Forensic Accounting and Fraud Investigation for Non-Experts

By Howard Silverstone and Michael Sheetz

Published by John Wiley & Sons, Inc., 2003; ISBN: 0-471-46324-8
304 pages; $50.00 (hardcover)

Reviewed by Vincent J. Love

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AUGUST 2005 - The authors of this book start slowly, initially directing their writing to nonexperts and nonaccountants. But starting with chapter 5, “The Role of the Accounting Professional,” the book takes the reader on an intense ride through the inner workings of a well-structured investigation. Along the way it delivers sound advice for increasing the efficiency and quality of the process and the end-product. The writing style is simple, direct, and descriptive, making it a pleasure to read. The book would make an excellent addition to any CPA’s library.

The authors demonstrate a deep knowledge of their subject and an uncanny ability to communicate. The suggested reading list at the end of each chapter will save much time and effort searching for additional quality publications.

The first four chapters, more suited for non-CPAs that need to get up to speed on the basics of the topic, cover the instances of fraud in society with real-life examples of how fraud is accomplished, including Enron. The title of chapter 2 says it all: “Understanding the Basics of Accounting.” Chapter 3, “The Entities,” simply defines the three general types of business entities—proprietorships, partnerships, and corporations—and explains their differences, advantages, and disadvantages. Chapter 4 is a basic tutorial on financial-statement analysis. The reader who makes it to this point has finished the simple stuff and is about to enter into a world of relevant and extremely important information about the organization and execution of an investigation.

Part Two (chapters 5 through 14), aptly titled “Financial Crime Investigation,” is where the rubber meets the road. With the same simple but descriptive language, the authors take the reader for a “walk on the wild side” of financial crime, investigation, interviewing financially savvy witnesses, using deductive and inductive analysis, administrating the investigation, and testifying. Here the reader will learn about the types of fraud, with ample examples of real crimes encountered by businesses. It also shows how businesses are used to further criminal enterprises and how criminal enterprises have used businesses to facilitate their activities.

Chapter 8 breaks the investigative process down into its major stages, explaining each in detail so the reader understands what is done and why. Stage 1 is defined as the evaluation and goal-setting stage. Stage 2 addresses the planning needed to maintain the focus of the investigation, control the process, and build adaptability into the plan. Stage 3 addresses the conduct of the investigation. In stage 4, the investigator must collate, analyze, and digest the mounds of documents collected, and place the relevant data into simple but well-designed charts, graphs, and exhibits. Next, the case must be assembled and presented to the prosecuting authority. The last stages are the trial and the post-trial critique.

In chapter 9, on interviewing financially sophisticated witnesses, the authors lay out the psychological barriers to the type of communication necessary to reach an interview’s objectives. They explain the “cognitive interview” memory-facilitation technique, neurolinguistic programming, kinesic mirroring, language matching, and paralanguage matching. They also discuss how to improve the efficacy of the interview.

Chapter 10, covering analytical techniques for financial crime investigation, addresses getting organized, the process of proof from the perspective of inference and relevance, the logic of argument using the deductive and inductive processes, gathering supporting data and evidence, and the inferential network analysis process. Chapter 11 follows with an in-depth discussion of inferential network analysis, exploring the nature of inferences, how they are linked, the construction of a chain of inferences, and the design of an inference model.

Chapter 12 describes and demonstrates the investigative tool of a “key list”: a list or database, depending on the complexity of the case, that contains a numerically indexed list of propositions and evidence. The authors use as their example a violent crime rather than a financial crime, an odd choice that nevertheless does not mar the valuable information in this chapter. At this point, the reader has been given a powerful, useful tool for organizing and analyzing the investigative process: the investigative inference model.

As with every service that CPAs perform, documentation of the process is vital. Chapter 13 addresses the type of documentation needed in an investigation. The authors describe the casebook system for organizing everything in the life cycle of the investigation, and
give useful advice on how to structure a casebook.

Chapter 14, “Testifying in Financial Crime Cases,” explains the major aspects of giving testimony in a succinct, straightforward manner, but rightfully suggests that the reader refer to the many books available on this topic for more in-depth guidance. Demeanor, appearance, and body language are discussed, along with credibility, communication, and the need to rehearse.

The appendices include an example of a key list (albeit for a murder), the federal rules of evidence, and a short glossary of terms used in the body of the book or that have relevance to financial crime investigations.

Vincent J. Love, CPA, is managing partner of Kramer, Love & Cutler LLP, of New York City. He is also a member of the CPA Journal Editorial Board and the NYSSCPA’s Quality Enhancement Policy Committee.




















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