forensic accountants based on which
nodesrepresenting the ideas about forensic accountants were
created. After the interviewswere conducted, the nodes were revised
based on practitioners opinions regarding whatconstitute a forensic
accountant. From this new model, every opinion regarding
Blueprint forcreating forensic
accountants
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the attributes of a forensic accountant is coded in at least one
node. The model is dubbedthe Forensic Accountant Blueprint which
will be used in further studies (Figure 1).
The above model represents the basic attributes a forensic
accountant needs toposses to be able to perform his or her works
effectively. Each of the above nodes is areference for education
institutions or other institutions in conducting forensicaccounting
education and trainings.
(Re) creating forensic accountants through educationHistorically
speaking, forensic accounting has been practiced for
generations.Crumbley[5] and Rezaee (2004, p. 464), for example,
argued that:
The scribes of ancient Egypt who inventoried the pharaohs grain,
gold, and other assets werethe predecessors to todays accountant.
Asset control and fraud prevention and detectionwere the
accountants main duty until the turn of the 20th century. Then as
accrual basisaccounting became common, reporting issues became a
top priority.
Despite its long standing existence, it was only recently
(compared to financialaccounting) that it formally entered the
academic sphere. Many universities all aroundthe globe are now
introducing forensic accounting either as a subject or even as
a
Figure 1.An NVivo modelof the forensicaccountant blueprint
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dedicated program. In Australia, for example, the University of
Wollongongs Masterof Forensic Accounting[6] has been recognized as
Australias first dedicated Masterprogram for forensic accounting
which is also known as one of the first in the world.In the USA,
the West Virginia University is well known for its Graduate
Certificate inForensic Accounting and Fraud Investigation program
which not only equips itsstudents with concepts and theories of
fraud investigation but also introduces them toreal world
experience through role play activities where they may assume roles
such aslaw enforcers and forensic accountants (West Virginia
University, 2013). ProfessorRichard Riley, the Program Coordinator,
in a discussion with the researcher explainedthat in providing the
real world experience to students, collaboration withprofessionals
is a major key in ensuring its success (Riley, 2012).
The growing number of forensic accounting education initiatives
represents athought that forensic accountants can be created
through education. Referring to theabove blueprint, ideally a
forensic accounting education initiative should be able toarm its
students with skills and knowledge, at least at an entry level, to
cope with thetasks and challenges in the forensic accounting
profession. Due to its problem basednature, conducting a forensic
accounting education can be a difficult task. A study byRezaee and
Burton (1997, p. 485) conclude that common obstacles in
conductingforensic accounting education include:
. lack of financial resources;
. lack of administration interest and support;
. lack of flexibility in curriculum content;
. lack of instructional materials including textbooks;
. lack of faculty interest; and
. lack of authoritative standards and guidelines as somewhat
severe obstacles.
The lack of authoritative standards and guidelines is a
consequence of forensicaccountings dynamic nature. It is what makes
it unique and sets it apart from theconventional financial
auditing.
Nevertheless, for academics, the absence of an authoritative
standard is a problem initself. Universities develop their
accounting curriculums primarily based on the existingaccounting
standard to ensure that upon completion of the degree students will
possessthe right skills to perform accounting works. Without an
authoritative reference,curriculum development will be difficult.
Unlike the conventional accounting educationprograms, forensic
accounting programs generally do not have an agreed-uponpedagogical
approach in curriculum development (Smith and Crumbley, 2009b, p.
2).Therefore, due to the lack of universally accepted how-to
standard, universities often usedifferent approaches in their
forensic accounting programs (Smith and Crumbley, 2009b,p. 1). For
example, the Fraud Examination and Forensic Accounting graduate
certificateprogram at the Seneca College Canada in its curriculum
offers subjects ofFraud Investigative Basics, Fraud and the
Business Environment, Money Launderingand Asset Tracing, Legal
Aspects of Fraud, Criminology and Ethics, and BusinessValuation and
Quantification of Damages in the first semester and Fraud
Investigation Advanced, Fraud Prevention and Detection: Internal
Auditing, Computer Forensics andData Mining, Litigation Support,
Financial Statement Fraud, and Serving as an
ExpertWitness/Communication in the second (Seneca College, 2013).
In comparison,
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The University of Wollongongs Master of Forensic Accounting
program offers:Introductory Forensic Accounting, Forensic and
Litigation Framework, Fraud andFailure, Investigative Processes,
Advanced Investigative Techniques, IndependentAccounting Expert
Reports, Evidence & the Forensic Accountant, and
Compliance,Assurance and Governance (University of Wollongong,
2010).
To cope with the lack of authoritative standards, collaboration
between academics andpractitioners can be a viable solution.
According to Professor Richard Riley in a discussionwith the
researcher, such collaboration is essential as practitioners are
those who knowexactly about what skills are needed to perform their
works (Riley, 2012). In 2007,commissioned by the US Department of
Justice, the Accounting Department of the WestVirginia University
published a model curriculum, Education and Training in Fraud
andForensic Accounting: A Guide for Educational Institutions,
Stakeholder Organizations,Faculty, and Students (Smith and
Crumbley, 2009a, p. 4). The guideline essentiallyprovides an
outline of a model curriculum for fraud and forensic accounting
program aswell as its argument and course descriptions (Smith and
Crumbley, 2009a, p. 4).
The guideline was formulated by the Technical Working Group
(TWG) consistingof over 40 practitioners and academics in which
Professor Riley was a principalinvestigator. As stated in the
guideline (West Virginia University, 2007):
Technical Working Group on Education in Fraud and Forensic
Accounting (TWG) is adiverse group of content area experts:
professionals working across the broad spectrum ofactivities that
constitute fraud prevention, deterrence, detection, investigation,
andremediation (hereinafter fraud) and forensic accounting. Members
of the TWG representcorporate and industry stakeholders,
professional services providers, law enforcement, thelegal
community, government and regulatory stakeholders, professional
organizations, andacademics specializing in fraud and forensic
accounting. These individuals have voluntarilycontributed their
time, ideas, and insights because of their special interest in
developingstronger fraud and forensic accounting education and
training.
Although the guideline is not a standard per se, according to
Professor Riley in adiscussion with the researcher, its credibility
lies in the fact that it was put together bypeople most of whom
were well-known forensic accounting practitioners (Riley, 2012).An
important key in the formation of this group is commitment which
was built throughcommunication and networking (Riley, 2012). The
participation of practitioners fromdifferent areas of expertise
with different perspectives is a valuable contribution to
theguideline as forensic accounting itself is anything but static
and uniform. Therefore, it isalways beneficial to gather as much
perspective as possible to draw a more completepicture of what
forensic accounting really is. The guideline issued by West
VirginiaUniversity proposes that criminology, fraud (prevention,
deterrence, detection,investigation, and remediation), and forensic
and litigation advisory services are threecontent areas considered
to be essential for fraud and forensic accounting curricula(West
Virginia University, 2007, p. 2).
The knowledge and skills proposed by the guideline to be taught
at a forensicaccounting program are classified into three
categories: prerequisite knowledge, exposurematerial/course and
in-depth course material. Prerequisite knowledge includes
basicaccounting and auditing concepts as well as business
communication skills and ethics. Theexposure material/course covers
fraud specific issues such as definition of fraud, definitionof
forensic accounting, roles of auditors, fraud professionals, and
forensic accountants, thewho, why, and how of fraud (e.g. Fraud
Triangle and Fraud Elements Triangle),
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prevention, detection, investigation, and remediation of fraud,
and introduction to forensicand litigation advisory engagement.
More advanced contents. In-depth course materialgenerally covers
the topics of fraud and forensic accounting more deeply such
ascriminology, legal, regulatory, and professional environment, and
ethical issues, variousfraud schemes, fraud and forensic accounting
in digital environment, and forensic andlitigation advisory
services.
A key to a successful forensic accounting program is to match
supply with demand. Inother words, it should prepare students for
the demands of the profession. In financialaccounting/auditing
program, the expectations are relatively static unless there is a
majorchange in the profession. In conventional financial
accounting/auditing programs,understanding of accounting/auditing
standards has always been among the accountingprofessions major
expectations from accounting graduates. For example, recently
manyuniversities in Indonesia revised their accounting curriculums
in response to theemergence of the International Financial
Reporting Standards (IFRS). On the contrary,what to be expected
from a forensic accountant may vary across organizations or
evenfraud cases. Miftah Muttaqin, an investigator at the Indonesia
Corruption EradicationCommission (KPK), in a discussion with the
researcher, stated that based on hisexperience, every corruption
case may require different skill set to solve (Muttaqin, 2013).This
often requires investigators to continuously learn new skills in
order to perform theirduties (Muttaqin, 2013).
It is noteworthy that a forensic accounting programs material
needs to be continuouslyupdated to keep it responsive to current
issues and challenges. Additionally, just as withexternal
collaboration, internal collaboration between academics from
differentdisciplines is also important in managing a forensic
accounting program. Each subjectmust be taught by at least a
lecture or a multidisciplinary team with the right
competencies(e.g. accounting, digital forensics, banking, criminal
law, etc.).
According to Professor Richard Riley in a discussion with the
researcher, to providestudents with a degree of experience in
problem solving activities, case study exerciseshould be part of
the curriculum (Riley, 2012). Through case study exercise,
studentsmindset will be gradually transformed from being rule-based
to beingproblem-based from which investigative mindset can be
cultivated. This is so since,possibly due to the pedagogical
approach in accounting education, many accountingstudents will
graduate with a mindset that sees every audit like work to be
formallystandardizable which is not true for fraud audit. According
to Miftah Muttaqin, as one ofthe senior investigators at the KPK,
he argued that in some cases new investigators(i.e. fresh
graduates) from accounting background struggle to fit in a less
standardizedwork environment in which every corruption case may
require them to think outsidethe box and decide without
authoritative how-to standard on how to perform theinvestigation
(Muttaqin, 2013). Miftah believed that such mindset can be
changedthrough education and training as well as work experience
(Muttaqin, 2013).
ConclusionThe seemingly endless waves of fraud have created a
high demand of forensicaccounting skills world widely. In order to
fulfill the increasing demand of forensicaccounting services, in
particular fraud investigation, more forensic accountants
areneeded. To produce more forensic accountants, it is important to
first understand whatconstitute a forensic accountant. From the
study conducted in Indonesia and the USA,
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three fundamental elements are required to create a forensic
accountant: mentality,method and experience. Mentality covers
aspects such as: sense of right andwrong, ability to withstand
pressures, and puzzle solving mindset. Method representsnecessary
skills and knowledge for performing ones duties which includes:
frauddetection, systematic process of fraud investigation,
principles of evidences, andinvestigation report and presentation.
Related to both mentality and method, experienceis an essential
means for a forensic accountant to hone his or her skills and
knowledge aswell as strengthening ones mentality through direct
involvement in fraud investigationactivities. Higher education
institutions are at strategic position to facilitate thecultivation
of these attributes through education. Nevertheless, due to the
nature of thediscipline, such a process must be thoroughly designed
to be responsive to current issuesand challenges.
Notes
1. For more details on Cresseys research method for his PhD, see
Cressey (1950, pp. 27-55).
2. Despite the absence of national fraud statistics, fraudulent
procurement appears to be the mostcommon type of fraud in both
public and private sectors. This was confirmed by MiftahMuttaqin, a
senior investigator at the Indonesian Corruption Eradication
Commission (KPK),during a discussion with the researcher.
Similarly, in a focus group discussion with a numberof forensic
accountants from Fraud Investigation and Dispute Services Unit of
Ernst & YoungJakarta, it was also revealed that procurement
fraud is considered the most common type offraud in private sectors
(Siantury et al., 2012). The researcher would like to thankMr
Alexander Siantury (Senior Manager), Ms Donna Salaki (Manager), Mr
PokkiPangaribuan (Manager), Ms Dwi Novi Kusumawati (Manager), and
Ms Sulinaty Aripin(Manager) from Ernst & Young Jakarta for
their participation and contribution in the focusgroup
discussion.
3. Dr Peter Hughes is a recipient of the 2010 Outstanding CPA in
Government Award for hisoutstanding achievement as, among other
things, a fraud investigator (Guillame, 2010;American Institute of
CPAs, 2013). The award honors CPAs serving in federal, state,
andlocal government who have made extraordinary contribution in
promoting efficiency andeffectiveness within government
institutions as well as enhancing the CPA profession(Guillame,
2010; American Institute of CPAs, 2013). One of Dr Hughes major
achievementswas his investigation on a $250 million worth of
contract in which it was revealed that theOrange County failed to
meet its contractual obligation as a result of which the
countysboard of supervisors blocked the contract and saved
taxpayers money (Guillame, 2010).
4. Richard A. (Dick) Riley, Jr, is the Louis F. Tanner
Distinguished Professor of PublicAccounting at West Virginia
University. He is also the Director of Research for the
Institutefor Fraud Prevention. Dr Riley has been recognized
nationally for his contributions inforensic accounting and fraud
examination: The ACFE 2008 Educator of the Year; 2012ACFE Hubbard
Outstanding Achievement Award (shared with Jack Dorminey,
ScottFleming and Mary-Jo Kranacher); 2009 American Accounting
Association Innovations inAccounting Education Award; The 2013 Max
Block Award * from the CPA Journal; the 2013American Accounting
Association FIA Section Outstanding Research Manuscript *. In
2013,the West Virginia University Foundation recognized him for his
outstanding teaching, thehighest recognition for teaching at WVU.
At West Virginia University, he not only teachestraditional
accounting classes but also works in the classroom in the areas of
forensicaccounting/fraud examination (FAFE), performance
measurement and entrepreneurship.The researcher would like to
personally thank Professor Riley for the opportunity to have
adiscussion on various issues in forensic accounting education.
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5. The researcher would like thank Professor D. Larry Crumbley
for the valuable discussionregarding issues in forensic accounting
during our meeting in Kuala Lumpur, Malaysia.
6. The researcher himself was one of the first graduands of the
University of WollongongsMaster of Forensic Accounting
programme.
References
Aamodt, M.G. and Custer, H. (2006), Who can best catch a liar?,
Forensic Examiner, Vol. 15No. 1, pp. 6-11.
Albrecht, S., Albrecht, C.O., Albrecht, C.C. and Zimbelman, M.F.
(2012), Fraud Examination, 4thed., South-Western Cengage Learning,
Mason, OH.
American Institute of CPAs (2013), Peter Hughes, CPA, American
Institute of CPAs,available at:
www.aicpa.org/interestareas/businessindustryandgovernment/community/pages/peterhughescpa.aspx
(accessed January 10, 2013).
Arens, A.A., Elder, R.J. and Beasley, M.S. (2012), Auditing and
Assurance Services: An IntegratedApproach, Prentice-Hall, Upper
Saddle River, NJ.
Association of Certified Fraud Examiners (2012a), Awards &
Recognition, Association ofCertified Fraud Examiners, available at:
www.acfe.com/awards-recognition.aspx(accessed Ja
