Forensic Accounting and Fraud Investigation for Non-Experts

HOWARD SILVERSTONE, CPA, FCA, CFE, is Director at Forensic Resolutions, Inc.MICHAEL SHEETZ, JD, is an adjunct professor of business law, ethics, and international law for several universities, and a former appellate law clerk for the Fourth District Court of Appeals.STEPHEN PEDNEAULT, CPA/CFF, CFE, is a Principal of Forensic Accounting Services, LLC, where he specializes in forensic accounting, employee fraud, and litigation support matters. He is an adjunct professor at the University of Connecticut; is the author of Fraud 101: Techniques and Strategies for Understanding Fraud, Third Edition; contributed to Fraud Casebook: Lessons from the Bad Side of Business; and has written articles for state and national publications.Frank E. Rudewicz, JD, CPP, CAMS, has more than thirty years’ experience conducting domestic and international investigations for fraud, ethics, and other employment-related conduct. Mr. Rudewicz has been involved in numerous high-profile and sensitive engagements regarding fraud, organized crime, compliance, and security assessments. He has appeared on Dateline NBC, Forensic Files, and various other media outlets for his investigative work. A recognized expert on security and investigations, Mr. Rudewicz lectures and teaches frequently on these topics. He often provides expert testimony and conducts independent inquiries for a variety of employee misconduct issues.

• Preface xiiiAcknowledgments xvPart I Forensic Accounting and Fraud Overview 1Chapter 1 Forensic Accounting 3What Is Forensic Accounting? 3Why Has Forensic Accounting Become the Buzz? 4Introduction to a Profession 5Applications for Forensic Accounting 6A Third Dimension: Contexts within Each Area ofSpecialization 11Conclusion 14Suggested Readings 15Notes 15Chapter 2 Fraud in Society 17What Is Fraud? 17Types of Fraud 21Other Types of Financial Fraud 25Sarbanes–Oxley 27What the Numbers Tell Us about Fraud 28Categories of Occupational Fraud 29Drawing Conclusions 31Society’s Perception of Fraud 32Who Commits Fraud?—Profile of the TypicalFraudster 33The Social Consequences of Economic Crime 39Conclusion 39Suggested Readings 40Notes 40Chapter 3 Understanding the Basics of Financial Accounting 43Where It All Begins 43The Five Accounting Cycles 46Journals: Subsidiary and General 54Conclusion 56Suggested Readings 56Note 57Chapter 4 Forms of Entities 59Basics of Business Structures 59Sole Proprietorships 60Partnerships 60Corporations 63Business Enterprises in the Global Environment 66Conclusion 70Suggested Readings 70Notes 72Chapter 5 Fundamental Principles of Financial Analysis 73Good Analysis = Due Diligence? 73Why Perform Financial Analysis? 76What and Whom Can You Trust? 76Other Factors to Consider 77Financial Analysis for the Non-Expert 78To the Future 85Conclusion 86Suggested Readings 87Notes 87Chapter 6 The Role of the Accounting Professional 89The Importance of Accounting Professionals in the Investigation 89The Audit Process 93Internal Controls 98Conclusion 101Notes 101Part II Financial Crime Investigation 103Chapter 7 Business as a Victim 105Introduction 105Employee Thefts 106Fraudulent Billing Schemes 112Fraud Committed by Outsiders 113Management Thefts 114Corporate Thefts 117Identity Theft 118Conclusion 120Suggested Readings 120Notes 120CHAPTER 8 Business Villains 123Introduction 123Organized Crime and Business 123Money Laundering 130Conclusion 137Suggested Readings 138Notes 139Chapter 9 The Investigative Process 143Introduction 143Case Initiation 144Case Evaluation 145Solvability Factors 147Goal Setting and Planning 148Investigation 156Background 158Conclusion 166Suggested Readings 167Notes 167Chapter 10 Interviewing Financially SophisticatedWitnesses 169Introduction 169The Interview 170Interviewing Financially Sophisticated Witnesses 185Conclusion 188Suggested Readings 189Notes 190Chapter 11 Proving Cases through Documentary Evidence 193Introduction 193Document Collection 194Document Organization 207The Process of Proof 211The Logic of Argument 213Proof through Inference 217Conclusion 221Suggested Readings 222Notes 224Chapter 12 Analysis Tools for Investigators 227Introduction 227Why Use Analysis Tools at All? 227Associational Analysis 229Temporal Analysis 246Conclusion 252Suggested Readings 252Notes 253Chapter 13 Inferential Analysis 255Introduction 255How Inferential Analysis Helps 255What Is an Inference Network? 256Investigative Inference Analysis 259The Key List 263Constructing an Investigative Inference Chart 264Plotting the Chart 268Some Tips for Charting Success 272Applying the Chart to the Investigative Process 273Conclusion 275Suggested Readings 275Notes 277Chapter 14 Documenting and Presenting the Case 279Introduction 279Creating a System 279The Casebook System 280Report Writing 287Testifying as a Financial Expert 290Conclusion 305Suggested Readings 305Notes 306About the Authors 309Index 311