FORENSIC INVESTIGATION

Written by:

Onabokun Ayoola

Audu Osuashi

Adegbola Adams

Igba Ladi

Emuhs Fabian

 

 

FORENSIC AND FORENSIC ACCOUNTING

According to Webster’s Dictionary ‘Forensic’ means “belonging to, used in or suitable to courts of judicature or to public discussion and debate.” Forensic accounting provides an accounting analysis  that  is  suitable  to  the  court  which  will  form  the  basis  for  discussion,  debate  and ultimately dispute resolution (Zysman, 2004).

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According to Arokiasamy and Cristal (2009) and Dhar and Sarkar (2010), forensic accounting is a science dealing with the application of accounting facts and concepts gathered through auditing methods, techniques and procedures to resolve legal and related  problems which  requires the integration of investigative, accounting, and auditing skills. According to Oyedokun (2011), and Zysman (2004), forensic accounting has existed for many years and with the growing complexity of the business environment and the growing number of business related investigations, forensic accounting professionals are increasingly asked  to assist in the  investigation of financial and business related issues. 

According  to  Oyedokun  (2013),  Forensic  accounting  is  a scientific  Accounting  method of uncovering, resolving, analyzing and presenting fraud matters in a manner that is acceptable in the court of law. Shanikat and Khan (2013) opines that forensic accounting, given its peculiar investigative stance, requires a specific skills set on the part of  the forensic accountant, that integrates accounting, auditing and investigative skills.

 

Akintoye (2008), in Owolabi, Dada, and Olaoye (2013), explains that forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and including the new generally accepted connotation of having  been arrived  at  in a  scientific fashion  and  providing the  needed findings  in settling disputes. Forensic accounting according to Zysman (2004) is an “accounting analysis that can uncover possible fraud that is suitable for presentation in court. Such analysis will form the basis for discussion, debate, and dispute resolution.”

 

 

FORENSIC INVESTIGATION

Forensic investigation can be described as the process of gathering, analyzing and reporting on data, in a pre-defined context, for the purpose of finding facts and/or evidence in the context of financial/legal disputes and/or irregularities and investigations. It refers to the methods and procedures used to obtain audit evidence in a forensic investigation. Forensic auditing may be define as the  process of :

  • Gathering, analyzing and reporting on data, much of it financial in nature, in the pre-define context of legal dispute or investigation into suspected irregularities and
  • In some cases, giving preventative advice in this area.

The terms ‘forensic accounting’, ‘forensic investigations’ and ‘forensic audits’ are closely connected, and an exam question may refer to any of these three terms.

A forensic investigation is a subset of forensic accounting carried out in response to a suspicion of wrong-doing, usually to prove or disprove certain assumptions, for example, ‘X person is carrying out a fraud’ or ‘Y person was negligent in carrying out that piece of work.

The objective of a forensic investigation is to obtain evidence that might be used in legal proceedings to resolve a dispute or prove innocence/guilt in a criminal case, such as providing evidence of money laundering.

Often forensic investigation are an usually reactive, meaning that they seek to prove or disprove suspicions or wrongdoing and provide evidence for legal proceedings. However, investigations an also be proactive evidence or preventative. Techniques of forensic auditing can be used to identify risks of wrongdoing and then steps can be taken to improve the situation.

 

THE NATURE OF FORENSIC INVESTIGATIONS

Forensic investigations and audits are associated with situations where disputes arise or wrongdoing has occurred such that criminal or civil action is being taken in a court of law. The following general areas may give rise to forensic investigation.

  • Fraud investigation;
  • Negligence investigation;
  • Insurance claims; of and
  • The assessment of losses.

In any of the above examples, a forensic accounting might be called on by the court to act in the capacity of expert witness providing evidence to that court on the financial implications of a situation, or on whether there is evidence to substantiate claims of fraud or negligence.

EXAMPLE: FRAUD INVESTIGATION

In the case of a fraud investigation, a forensic accountant may be engaged to:

  • Investigate whether fraud has actually occurred, and if so to obtain evidence to support that assertion in a court of law;
  • Identify the individual or individuals who have committed the fraud, and  obtain evidence that can be  used in a court of law to link them to the fraud: this  work will also involve obtaining evidence to show  how  the individual or individuals had an  opportunity to commit the fraud; and
  • Estimate the financial loss that has occurred because of the fraud.

The forensic accountant is not a policeman and it is not his job to prosecute individuals for alleged fraud. However he will be engaged by the criminal investigation authorities to obtain evidence that can be used to pursue a criminal prosecution (or to conclude that sufficient evidence cannot be obtained).

 

Forensic investigators help to solve crimes, working in close collaboration with law enforcement officials and other forensics professionals. They collect evidence such as fingerprints, bodily fluids and human tissue, detail crime scenes using photographs or drawings, and analyze evidence in laboratories. They also prepare reports about their findings and may have to testify in court.

 

APPLICATION OF ETHICAL PRINCIPLES TO FORENSIC INVESTIGATIONS

The ethical principles set out earlier apply to accountants carrying out forensic work as they do to accountants in every situation.

Integrity: In legal disputes and criminal investigations, individuals may be dishonest and tell lies. However the forensic accountant must act with integrity and honesty at all times

Objectivity: The forensic accountant is paid by a client to carry out an investigation, and the client will presumable be hoping for a particular outcome to the investigation. For example in a fraud investigators who use a forensic accountant may be hoping for evidence of guilt. However the forensic accountant must remain independent (in spite of the advocacy threat) and should seek to obtain evidence to reach a fair opinion.

Professional competence and due care: Forensic accounting is a specialized area of work and individual should be sufficiently competent to do the work

Confidentiality:  The normal ethical rule is that accountants should maintain client confidentially and should not disclose information without the clients consent. An exception is that the duty of confidentially is overridden by the requirement to provide evidence when requested to a court of law. Legal requirements for disclose override the rules of client confidentiality.

Professional Behaviour: Forensic accountants often appear as witnesses in court and in the public eye they should display professional behavior and act in a way that is not detrimental to the image of the accounting profession.

There are some particular considerations that accountants will have to bear in mind when carrying out forensic work.

  • To whom a duty of confidentially is owed (particular when acting as an expert witness in relation to both sides of a legal claims)
  • Duties to the court and
  • Legal privilege in the context of money laundering

This last area is a particular important one for forensic accountants. Most accountancy work, for example, auditing or accounts preparation, give rise to the duties to report suspicions on money laundering

However, when an accountant is working in a legal capacity, it may be that information obtained during the course of that work is subject to legal privilege.

PROCEDURES IN FORENSIC INVESTIGATIONS

The procedures that a forensic accountant will carry out will depend on the terms and the objectives of the engagement. It includes the following:

  • Establish the objectives of the investigation
  • Plan the investigation with a view to achieving the objectives.
  • Note that forensic evidence may be gathered in various ways similar to the methods used in a normal audit/investigation. This includes interviewing individuals (including individuals suspected of fraud).
  • At the end of this investigation a detailed report should be prepared stating all the fact, information and other relevant explanation gathered in the course of the investigation.

 

FORENSIC INVESTIGATION SKILLS

Investigation is the actor process of investigating or the condition of being investigated. It is a searching inquiry for ascertaining facts; detailed or careful examination. Investigation is a vital part of forensic accounting and auditing process but only applied when the event or transaction is beclouded. It is carried out when lapse has been established to ascertain who is responsible, the reason for the action including the extent of damage if any. It could be referred to as a detailed Verification and clarification of doubt about a transaction or event (Oyedokun, 2013).

According to Oyedokun (2013) “The forensic accountant or fraud examiner must have skills in many areas. Some forensic accountants, of course, specialize in certain areas such as information technology. However, all well-trained forensic accountants  have at least a minimum level of knowledge and skills in the following areas”:

  1. Auditing skills  are  of paramount  importance  to  the forensic  accountant  because  of  the information-collecting and verification nature of forensic accounting. Well-trained forensic accountants must be able to collect and  analyse relevant  information so  that the  cases on which they are working will be well supported in court.

 

 

  1. ii. Investigative knowledge and skills, such as surveillance tactics and interviewing and interrogation skill, assist the forensic accountant  beyond the  skills related to  auditing and blend the financial and legal aspects of forensics.

iii. Criminology,  particularly  the  study  of  the  psychology  of  criminals,  is  important  to  the forensic  accountant because effective  investigative  skills often  rely  on knowledge of  the motives and incentives experienced by the perpetrator.

  1. Accounting knowledge helps the forensic analyse  and interpret  the financial information necessary to  build a case in a  financial  investigation,  whether it is a bankrupt setting, a money-laundering  operation, or an embezzlement  scheme. This includesknowledge of proper internal controls such as those related to corporate governance.
  2. Legal knowledge is critical to the success of the forensic accountant. Knowledge of laws andcourt procedures enables the forensic accountant to identify the type of evidence necessary to meet the legal standards of the jurisdiction in which the case is to be adjudicated and preserve evidence in a manner that meets the criteria of the court.
  3. Information technology (IT) knowledge and skills are necessary tools of the forensic accountant in word filled with paperless crimes. At a minimum, forensic accountants must know the point at which they should contact an expert in computer hardware or software.

Forensic  accountants  use  technology skills  to  quarantine  data,  extract  data through  data mining, design and implement controls over data manipulation, accumulate baseline information for comparison purpose, and analyse data.

vii. Communication skills  are required of forensic accountants  so that the results of  their investigation/analysis can be correctly and clearly conveyed to users of their services.

 

Conclusion

Forensic investigators are becoming more relevant in every sector of the economy giving the increasing economic and financial crime across the globe, it is important that forensic investigation should kept abreast of the happening in order to investigate fluid nature of criminals.

Government are equally encouraged to supports the work of forensic investigators by investing in forensic laboratory in the country and supporting forensic accounting bodies, in order to make sure forensic investigator activities remains value added activity to the economy.

 

References

Olowookere,J.k. (2019).fundamentals of Auditing and Assurance Services, (6th Edition). soundmind publishing company, Lagos, Nigeria.