Forensic Investigation

Introduction

In the beginning of 21 century, news was filled with lot of reports based on fraud and the factors that increases the cost of U.S. economy. Many have read about frauds of Enron and WorldCom associated with financial statement fraud. There are a lot peoples whom are directly affected with frauds (Singleton & Singleton, 2010).

History of fraud

In view of some, forensic accounting is considered as the oldest profession connecting with Egyptians. Forensic accountant of Pharaoh is said to be “eyes and ears”, as he keeps record of inventories of gold, grains and other assets. For this profession, one is considered to be reliable, accountable, and having ability the influence (Singleton & Singleton, 2010).

In U.S., fraud started with Pilgrims and early colonists. In early times in U.S., mostly fraud was based on lands as America was mostly agricultural. Start of business corporation created more opportunities for fraud. With the rise of business organization, fraud also rose and major fraud was cited in different era. In 21st century, notable fraud in U.S. was WorldCom and Enron; this leads U.S. congress to pass Sarbanes-Oxley Act (SOX) in 2002 (Singleton & Singleton, 2010).

The fraud cycle

Basically the fraud cycle starts with the strategies of impostor taking it to the commencement of the fraud act. Later imposter turns that asset into cash or other required form for hiding, after he commits the fraud.

The knowledge of fraud comes from different sources: it can be rumor, accusation or complaint of fraud from fellow employee or some other sources, suspected through investigating organization, through unexpected financial health of organization, through unintentional discovery of missing things, from audit results, or through antifraud controls (Singleton & Singleton, 2010).

The six basic steps related to fraud investigation are:

Collecting documents and details related to fraud allegation.

Examining the claim in view of available documentation.

Examining the favorable environment for questionable person.

Analyzing the logic of available facts.

Concluding the reports to the parties.

After doing this there are two possibilities relating to fraud. First, the fraudster is identified; second, not identified. When fraudster is not identified, more investigation is required (Singleton & Singleton, 2010).

Forensic accounting

The term forensic accounting is related to complete view of investigating fraud. Forensic accounting includes protecting frauds and examining antifraud controls. It includes audit of financial records for seeking fraud; a fraud audit. Proving or disproving of fraud is the element of forensic accounting. However forensic accounting is not limited to financial data, it also includes of the parties having link with fraud. At the end writing a report to court or management and helping as expert and litigation is the part of forensic accounting (Singleton & Singleton, 2010).

In dictionary of accounting, terms of forensic accounting are not clearly defined. There is a difference between fraud audit and forensic accounting. Fraud auditing is concerned with dedicated approach and techniques to distinguish fraud. Fraud auditor is looking for fraud's evidence, to prove whether fraud exists or not. Later forensic accounts are called, when fraud is ...