Characteristics and Skills to Be a Successful Forensic Accountant

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 After famous scandals, such as Enron and WorldCom were uncovered, fraud and fraudulent financial reporting had become more aware to the public eye. As more and more fraud schemes were being discovered, the auditing profession began to separate into two different markets: auditing and fraud detection, which was eventually coined as “forensic accounting” (Smith, 2015, p.19). As fraud became more prevalent, it became evident that being an effective forensic accountant requires some different characteristics and skills than an auditor.

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At the beginning of the 1900s, “it was believed to be the auditor’s responsibility to detect and prevent fraud” (Smith, 2015, p.19). Auditing the company’s financial activities and fraud detection were both jobs that were fulfilled by an auditor. However, as corporations and businesses began to grow in size and become more complex entities, “it became clear to many that it would not be possible for auditors to continue to search for fraudulent financial activities as they had in the past. At this time, fraud detection came to be deemphasized as more emphasis was placed on the reviews of management’s financial records” (Smith, 2015, p.19). The expectations of being an auditor began to be spread too thin. As the number of major fraud scandals was increasing, increased demand for the profession of forensic accountants became apparent (Davis, Farrell, & Ogilby, 2010, p.2).

The American Institute of Certified Public Accountants (AICPA) has acknowledged that forensic accounting services usually include “the application of specialized knowledge and investigative skills possessed by CPAs; collecting, analyzing, and evaluating evidential matter; and interpreting and communicating findings in the courtroom, boardroom, or another legal/administrative venue” (Davis, Farrell, & Ogilby, 2010, p.3). A forensic accountant possesses the skills necessary to be a CPA; however, certain skills and characteristics including analytical characteristics, communication, and investigative skills are specific to that of a forensic accountant.

According to Hopwood et al. (2012), the author states, “Forensic accounting is the application of investigative and analytical skills to resolve financial issues in a manner that meets standards required by courts of law (p.3). Forensic accounting is litigation support for legal cases that involves accounting fraud schemes. These types of accountants “apply their skills to legal cases to answer questions regarding damages, generally with an economic bearing, or where there is a concern expressed by a company potentially experiencing fraud or suffering from deficient internal controls” (Kreuter, 2017, p.7). These skills are valuable when assisting the audit team with fraud-risk assessments, where it is critical to be able to know which questions to ask in a way that does not seem threatening towards the entity (Kreuter, 2017, p.7).

In general, “well-trained forensic accountants have at least a minimum level of knowledge and skills in the following areas: auditing skills, investigative knowledge, and skills, criminology, accounting knowledge, legal knowledge, information technology (IT), or communication skills” (Hopwood, Leiner, & Young, 2012, p.7). Although these skills are a broad umbrella of skills that a forensic accountant possesses, some can specialize in these areas.

Having auditing skills is important to a forensic accountant since information-collecting and verification are essential in this type of accounting. If a case is brought to court, a forensic accountant must be able to collect and analyze important information and data cases (Hopwood, Leiner, & Young, 2012, p.6). Possessing auditing skills will also allow the forensic accountant to analyze intricate financial statements and accounts. Also, to be successful, one should be able to communicate well with the individuals involved in the legal investigation and be in contact with them when new events happen. To be successful, “a major part of the forensic accountant job description is the ability to effectively convey financial information in a manner that is appropriate for a court setting” (“The Essential Guide to Forensic Accounting”, 2019).

To combine the financial and legal aspects of forensics, it is important to have a background in investigative knowledge and skills. These skills can include surveillance tactics, interviewing, and interrogation. Obtaining these will help assist the forensic accountant advance from the skills and knowledge related to auditing and accounting (Hopwood, Leiner, & Young, 2012, p.7). Possessing critical and investigative skills can help examine situations suggesting fraud that sometimes an auditor does not notice because “an auditor may be a watchdog, but a forensic accountant is a bloodhound” (Harris & Brown, 2000, para.6).

Criminology is also another important skill to obtain. In particular, “the study of the psychology of criminals” (Hopwood, Leiner, & Young, 2012, p.7). This study can benefit the forensic accountant on the motives and incentives experienced by the perpetrator (Hopwood, Leiner, & Young, 2012, p.7). Another skill that should be attained is to be able to think “creatively to consider and understand the tactics a fraud perpetrator may use to commit and conceal fraudulent acts” (Harris & Brown, 2000, para.7). A forensic accountant can think like the person who would falsify accounting records or misrepresent financial statements to deceive a company or an organization. They could also understand and use the fraud triangle to understand the perpetrator’s motives (Harris & Brown, 2000, para.7).

One of the most evident skills needed is accounting knowledge and terminology. This helps analyze and interpret the financial information needed to construct a case in an investigation, whether it is a money-laundering operation, a Ponzi scheme, or an embezzlement scheme. This also involves knowledge of proper internal controls, which is an essential tool for forensic accountants (Hopwood, Leiner, & Young, 2012, p.7).

Internal controls are essential to an audit, as they give evidence to the auditor as to whether or not controls are operating efficiently and effectively. In Audit Standard No. 2, if the auditor is performing an integrated audit, “the auditor of a company’s financial statements must also perform an audit of the internal controls over financial reporting” (Hopwood, Leiner, & Young, 2012, p.109). If internal controls are in place, then there is less of a risk for fraudulent activity. However, if proper controls are not in place, it is very easy for management or employees to use this to their advantage. Employees or management could formulate a plan to commit a fraud scheme themselves, such as collusion or management override. Based on their knowledge of internal controls, a forensic accountant would have the skills necessary to conclude that fraud or fraudulent reporting was in part due to a lack of effective internal controls (Rechtman, 2019).

The success of a forensic accountant also includes legal knowledge. Having “knowledge of laws and court procedures enables the forensic accountant to identify the type of evidence necessary to meet the legal standards of the jurisdiction in which the case is to be adjudicated and preserve evidence in a manner that meets the criteria of the court” (Hopwood, Leiner, & Young, 2012, p.7). This job entails understanding the laws and rules of evidence. Being accustomed to criminal and civil law and being able to understand the means of the court is a skill that should be possessed by a forensic accountant. All the findings and related documentation must be presented in an acceptable and supportable manner in court. An effective forensic accountant should understand the litigation services (Harris & Brown, 2000, para.5).

More so evident in the modern periods than in the 1900s, information technology (IT) is now a prominent concept that forensic accountants must be aware of (Hopwood, Leiner, & Young, 2012, p.7). Technological advances have allowed auditors to move towards computer-generated auditing techniques, rather than manual accounting techniques, which included paper audit trails. IT is starting to develop rapidly. IT is constantly evolving, which means all businesses need to constantly adapt to these new technological changes. However, this exposes businesses to concerns that can involve fraud due to an IT breach or malfunction. Having highly trained professionals like forensic accountants can help businesses to control the number of damages due to matters related to technology (“IT: Information Technology: Forensic Accounting Services”, n.d.).

Another skill required is communication skills. This is critical so that the results of the analysis or investigation could be clearly and properly expressed to the court (Hopwood, Leiner, & Young, 2012, p.7). A forensic accountant needs to be able to communicate clearly and concisely to various parties, especially to those who do not obtain much knowledge on the topic. For instance, “a forensic accountant might have to present the investigative methods and conclusions reached to accounting departments, management, board of directors, government authorities, and courtroom participants, including the judge, the jury, plaintiffs, dependents, and attorneys” (Harris &Brown, 2000, para.8).

A forensic accountant who has these essential skills and qualities will be able to provide knowledgeable support to a business or company that is trying to detect or prevent fraud. Having these skills and characteristics serves valuable roles within local and federal law enforcement. As this position becomes more popular, so does the utility of having a forensic accountant on a case.

As a matter of fact, some of the most known fraud cases have been solved through the involvement of skilled and qualified forensic experts (Singer, 2017). For example, the Enron scandal was the most notorious fraud case in American history. The company’s accounting team worked in collusion with executives to cover up the millions of dollars in debt and failed projects. After Enron’s stock dramatically decreased from $90 to $1 throughout the course of a year, it produced a red flag; therefore, the SEC began to investigate the company. When the SEC’s forensic accountants carefully reviewed the financial statements, all of Enron’s fraud was exposed. The forensic accountant determined that the company was hiding debt in partnerships, inflating the stock price and debt rating, and misrepresentation of financial records (Singer, 2017). This could not have been determined or solved without the essential skills and characteristics that a forensic accountant needs to have to be considered successful.

The American International Group, Inc also known as AIG, was another famous fraud scandal where forensic accountants exposed the corporation due to their knowledge and background in forensic accounting. This fraud lasted for about six months from December 2000 to March 2001. In December, AIG began to enter into a string of fraudulent transactions with Gen Re Corporation where false reinsurance policies were created to make the appearance of loss reserved on AIG’s balance sheet to be increased (Singer, 2017). These fraudulent actions were revealed in a series of both federal and state investigations. Due to this, the claims led to an SEC trial and investigation, where AIG was claimed guilty of accounting fraud. These false transactions were discovered by forensic experts (Singer, 2017).

Another important fraudulent case that occurred was the Bernie Madoff scandal, which was one of the biggest fraudulent schemes in U.S history. To accomplish this act, Madoff operated a $65 billion Ponzi Scheme that lasted over 30 years (Benson, 2009, p. 20). Even to this day, some of his victims still have not regained all of the losses that Madoff essentially took from them. Madoff was an admired financier, who gained the trust of many investors. He convinced thousands of investors to give him their savings and promised them regular profits in return. Sadly, his promises were false, and instead, was caught in December 2008 for eleven counts of fraud, money laundering, perjury, and theft (Yang, 2014).

Many innocent people were fooled by Madoff; however, one chief investment officer, Harry Markopolos was not. Instead, he was very apprehensive of Madoff and his investments and discovered the fraud before it happened. According to Hitchcock (2018), “The methods he used were simple—he analyzed market trends and compared them to the performance of “investments” made by Bernie Madoff. One of the biggest red flags was the clear lack of correlation between Madoff’s investment performance and the performance of the S&P 500 (the market in which he was supposedly investing)” (page 30). From these methods, he determined that Madoff was deceiving his investors. Markopolos decided to contact the SEC about his allegations, but sadly, he was ignored. If his accusation was not ignored, then this fraud could have been discovered much sooner than 30 years and would not have been close to $65 billion in losses. Due to this, Markopolos has a profession as a forensic accountant (Hitchcock, 2018, p. 30). If Markopolos did not have some type of knowledge or questioning mindset to begin the inquiry of Madoff’s motives, the fraud may not have been discovered as quickly as it had.

Having the skills and qualities of a forensic accountant can even help CPAs in serving their clients. For instance, it can help a company that needs an overview of its internal control system. Being mindful of risk in fraud can allow a CPA to discover and improve faulty internal controls (Kreuter, 2017, p. 7). According to Kreuter (2017), “Being available for forensic assignments in a specialty area enables a forensic specialist to promote himself as having an interest in career growth and a specialized breadth of knowledge” (p. 8). For instance, a basketball player who can play all the positions has an enhanced value to the team than someone who only plays point guard. This same analogy can be related to accounting firms. CPAs who acquire these forensic skills can be more prepared and can add more value to their client engagement teams. Obtaining the CPA credentials is a great start, but having forensic knowledge combined with other achievements is the real accomplishment (Kreuter, 2017, p. 8).

When fraud is either evident or suspected, “there is no asset more valuable than the forensic accountant (Singer, 2017). These professionals are extremely dedicated and have been a valuable part of major fraud incidents that have occurred in the United States and even around the world. Forensic accountants are using their skills and techniques to put criminals in jail. Working with the legal system makes forensic accounting more exciting than a traditional accounting job. They have the ability to investigate serious crimes, which could only be done with the significant understanding and skills needed to be a successful forensic accountant (Singer, 2017). 

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