EVIDENCE OF FORENSIC ACCOUNTING

Written by:

 

1). AGBOOLA OLUBUSOLA

2). IBRAHIM MUSA ABIODUN

3). MR ESEIWI WOROBOSA

4). GIWA AZEEZ ADEMOLA

5). SANNI YUSUF OLATUNJI

6). OGUNDARE AKINTOLA MARIAM

 

Introduction:

The issue of fraud, money laundry and other related corrupt practice in business and government organizations has necessitated the application and practice of forensic or investigative accounting. Forensic or investigative accounting is that branch of accounting that deals with recovering proceeds of fraud, money laundering and other related corrupt practices that may occur in an organization, (Okoye and Gbegi, 2013). Once fraud is perceived or suspected in an organizational setup, a professional set of people called the forensic accountants are called upon to help investigate and possibly detect so as to furnish the management of the organisation with related and substantial evidences that can be presented and admitted in the court of law as a basis of litigation for the prosecution of those involved in the fraud, (Okoye and Gbegi, 2013). ‘Forensic’ which means evidence or material(s) required to be used in a court of law has been incorporated into accounting and finance as a result of increase in white collar crimes (Imam,Kumshe and Jegere 2015). Imam e’tal also observed that law enforcement personnel in recent years have become more aware of white collar crimes, but lacked expertise and training in combating such crimes.

 

The Concept of Forensic Accounting

Forensic accounting is the integration of accounting, auditing and investigative skills (Zysman, 2004). Dhar and Sarkar (2010) define forensic accounting as the application of accounting concepts and techniques to legal problems. It demands reporting, where accountability of the fraud is established and the report is considered as evidence in the court of law or in administrative proceedings.

 

Degboro and Olofinsola (2007) noted that forensic investigation is about the determination and establishment of fact in support of a legal case. That is, to use forensic techniques to detect and investigate a crime is to expose all its attendant features and identify the culprits.

 

In the view of Howard and Sheetz (2006), forensic accounting is the process of interpreting, summarizing and presenting complex financial issues clearly, succinctly and factually often in a court of law as an expert. It is concerned with the use of accounting discipline to help determine issues of facts in business litigation (Okunbor and Obaretin, 2010).

 

Joshi (2003) stated that forensic accounting demands reporting, where the accountability of the fraud is established and the report is considered as evidence in the court of law or in the administrative proceeding. It provides an accounting analysis that is suitable to the court, which will form the basis of discussion, debate and ultimately dispute resolution (Zysman, 2004).

 

Concept of Evidence

According to Lee (2000) evidence is anything (tangible objects, documents, and testimony) that relates to the truth or falsity of an assertion made in an investigation or legal proceeding. The goal of the fraud investigator is to collect evidence relevant to the fraud under investigation. Such evidence, when well organized, provides answers to the basic questions about fraud of who, what, when, where, how and why? The very first question is what. That is what happened? Was there fraud? If so, what was the fraud? What was the loss?

 

Types of Forensic Accounting Evidence

William (1990), Lee (2000) and Kim (1998), Forensic accounting evidence can be grouped into four types. They include documentary evidence, demonstrative evidence, physical evidence and oral evidence described below:

  1. Documentary Evidence: As most financial crimes investigation is reactive or historic in nature, documents generated prior to or during the commission of that offence are essential and normally make the majority of evidence. Bank records, accounting records, legal documents or instruments are normally the basis for the case.
  2. Demonstrative Evidence: Demonstrative evidence, on the other hand, is evidence that in-and-of itself has no probative value, but rather serves to illustrate and enhance oral testimony
  3. Physical Evidence: The term physical evidence involves any physical entity that can furnish some degree of proof or disproof. Physical evidence may be used to establish an element of a crime such as the presence of an accelerant at the point of origin of a fire in a suspected arson.
  4. Oral Evidence: Testimonial evidence is evidence spoken directly from a witness’s mouth or read into evidence from a deposition. Testimonial evidence may be provided by live or recorded witness statements. This evidence is usually offered to prove or disprove a material fact. In other words, it is usually offered substantively rather than demonstratively.

Rules of Evidence – A Forensic Accountants Perspective

As a forensic accountant, fraud investigator and expert witness, there is nothing more disheartening to have an investigation report, or part thereof, considered inadmissible. Avoiding the intricacies of forensic accounting evidence is impossible and one of the many reasons why it is imperative that forensic accountants not only have a good understanding of the rules of evidence but apply these rules throughout their investigation.

 

The rules of evidence states, with few exceptions, “relevant evidence is admissible, irrelevant evidence is not.” Sounds logical but is not quite that simple as it requires a unique skill to know the difference between what a court may consider relevant or not. It is also further complicated depending on if it is a civil or criminal proceeding.

 

It is therefore important to note that regardless if evidence is factual or opinion the foundation rule governing the admissibility of evidence is that it must be relevant and reliable.

 

Too often forensic accounting reports include irrelevant and or unreliable evidence. Why? One explanation is the limited knowledge and training of forensic accountants on the rules of evidence. Whilst a comprehensive understanding of the rules of evidence requires expert knowledge of the law, forensic accountants can benefit from a good understanding of the rules.

A further explanation is that most cases settle rather than litigated. Because of this, forensic accountants may be nonchalant about whether evidence will be admissible or not. This not only increases the risk of the investigators report being struck out by the court but could also impede the best possible settlement for the client.

 

A more controversial explanation is ‘adversarial bias’, which refers to bias that derives in some way from the use of an expert by a party in litigation. Luzung (2005) describes several types of adversarial bias:

 

Deliberate partisanship: This type of adversarial bias occurs when an expert deliberately tailors evidence to support his or her client.

Unconscious partisanship: In this form of adversarial bias, the expert does not intentionally mislead the court, but is influenced by the situation to give evidence in a way that supports the client.

Selection bias: Selection bias refers to the phenomenon in which litigants choose as their expert witnesses persons whose views are known to support their case.

 

At the time of accepting an engagement, a forensic accountant does not know if the matter will proceed to court or if it will be a criminal or civil proceeding. From my perspective I don’t need to know at this point. Each case investigated should be conducted on the presumption that the scrutiny applied to a forensic accountant’s report will be no less than what can be expected in a civil or criminal proceeding. This is the standard by which a forensic accountant should conduct their investigation.

 

How can a forensic accountant achieve better outcomes by applying the rules of evidence during an investigation?

A forensic accountant’s principal task is to collect evidence and report findings of fact. Any evidence relied upon must prove or disprove a fact. If the evidence doesn’t relate to a particular fact, it is considered “irrelevant” and is therefore inadmissible. Making unstated findings of fact and providing a self-interpretation of them is one example of when evidence cannot be admissible.

 

The rules of evidence are a fundamental component within a system of justice that has many interconnecting parts of which forensic accounts need to navigate, usually with assistance from counsel. Although there can be practical difficulties in persuading a court to accept evidence the argumentation skill of the forensic account is also important. I use the words “argumentation skill” deliberately as forensic accountants must justify their conclusions with strong evidence-based arguments. In other words, evidence presented to a court is only as effective as the accuracy of the facts and assumptions upon which it is based. Simply collecting evidence is not good enough.

 

At the end of an investigation it is imperative that the investigators report clearly identifies, list and makes known the premises upon which their conclusion is expressed and is completely void of adversarial bias. Regardless of the investigator’s credentials, their report will be scrutinised not only by the court, but the opposing side will do their best to discredit the report and author. It is at this point where the benefits of using the rules of evidence as a tool throughout your investigation are realised.

Following the above principles will not guarantee evidence will be admitted but may negate some of the inadmissible risks.

 

Conclusion

This study is on the effect of forensic accounting evidence on litigation service on Nigeria judicial system. The study examined the effect of forensic Accounting evidence on litigation services in the Nigeria judicial system. Specifically the study examined the extent to which forensic accounting documentary evidence, demonstrative evidence, physical evidence and oral evidence influences litigation services in the Nigeria court of law. The study concludes that forensic accounting evidence has effect on litigation services in the Nigeria court of law

 

Recommendations

Based on the findings the following recommendations are made;

  1. Forensic accounting documentary evidence should be constantly employed by the Nigeria court of law in other to positively enhance litigation services in Nigeria.
  2. Forensic accounting demonstrative evidence should be employ in other to improve the effectiveness of litigation services in the Nigeria judicial system.
  3. Forensic accounting physical evidence should be appropriately and properly recognised in the Nigerian judicial system so as to ensure the credibility and reliability of litigation services.
  4. Forensic accounting oral evidence should be administer in the court of law and should be given by expert witness that has communication skills and presenting information as exactly received.

References

Degboro D. &Olofinsola J. (2007). Forensic Accountants and the Litigation Support Engagement: The Nigeria Accountant, 4(2)

Dhar P. &Sakar A. (2010}. Forensic Accounting: An Accountant’s Version: Vidyasagar University J. Commerce, 15(3). Okunbor J.A. &Obaretin O. (2010). Effectiveness of the Application of Forensic Accounting Services in Nigerian Corporate Organizations: AAU. JMS, Ed.1(1)

Howard S &Sheetz M. (2006) . Forensic Accounting and fraud Investigation for Non-Experts: New Jersey: John Wiley and Sons Inc.

Imam A. Kumsha A.M. &Jajere M.S (2015). Applicability of Forensic Accounting Services for Financial Fraud Detection and Prevention in the Public Sector of Nigeria: International Journal of Information Technology and Business Management.

Joshi, M.S.(2003). Definition of forensic Accounting (www.forensicaccounting.com ed.retrieved on 20/4/2017).

Luzung, A 2005, ‘Minimising expert witness bias’, Australian Law Reform Commission Reform Journal, vol. 65, pp. 65-67.

Okoye E.I. &Gbegi D.O. (2013). Forensic Accounting: A Tool for fraud Detection and prevention in the public sector: A Study of Selected Ministries in Kogi State: International Journal of Academic Research in Business and Social Sciences,3(1).

Okoye E.I. &Gbegi D.O. (2013).An Evaluation of Fo r e n si c Ac c o u n ti n g t o Pl a n n i n g Management Fraud Risk Detection Procedures: Global Journal of Management and Business Research, 13(1)

Okunbor J.A. &Obaretin O. (2010). Effectiveness of the Application of Forensic Accounting Services in Nigerian Corporate Organizations: AAU. JMS, Ed.1(1)

Zysman, A. (2004). Forensic Accounting Demystified: World Investigators Network Standard Practice for Investigative and Forensic Accounting Engagement: Canadian Institute of Chartered Accounting.