Accounting as an Investigative Tool
Developing a Model Curriculum for Fraud
and Forensic Accounting
Max M. Houck, Mary-Jo Kranacher, Bonnie Morris, Richard
A. (Dick) Riley, Jr., James Robertson, and Joseph T. Wells
2006 - As the complexity and scope of commerce has expanded
throughout the world, the need to track money and financial
information has grown. There has been a corresponding increase
in illegal financial activity, according to separate surveys
by the U.S. Department of Justice, Pricewaterhouse-Coopers,
and the Association of Certified Fraud Examiners (ACFE). Ironically,
illegal businesses and perpetrators of financial crimes also
need to keep track of their cash flow and manage their operational
performance to generate profits, fund activities, and avoid
detection, prosecution, and seizure of their assets.
understanding of effective fraud and forensic accounting
techniques can assist forensic accountants in identifying
illegal activity and discovering and preserving evidence.
Forensic accounting is the application of accounting knowledge
and investigative skills to identify and resolve legal issues.
It is the science of using accounting as a tool to identify
and develop proof of money flow. These tools and techniques
can be invaluable for fraud and forensic accounting investigators.
employee and management fraud, theft, embezzlement, and
other financial crimes are increasing, accounting and auditing
personnel must have training and skills to recognize those
crimes. In addition, high-visibility corporate scandals,
such as Enron, WorldCom, and Adelphia, demonstrate the need
to better prepare entry-level accounting graduates and practicing
CPAs in the areas of fraud prevention, deterrence, detection,
investigation, and remediation. Finally, news reports following
the September 11 attacks depicted how terrorists used the
international banking system to fund their activities, transfer
money, and hide their finances, and signaled a need for
investigators to understand how financial information can
provide clues as to future threats. These events raised
public awareness of fraud and forensic accounting, and highlighted
the importance of ensuring that financial professionals
have the necessary training and skills to understand and
act appropriately on any important evidence generated from
December 2003, the division of accounting at West Virginia
University received a grant from the National Institute
of Justice to develop a model curriculum for fraud and forensic
accounting. The impetus for this activity was the need for
an in-depth examination of the intellectual competencies
necessary to perform entry-level forensic investigation
and analysis in a constantly changing environment. The objective
was to develop a model curriculum in fraud and forensic
accounting that would assist academic institutions, CPA
firms, and other public and private employers in preparing
prospective students and employees with the necessary skills
for entry into this profession.
project was named the Technical Working Group for Education
in Fraud and Forensic Accounting (TWGED-FFA). An exposure
draft of the curriculum proposal was circulated in November
and December 2005 for public comment. The outcome, a model
curriculum, will be a set of voluntary guidelines for educational
institutions, stakeholder organizations, faculty, instructors,
and students that outlines the requisite entry-level knowledge,
skills, and abilities for fraud and forensic accounting
accounting includes the use of accounting, auditing, and
investigative skills to assist in legal matters. It consists
of two major components: litigation services that recognize
the role of an accountant as an expert consultant, and investigative
services that use a forensic accountant’s skills and
may require possible courtroom testimony. According
to the definition developed by the AICPA’s Forensic
and Litigation Services Committee, forensic accounting may
involve the application of special skills in accounting,
auditing, finance, quantitative methods, the law, and research.
It also requires investigative skills to collect, analyze,
and evaluate financial evidence, as well as the ability
to interpret and communicate findings. Forensic accounting
encompasses litigation support, investigation, and dispute
resolution and, therefore, is the intersection between accounting,
investigation, and the law. Fraud examination is a methodology
for resolving fraud allegations from inception to disposition,
including obtaining evidence, interviewing, writing reports,
and testifying. The ACFE’s manual states that fraud
examiners also assist in fraud prevention, deterrence, detection,
investigation, and remediation. Like most forensic sciences,
fraud and forensic accounting may include using financial
information to piece together or reconstruct past events
in instances where that reconstruction is likely to be used
in some judicial proceeding (e.g., criminal or civil court,
deposition, mediation, arbitration, or settlement negotiation).
Fraud and forensic accounting is a broad area that includes
occupational fraud, corruption and abuse, financial statement
fraud, and civil litigation matters. While the reconstruction
activity tends to look backwards, the impact may have implications
for the future, particularly in civil torts and breach of
distinct yet interrelated groups, a planning panel and a
technical working group (TWG), developed the model curriculum.
The planning panel had 14 representatives from important
stakeholder groups, including law enforcement, the legal
community, government and regulatory stakeholders, professional
services providers, professional organizations, and academics
in the broad areas of fraud and forensic accounting. The
full TWG had 46 subject-matter experts in fraud and forensic
accounting, including the 14 members of the planning panel.
a March 2004 meeting, the planning panel determined that
the model curriculum developed for fraud and forensic accounting
should ensure that entry-level forensic accountants have
the knowledge, skills, and abilities necessary to begin
work in the specialized area of fraud and forensic accounting.
More specifically, entry-level fraud and forensic accounting
professionals should possess knowledge, skills, and abilities
in the following areas:
Criminology specifically oriented to the nature, dynamics,
and scope of fraud and financial crimes; the legal, regulatory,
and professional environment; and ethical issues.
prevention, deterrence, detection, investigation, and
remediation in the following areas: asset misappropriation,
corruption, and false representations; financial statement
fraud; and fraud and forensic accounting in a digital
environment, including computer-based tools and techniques
for detection and investigation, electronic case-management
tools, and other issues specific to computerized environments.
Forensic and litigation advisory services, including research
and analysis, valuation of losses and damages, dispute
investigation, and conflict resolution (i.e., arbitration
fraud and forensic accounting are relatively new areas of
study, a series of working definitions should be established
to ensure a common understanding.
(sometimes referred to as the fraudulent act) includes all
the multifarious means human ingenuity can devise that are
resorted to by one individual to get an advantage over another
by false suggestions or suppression of the truth. It includes
surprises, tricks, cunning or dissembling, and any unfair
way by which another is cheated (Black’s Law Dictionary,
5th edition, 1979). Occupational fraud is the use of one’s
occupation for personal enrichment through the deliberate
misuse or misapplication of the employing organization’s
resources or assets (ACFE Report to the Nation, 1996). Corruption
is the “paying off” of officials, public or
private, for preferential treatment. Corruption encompasses
four types of schemes: bribery, conflicts of interest, extortion,
and illegal gratuities (W. Steve Albrecht et al. Fraud
Examination, 2003). According to the FBI “White
Collar Training Manual,” white-collar crime encompasses
those criminal acts characterized by fraud, concealment,
or a violation of trust that are not dependent upon actual
or threatened physical force or violence.
ACFE’s “Fraud Examiners Manual” defines
financial statement fraud as the deliberate misrepresentation
of the financial condition of an enterprise accomplished
through the intentional misstatement or omission of amounts
or disclosures in the financial statements in order to deceive
financial statement users.
providing litigation advisory services, accountants use
their knowledge, skills, abilities, experience, training,
and education to support legal actions; forensic accountants
normally carry out such activities by acting as consultants,
expert witnesses, masters, or special masters. While forensic
accountants may provide litigation support services in criminal
cases, the majority of litigation support services involve
important facet of fraud and forensic accounting is the
use of computer software, referred to as CATTs (computer-aided
tools and techniques), to aid in the detection and investigation
of fraud and other white-collar crimes. This includes the
use of generalized audit software for data extraction and
analysis; spreadsheet, database, and statistical software
use for fraud detection and analysis; investigative tools
such as data mining, link analysis software and case management
software; as well as use of the Internet.
Skills and Abilities
knowledge within the themes listed above is crucial to the
success of entry-level forensic accountants. Beyond imparting
knowledge, any viable academic or professional education
program is expected to develop fraud and forensic accounting
skills and abilities.
important skills and abilities (i.e., student-focused outcomes)
is more challenging than simply identifying broad-based
knowledge, and this was the primary task faced by the TWG.
In short, the TWG answered the question, what specific skills
and abilities, in addition to knowledge areas, should an
entry-level forensic accountant possess to successfully
enter the field and be effective? The answer entailed identifying
and ranking specific skill sets. For example, should entry-level
job recipients know how to determine whether an individual
has failed to report income to the appropriate taxing authorities?
Should they understand how assets can be hidden, and how
to locate hidden assets?
of Curriculum Development
planning panel concluded that anticipated career paths and
the student applicant pool would drive curriculum choices
by interested educational entities, instructional organizations,
and others responsible for creating appropriate training
material. The Exhibit
captures those potential career paths.
Exhibit begins with students. Based on the applicant pool,
educational and instructional providers will determine the
appropriate entry-level requirements. Once students are
admitted to a program, the educational institution or agency
will then be charged with developing students’ knowledge,
skills, and abilities to enter the fields of fraud and forensic
accounting. Identified career paths include positions at
professional services firms, corporations, government or
regulatory agencies, law enforcement, and legal service
providers. The bottom two blocks of the Exhibit recognize
that achieving long-term success in fraud and forensic accounting
may require additional specialized training. Specialized
training for entry-level professionals helps those individuals
achieve the required level of competency, usually within
a specific organization, where competency is considered
a step beyond entry-level knowledge, skills, and abilities.
Some specialized training will be organization-specific
(e.g., FBI versus local law enforcement), while other specialized
training may be task-specific (e.g., tracking down life
insurance or property ownership rights, investigating stolen
funds from a local business, tracing laundered drug money,
or tracking terrorist financing schemes). Furthermore, experienced
fraud and forensic accounting personnel require continuing
professional education to maintain proficiency in the profession.
Specialized training and continuing professional development
(beyond entry-level fraud and forensic accounting skills)
were outside the scope of the TWGED-FFA.
of Curriculum Choices
outcome of the efforts of the TWG is a model curriculum
for fraud and forensic accounting that identifies those
areas of knowledge, skills, and abilities necessary to enter
the field given the multiple career paths outlined in the
Exhibit. In an applied discipline such as accounting, student
placement and initial on-the-job investigative success are
usually viewed as key performance indicators. Therefore,
consideration was given to what potential employers require
of entry-level employees and typical initial assignments.
all of the experts agree on certain essential skills and
abilities for entry-level individuals. This list includes:
Utilizing a variety of techniques to prevent, detect,
and investigate fraud and financial crimes;
analyzing, and reporting evidence and other information;
becoming a victim of fraud.
addition to the core foundation of knowledge, these skills
and abilities are essential for initial success in the field
of fraud and forensic accounting.
and forensic accounting affect the accounting profession
every day. The need to identify the sources and uses of
money in illegal activity is a sine qua non in
every investigation, including terrorism and counterintelligence.
Through the development and implementation of the TWGED-FFA,
accountants will have one more tool to effectively and efficiently
deal with the challenges faced in detecting financial crimes
and tracing ill-gotten gains from illegal activities.
receive the exposure draft of the model curriculum, e-mail
your request to FFAModel@mail.wvu.edu.
M. Houck is the forensic projects director at West
Virginia University, Morgantown, W.V.
Mary-Jo Kranacher, MBA, CPA, CFE, is the editor-in-chief
of The CPA Journal, an associate professor at York College,
CUNY, Jamaica, N.Y., and a former member of the ACFE Board
Bonnie Morris is an associate professor and
Richard A. (Dick) Riley, Jr., is a Louis
F. Tanner Distinguished Professor, both at West Virginia University,
Morgantown, W.V.; both are also cochairs of the TWGED-FFA.
James Robertson is president of Asa Pembroke
Inc. and was an FBI Special Agent Accountant (retired).
Joseph T. Wells is the founder/chairman of the board
of the Association of Certified Fraud Examiners (ACFE).