[2] Forensic accountants apply a range of skills and methods to determine whether there has been financial misconduct by the firm or its employees.
When Wilson was working as a CPA for the US Internal Revenue Service, he was assigned to investigate the transactions of the infamous gangster Al Capone.
Wilson's diligent analysis of the financial records of Al Capone indicted him for federal income tax evasion.
Capone owed the government $215,080.48 from illegal gambling profits and was guilty of tax evasion for which he was sentenced to 10 years in federal prison.
[12] Forensic accountants are involved with investigating and analyzing the factual information brought about by the crime, whereas auditors handle the gross financial statements.
On the other hand, internal auditors investigate using checklists and techniques that may not surface the types of evidence that the jury or regulatory bodies look for in proving fraud.
[2] Some of the most common types of fraud schemes include overstating revenues, understating liabilities, inventory manipulation, asset misappropriation, and bribery/corruption.
[1] These characteristics are often not conclusive enough on their own to identify the culprit, but can help forensic accountants to narrow down a suspect list, sometimes based on behavioral or demographic factors.
[23] The quantitative approach focuses on financial data information and searches for abnormalities or patterns predictive of misconduct.
[1] Today, forensic accountants work closely with data analytics to dig through complex financial records.
Predictive modeling can detect potentially fraudulent activities, entity resolution algorithms and social network analytics can identify hidden relationships, and text mining allows forensic accountants to parse through large amounts of unstructured data quickly.
[26] Forensic accountants utilize an understanding of economic theories, business information, financial reporting systems, accounting and auditing standards and procedures, data management & electronic discovery, data analysis techniques for fraud detection, evidence gathering and investigative techniques, and litigation processes and procedures to perform their work.
[27] When detecting fraud in public organizations accountants will look in areas such as billing, corruption, cash and non-cash asset misappropriation, refunds and issues in the payroll department.
[28] Forensic accountants will often try to prevent fraud before it happens but searching for errors and in-precise operations as well as poorly documented transactions.
[28] The process begins with the forensic accountant gathering as much information as possible from clients, suppliers, stakeholders and anyone else involved in the company.