The CAs seeking justice in forensic accountancy
By CA magazine
25 August 2021
As crime increasingly moves from street to balance sheet, more and more CAs are finding themselves playing a part in the fight against fraud. Karam Filfilan speaks to forensic accountants about the growth of the specialism.
When people hear the word “forensic”, their imaginations are transported to a crime scene. You might think of technicians in protective clothing dusting for fingerprints, laboratories testing DNA samples and investigators poring over potential suspects. But attach the word to “accountant” and the mental image is less clear. Put simply, it’s a specialism where finance meets fraud. Forensic accountants use auditing skills, investigative techniques and accountancy knowledge to examine financial – and often criminal – disputes.
Despite being around in some form since the ancient Egyptians, forensic accountancy found its first moment of fame via infamous Chicago gangster Al Capone. The tax evasion charges, brought after special investigator Frank J Wilson – a former accountant, of course – reviewed more than two million documents relating to Capone’s finances, put the mobster behind bars.
Recent estimates suggest fraud costs UK businesses a staggering £140bn per year and is now a “national security issue”
Since then, several high-profile, if less violent, cases have hit the headlines. In 2002, the fraud scandal at world.com, uncovered by its internal audit team, led to what was then the largest US corporate bankruptcy in history. Then, in 2011, Japanese camera maker Olympus was found to have hidden accounting losses for more than 20 years, leading to six executives being held liable for more than $500m (£360m) in damages.
“What the use of fingerprints was to the 19th century, and DNA analysis was to the 20th century, so financial information and forensic accounting has come to be one of today’s most powerful investigative and intelligence tools available in the fight against crime and terrorism,” said then Chancellor Gordon Brown in a speech in 2006. And with good reason. Recent estimates suggest fraud costs UK businesses a staggering £140bn per year and is now a “national security issue”, according to the Royal United Services Institute.
Fighting fraud
Increasingly, forensic accountants are at the forefront of investigations into corporate fraud, working alongside data analysts, lawyers and law enforcement. But what does the day-to-day job look like? “The best thing about the job is that there is no typical day. Even when you’re doing the same processes, they throw up completely different things, taking your investigations into different directions. It’s what I find most exciting about the role,” says Alecia Futerman CA, Associate Director, Compliance, Forensics and Intelligence, at specialist risk consultancy Control Risks.
Futerman works as part of a specialist investigations team that is employed by clients to examine potentially fraudulent activity, deal with financial crises or simply look at how processes can be improved. Often, her work will be used for internal disciplinary procedures or even in expert witness testimonies in litigation. Regardless of the scope of the investigation, there are some common steps to each case.
I like interviewing as you get so much more context around the data you see. It’s very different from traditional accounting where you’re just looking through numbers and documents.
“All investigations involve significant amounts of data analysis, where you might pull in data analysts to look for anomalies or patterns,” she explains. “Then comes document reviewing, both in terms of invoices, payments and public records, but also on emails, texts and phone calls. Finally, you move on to interviewing witnesses. This can be fact finding, where you’re trying to round out the information you’ve already found, or more challenging, where you’re talking to suspects or people alleged to have done something wrong.”
This element – speaking directly to witnesses or suspects – sets the discipline apart from other roles in the sector. It also means that excellent interpersonal skills, with the ability to build a rapport with interviewees, are at a premium.
“I like interviewing as you get so much more context around the data you see. It’s very different from traditional accounting where you’re just looking through numbers and documents. I also like the element of ‘are they lying?’ and ‘does the story add up?’. Psychologically, that’s very interesting,” explains Futerman.
Although based in London, she spends much of her time travelling in the Middle East, the Americas and Africa, working on site to review documents or interview witnesses. The investigative nature of her work sometimes leads to security concerns, with her employer providing armoured vehicles, security personnel and convoys on occasion. Often she and her team will work with a client in the midst of a crisis. Remaining calm and focused is key.
“Quite often, you’ll be parachuted into a job after a crisis. The CEO or finance director will have left and there is a power vacuum as people realise something isn’t quite right,” she says. “For example, I did an investigation where the president of a company had departed but had set up fictitious companies across America as a way of funnelling money out of the company. We looked at red flags to do with the new companies and were able to map out relationships between the president and people at these organisations. Some of the people who had approved his transactions were still working for the company, so the outcome was very useful to them in identifying ongoing issues.”
Setting standards
Not all forensic accountants investigate commercial losses. For Laura Spowart CA, Senior Forensic Accountant at ICAS, the job is more about regulation and enforcing standards. “In my role, I’m looking at things from a regulatory and disciplinary perspective. I investigate complaints against ICAS members, looking at whether there have been breaches of rules, regulations or standards,” she says.
Instead of ending in court or legal proceedings, Spowart’s investigations are presented to an internal ICAS committee, which then reaches a determination on the case, with the consent of the member being investigated, or proceeds to disciplinary tribunals. However, she believes that many of the core skills involved in her role are the same as those in commercial positions, with identifying key issues, data collection and presenting evidence all key.
Spowart’s journey into forensic accounting included a stint in corporate audit, focusing on SMEs. The skills she developed in audit are crucial in her current position. “An inquisitive mind is key. There’s a lot in seeing the big picture, but also having a really close attention to detail. Nobody wants a protracted investigation, so it’s about identifying issues, finding the right evidence to support that and drilling down into it,” says Spowart.
“My audit days were also invaluable in teaching me how a business works. A lot of experience comes with having a gut feel of the right questions to ask. Being a good communicator who can ask the right questions and actively listen to the answers is important. It can open new areas to investigate.”
Growth areas
The distinct specialism has led to speculation the role may become a profession in its own right, much as audit is increasingly being separated from accountancy. Issues around cyber-crime, cryptocurrencies and the recent conclusion of the Post Office scandal – when more than 700 sub-postmasters were prosecuted for false accounting based on inaccurate information from the Horizon computer system – have also raised the role’s profile.
Kenneth Murray CA is Head of Forensic Accountancy at Police Scotland, which he joined in 2013 after roles with Scottish Crime and Drug Enforcement Agency and, before that, ICAS as Assistant Director, Legal Services. He believes investigations into economic crime have become more important to both law enforcement and society as a whole, with forensic accountants a key component. “Organised crime is increasingly involved in economic crime, which has implications for the way society and business need to be protected. Traditionally, this has been a weakness, but things have changed since I came into law enforcement, particularly in terms of the capabilities of financial investigators and the support economic crime has,” he says.
An inquisitive mind is key. There’s a lot in seeing the big picture, but also having a really close attention to detail.
Murray’s role is twofold. First, he provides advice to investigation teams who need access to a qualified chartered accountant. Secondly, he acts as a professional witness, providing court reports that make financial evidence understandable to juries. Preparation and the ability to communicate complex data succinctly is vital, with Murray often testifying in court over several days.
“You have to be able to handle yourself in a witness box,” he says. “You have to have the attitude that you’re going to be taken apart. If you’re properly prepared, you’re confident you can convey evidence and handle yourself in the face of aggressive cross-examination.”
Like Spowart, Murray believes a mix of creative thinking and strong attention to detail is vital. As someone recently diagnosed with ADHD, he says he has found his calling in his current role. “I qualified at Arthur Andersen in 1986 and I remember doing a psychometric test,” he says. “My score was very strong on the creative side and less so on the analytical, which isn’t typical for finance. Forensic accountancy offers a place in finance for people who are not neurotypical. You need to be analytical, but also able to visualise the crime. My condition is well suited to that.”
What does this veteran of the sector think of forensic accountancy’s future? “The next 10 years will see more identification of it as a separate discipline and it will become more of an offering from big firms,” he says. “It’s an attractive career path. Forensic accountants can make tangible differences. We can help the organisations we work for face the challenges of our fast-changing world.”