A Guide to Forensic Accounting Investigation

By Thomas W. Golden, Steven L. Skalak, and Mona M. Clayton

Published by John Wiley & Sons (February 2006); ISBN 0-471-46907-6; 546 pages (hardcover); $135

Reviewed by Toby J.F. Bishop

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The contributing writers have produced an extensive work that covers many different aspects of the field of forensic accounting investigation. The book includes material on money laundering and other dimensions of forensic accounting. This marathon read requires stamina, but the effort is rewarded with insights in many different areas. For readers with less time or more-focused interests, the book is best treated as a smorgasbord from which a few items can be plucked.

The 28 chapters cover different topics that largely stand alone. A reader using the book as a reference tool can scan the table of contents to find a particular topic. The early chapters mostly provide an introduction to fraud and compare the role of financial statement auditors with that of forensic accounting investigators. The authors provide an analogy of police patrol officers versus detectives. This analogy may understate the fraud-detection skills of better-trained auditors, even as it suggests that because the police rely extensively on expert detectives, so too can auditors.

Perhaps the most interesting of the early chapters, chapter 3, “Psychology of the Fraudster,” compares three groups: “calculating criminals,” “situation-dependent criminals,” and “power brokers.” Auditors would benefit from more exposure to the bizarre thinking of corporate criminals because it often departs widely from the straightforward logic used by many auditors.

Chapter 8 sets out potential red flags and fraud-detection techniques, while chapters 10 and 11 review the range of financial statement fraud schemes. This material is valuable reading for both internal and independent auditors.

Chapter 12 is the first of several chapters that generally follow the sequence of a typical investigation. It discusses when and why to call in forensic accounting investigators. Chapter 13 examines how such experts can best team with internal and independent auditors. In the post–Sarbanes-Oxley world, forensic accountants are being called in sooner, as wise auditors look for assistance in arriving at the correct answer.

One of the most useful parts of this book for business managers is chapter 14, “Potential Missteps: Considerations When Fraud Is Suspected.” Confronting suspects immediately, accusing them, and firing them right away can lead to the destruction of vital evidence, the loss of cooperation from potential cooperating witnesses or suspects, and even lawsuits alleging defamation or wrongful termination.

Chapters 15 to 21 examine different investigative techniques, including: dealing with tips; background investigations; interviews; analyzing financial statements; data mining; and documenting evidence. Each of these is worthy of a book on its own, so the discussions are necessarily brief but cover many valuable points.

Chapters 22 and 23 discuss supporting a criminal prosecution and producing investigation reports. The book identifies pitfalls to avoid as well as good practices to follow.

The final chapters cover a variety of subjects. These include working with attorneys, conducting global investigations, money laundering, and forensic accounting other than investigations. The inclusion of the latter may seem at odds with the title of the book, and the brevity with which other types of forensic accounting work are covered may frustrate readers who are interested in those subjects.

The book concludes with a discussion of the future of forensic accounting investigation. The authors explore how the discipline is evolving with new tools and techniques and blossoming educational programs. The authors foresee significant growth in the manipulation of nonfinancial operating data, which can be as important to investors as financial data. Forensic accountants will not be short of work in the years ahead.

Although A Guide to Forensic Accounting Investigation is not light reading, the determined student of this field will find much of value inside. The $135 list price is steep, but members of the Association of Certified Fraud Examiners can buy it there for $99.