Journal of Forensic & Investigative Accounting
Senior Editor:  D. Larry Crumbley
Editor: Tanweer Hasan
 
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Journal of Forensic & Investigative Accounting

Senior Editor
D. Larry Crumbley

Louisiana State University
Department of Accounting
3106A Patrick Taylor Hall
Baton Rouge, LA 70803
Phone: 225-578-6231
Fax: 225-578-6201
dcrumbl@lsu.edu

Editor
Tanweer Hasan

Roosevelt University
430 S. Michigan Avenue
Chicago, IL 60605
Phone: 847-619-4886
Fax: 847-619-4852
thasan@roosevelt.edu


Volume 3: No. 2, Special Issue, 2011

Table of Contents

Abstract: This article looks at the American Accounting Association (AAA) from a forensic accountant’s viewpoint. One of the primary functions of a forensic accountant is to investigate, gather evidence, and reach conclusions. While forensic accounting is much more than auditing, like an auditor, forensic accountants must maintain professional skepticism and verify everything. This research uses the AAA as an object lesson to demonstrate how some simple tools can be used in a forensic accounting investigation – how and where to gather evidence, and how to draw conclusions based on the evidence gathered.

Keywords: American Accounting Association; forensic accountants; forensic accounting; public records.

Note: The Executive Director and the current and next presidents were invited to respond to this article, but no response was forthcoming.

Download: Full article [pdf]
Abstract: The purpose of this study was to identify factors influencing the jurors’ responsibility attribution to the auditors in audit failure litigation. These factors included affect, perception of the auditors’ role in fraud detection and loss sharing, and the jurors’ risk attitude. In a laboratory setting, participants read a hypothetical audit failure case, completed several questions pertaining to the independent and dependent variables, and provided their demographic information. The findings indicated positive relationships between (1) affect and responsibility attribution to the auditors, (2) affect and the auditors’ role in fraud detection and loss sharing, and (3) the auditors’ role in fraud detection and loss sharing and responsibility attribution to the auditors. In addition, the results demonstrated the mediating role of the auditors’ role in fraud detection and loss sharing in the relationship between affect and responsibility attribution. The findings also revealed the moderating role of risk attitude in the effect of affect on responsibility attribution.

Keywords: Audit failure; fraud; responsibility attribution; affect; auditors’ role in fraud detection and loss sharing; risk attitude.

Abstract: We examine the economic factors affecting the auditor’s independence when management wishes to mislead investors. By means of a single person decision-theoretic model, we show that, in the absence of transaction costs, audited financial statements are unlikely to be biased. However, when transaction costs in the form of legal costs are introduced, bias is likely to occur. By means of a game-theoretic model, we also examine two areas of information asymmetry and the economic factors involved causing a ‘rogue auditor’ compared with a ‘professionally correct’ auditor to fail to act independently.

We also examine the implications of this both at the micro and public policy level and whether the ‘bad auditors’ will drive out the ‘good auditors.’ We find that the ‘good corporations’ have an incentive to drive out the ‘bad auditors.’ However, whilst investors have negligible information about audit quality, scandals such as Enron and Arthur Andersen are likely to occur.
 
Keywords: Auditor independence; rational economic analysis; rogue auditor; transaction costs; game-theoretic model.

Abstract: Identity theft remains a serious problem for many individuals. The Federal Trade Commission estimates that 9 million Americans become victims of identity theft each year. A recent disturbing trend is that many victims of this crime are children under the age of 18. Many of these younger victims are unaware that their identity has been stolen and do not learn of their fate until they start working or apply for their first loan or credit card. This article discusses the history of why children are now becoming more common victims of identity theft and offers suggestions as to what parents can do to protect their child’s identity.
 

Keywords: Identity theft; children; prevention; detection.

Abstract: Earnings management is one of the most important ethical issues facing the accounting profession. Lapses in ethical sensitivity and judgment caused many large, well known accounting scandals leaving many questioning how accountants make ethical decisions and why didn’t someone “sound an alarm” that could have mitigated damage caused by corporate misconduct. Although accountants are facing more and more ethical dilemmas, there is little research available exploring whistleblowing behaviors of practicing accountants. This study explores Jones’s (1991) model of moral intensity to determine which factors may contribute to the identification of an ethical problem, reasons for making a moral judgment, and ultimately why one may choose to report an action of earnings management that they believe is unethical. One-hundred fifty-seven attendees at the 2007 Institute of Management Accountants (IMA) National Meeting participated in this study providing a unique perspective on whistleblowing and earnings management.
 

Keywords: Ethical decision-making; moral judgment; moral intensity; whistleblowing.

Abstract: This paper advocates a risk management strategy of using a combination of timeless corporate governance weaknesses, emerging fraud detection models, and key financial ratios. The corporate governance weaknesses occurred as red flags 81% of the time for nine companies that had major fraudulent financial reporting (FFR) in this century. The emerging fraud models and key ratios occurred 57% of the time for these FFR companies versus only 31% of the time for matched non-FFR companies. Thus, sufficient red flags or warnings should exist from this combination of corporate governance and financial factors for use by Boards of Directors, external and internal auditors, financial analysts, and government regulators.
 

Keywords: Fraud detection; corporate governance; red flag models.

+ New Executives and Audit Fees
    • Clark Wheatley
    • Yun-Chia Yan
       
Abstract: The role of Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) in the financial reporting process has come under heightened scrutiny in recent years, such that SOX requires individual executives to certify the accuracy of their financial reports and the quality of their internal controls. Prior research shows that the appointment of new executives is associated with higher levels of earnings management, and that auditor judgments about top management are important elements in the audit planning process. We examine the association between firms hiring new CEOs or CFOs and audit fees, to determine if there is an audit fee premium associated with new CEOs (CFOs). Our results indicate that the presence of a new CEO (CFO) is associated with an audit fee premium of 10.5 (9.4) percent. This suggests that auditors are cognizant of, and price, the potential impact of new executives on financial reporting.
 

Keywords: Audit fees; executive turnover; audit risk; fee premium.

Abstract: The purpose of this study is to assess various financial reporting frauds that occurred at the segment-level. This study describes firm characteristics, the types of fraudulent activities, some of the financial effects, as well as the perpetrator of the fraud. Although one of the primary objectives of segment reporting is to increase the transparency of the firm, most of the emphasis in financial reporting is at the consolidated level. As the analysis here suggests, a more thorough examination of the segment level may uncover fraudulent transactions in a timelier manner. The data suggests that firms with significant bill and hold transactions may be more at risk for fraud at the segment level. We find that during the fraud period our sample firms appear to be performing better on average than comparable firms. This is not to say all above-average performing firms are committing fraud, but rather suggesting it could be one of many indicators that fraud may be occurring. These are possible fraud indicators that could be explored in future segment fraud research.
 

Keywords: Segment reporting; segment fraud; forensic accounting; AAER.

+ Using ACL Scripts to Teach Continuous Auditing/Monitoring: The Tremeg Case
    • Jill Joseph Daigle
    • Ronald J. Daigle
    • James C. Lampe
Abstract: This paper presents a two-part educational case to help students understand how CAATs can be used in a continuous auditing/monitoring context to detect potential fraud and security breaches. The first part is a step-by-step tutorial with instructions and screenshots that guides students to create an ACL script in a fictional company setting that can be run on a repetitive and recurring basis for detecting terminated employees who still have access to network resources. The second part involves creation of a script that that can also be run on a repetitive and recurring basis for detecting active employees with dormant network accounts. While the second part can also be given as a step-by-step tutorial, we suggest that it be given as an assignment or take-home exam without instructions and screenshots. In both parts, students are also required to respond to ethical questions brought about by technology and use critical thinking skills.
 

Keywords: Accounting education; ACL; CAATs; continuous auditing; continuous monitoring; fraud investigation.

Abstract: This paper reports the views of forensic accountants, attorneys, and accounting academics concerning the perception of forensic accounting expert witness’ transparency. The core insights from the study are the differences in participant’s views within the role of a forensic accountant acting as a testifying expert and consultant. Forensic accountants disagreed with attorneys on all nine survey items. The results of this study could influence the future behavior of forensic accountants engaging in expert testimony by offering evidence in areas where there is a disconnect between perceptions of the forensic accountant’s role in expert testimony.
 

Keywords: Expert witness; transparency; consulting expert; dual roles; expert impartiality; court appointed.

Abstract: This is the case of Dr. Albert Sterling, a fictitious surgeon who has submitted a disability income claim to Guardian Protection Insurance Corporation, a fictitious insurance company. Students can practice forensic accounting techniques in the specific context of disability insurance, as they assume the role of an insurance investigator assessing the validity of the claim. The case is divided into two phases. Phase 1 contains the majority of the information and analysis and can stand alone. The optional Phase 2 presents additional sources of evidence relevant to the determination. The case contains background information on disability insurance and financial, personal and professional details about Dr. Sterling. Students will find several “red flags of fraud” to investigate and can request and consider additional evidence in their determination. This case is designed for students in an undergraduate or graduate forensic accounting course, or in an advanced auditing course.
 

Keywords: Disability income claim; insurance investigator; suspicious spending; insufficient accumulation of wealth; depression or addiction.

    • Dr. Donald L. Ariail, CPA, CFF, CVA*
Predating Pacioli’s time
and into the modern age.
The Accountants’ double entry
has evolved its artful stage.

Whether manually performed
as for centuries acclaimed.
Or a digital process used
the basics remain the same:

Journalize each transaction with
the entity concept weighed.
Carefully balance the journals
with all foots and cross-foots made.

Pick up each figure with a tick
least a number be forgot.
Post the ledger accounts with care
to each number’s special spot.

Pull a trial balance as a test
of the ledger’s truthfulness.
Debits on left, credits on right
in a perfect evenness.

Prepare a working trial balance
as a tool to ease the way.
Complete reporting to be made
through the period’s last day.

Review every account balance
for adjustment at year end.
Prepaids, accrueds, and estimates
are analyzed to amend.


Prepare adjusting entries that
correct accounts in error.
Post amounts to the WTB
each entry a repairer.

Pull an adjusted trial balance
and foot the columns true.
If debits still equal credits
the process is almost through.

Extend all account balances
to the columns that are due.
Income statement and balance sheet
separated two by two.

Foot each column and then compare
the totals of each dual set.
The difference should be equal
and a profit or loss net.

With the WTB completed
basic statements are prepared.
Each one receiving numbers from
balances left unimpaired.

After statements are finalized
all temporaries are closed.
Revenues and expenses left
for transactions yet proposed.

Thus ends the accounting cycle
the accountant’s task complete.
For going concern entities
the same process will repeat.
 

*  The author is at Southern Polytechnic State University.


    • Dr. Donald L. Ariail, CPA, CFF, CVA*

 

A CPA’s unethical slide,
May be braked by professional pride.

Stewardship reporting tradition,
A reason for professional pride.

Business role as trusted advisor,
A reason for professional pride.

Watchdog of the publics’ interest,
A reason for professional pride.

Reputation as meticulous,
A reason for professional pride.

Member of a learned profession,
A reason for professional pride.

Respected place in society,
A reason for professional pride.

Thwart the many temptations to slide,
Remember your professional pride.
 

* The author is at Southern Polytechnic State University.

 
 
 
    • Tanweer Hasan*

In an effort to create a comprehensive file of all of the Forensic Accounting Programs and Certifications within the United States, we have compiled a list that is presented below. We encourage all FIA members to submit their Forensic Programs and Certifications available at U.S. academic institutions that do not appear on the list. To add your program or certifications please contact Dr. Tanweer Hasan at thasan@roosevelt.edu.

State

Name of School

Name of Business School

Certification

Degree/Minor/Certificate

California

Golden Gate University

School of Accounting

Graduate

Forensic Accounting Certificate

 

Colorado Technical University

College of Business and Management

Undergraduate

Bachelors in Financial Forensics

Colorado

Jones International University

School of Business

Graduate

MBA in Forensic Accounting

Connecticut

Post University

N/A

N/A

Professional Certificate in Forensic Accounting

DC

Georgetown University

McDonough School of Business

 

Certificate in Forensic Accounting

Florida

Florida Atlantic University

College of Business

Graduate

Executive Masters

 

St. Thomas University

School of Business

Graduate

Forensic Accounting Certificate

Georgia

Georgia Southern University

College of Graduate Studies

Graduate

Masters Degree

Illinois

Roosevelt University

Walter E. Heller College of Business

Administration

Graduate

Graduate Certificate in Business Fraud Examination;

Master of Science in Forensic Accounting

Indiana

Indiana State University

Scott College of Business

Undergraduate

Minor in Forensic Accounting

Louisiana

Louisiana State University

E.J Ourso College of Business

Graduate

Master Specialty

Massachusetts

Bentley College

McCallum Graduate School of Business

Graduate

Certificate in Fraud and Forensic Accounting

 

 

 

Western New England College

School of Business

Graduate

Concentration in Forensic Accounting;

Fraud Investigation

Missouri

Webster University

George Herbert Walker School of Business

Graduate

Masters in Forensic Accounting

New Hampshire

Southern New Hampshire University

School of Business

Graduate

Forensic Accounting and Fraud Examination Certificate

New Jersey

Rider University

College of Business Administration

Graduate

Concentration in Forensic Accounting and Fraud

 

Canisius College

School of Business

Graduate

Masters in Forensic Accounting

New Mexico

University of New Mexico

Anderson School of Management

Graduate

Concentration in Information Assurance

New York

Baruch College

Zicklin School of Business

Graduate

Certificate in Forensic Accounting

 

New York University

 

Graduate

Certificate in Forensic Accounting

North Dakota

Minot State University

College of Business

Undergraduate

Minor in Fraud Examination

Ohio

Franklin University

N/A

Undergraduate

Business Forensics Program; Minor in Business Forensics

Pennsylvania

Carlow University

School of Management

Undergraduate/Graduate

Forensic Accounting Major; Certificate in Forensic Accounting; Master of Science in Fraud & Forensics

La Salle University

School of Business

Graduate

Fraud and Forensic Accounting Certificate

 

University of Scranton

Kania School of Management

Undergraduate

Forensic Accounting Major; Forensic Accounting Certificate

West Virginia

West Virginia University

College of Business and Economics

Graduate

Certificate In Forensic Accounting

 

University of Charleston

Graduate School of Business

Graduate

Executive Masters in Forensic Accounting (EMFA);

Accredited Fraud Investigator (AFI) Certificate Program

Last Update: January 2011.

* Tanweer Hasan is the Rolf Weil Professor of Finance at Roosevelt University.

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The Annual Fraud and Forensic Accounting Conference

The annual LSU Fraud & Forensic Accounting Conference will be held on July 11 and 12, 2011 in Baton Rouge. One of the speakers is Michael Hudson, the author of "The Accounting Monster." Other speakers are Don Rabon, Will Fleenor, Elliott Leary, Kelly Pope, Edward Simmons, Joe Koletar, Mark Shirley, Greg Fee, Ronald Durkin, Bella Riushin, and Jeff Aucoin. For more information about the 2011 Annual Fraud & Forensic Accounting Conference: http://www.bus.lsu.edu/academics/accounting/events/FF2011.asp

The Anyone Can Whistle Tour

Anyone Can Whistle Tour -- www.whistleblower.org -- is a series of high profile campus/community engagement events and learning tools that shines a light on the phenomenon of whistleblowing. The Tour, sponsored by the Government Accountability Project and the Oscar winning film company Participant Media, will feature live appearances by notable whistleblowers and use film, art and popular culture, and dramatic simulations to build awareness of the importance of whistleblowers and their protection. By reaching young adults at universities, law schools, journalism programs, and business schools, the Tour will model change-makers who have risked everything, and helped create a path for those who face comparable professional dilemmas.

Advertise in the JFIA

Would you like to advertise in this journal? Full page ad is $300. Half page ad is $150. Contact Larry Crumbley (dcrumbl@lsu.edu). Checks to be made out to Journal of Forensic and Investigative Accounting and sent to Larry Crumbley at 3106A Patrick Taylor Hall, Dept. of Accounting, L.S.U., Baton Rouge, LA 70803.

 

Books Received
The Wizard of Lies: Bernie Madoff and the Death of Trust
Diana Henriques, 2011, $30
Times Books
115 West 18th Street
New York, N.Y.

A review by Brooke Masters in the Financial Times said that “Madoff’s spell left investors too trusting or greedy and regulators too cowed.” Madoff almost fell in 2005, but he pulled money from his legitimate businesses and appropriated client money to get a $95 million loan.

Fraudulent Intention$
Scott Hilsen, 2011, softcover, $15.97, 360 pp.
Authorhouse
1.888.519.5121

This self-published novel is based on the true story of a corporate deal gone bad and the internal investigation that exposed an online fraud. For SouthPoint Bank, its purchase of Internet Connections, or ICon, was a risky way to boost its stock price, and the deal was rushed so that the Chairman of SouthPoint could stay in power. For ICon, being acquired by SouthPoint was its last chance to cash in on the Internet boom, but the President of ICon was looking for more than money – he needed a way to escape a secret that ICon had been concealing through a conspiracy of fraud.

Forensic Accounting and Fraud Investigations, 2nd edition
W.S. Hopwood, J.J. Leiner, G.R. Young, 2011
McGraw-Hill Irwin
1221 Avenue of Americas
New York, N.Y. 10020

The second edition includes a range of civil and criminal accounting fraud and related activities. A major distinction of this second edition is a process-oriented approach. Flow charts are present throughout Part II (Chapters 5-12) to graphically illustrate the sequence of steps followed in fraud investigations.

Costly Reflections in a Midas Mirror, 3rd edition
D.L. Crumbley, D.L. Ariail, J.C. Chenier, G.S. Smith, 2011
Carolina Academic Press
700 Kent Street
Durham, N.C. 27701

Need to introduce the scenario principle and a forensic accountant into your cost or managerial accounting class? Used as a supplementary text, this novel mixes fraud, murder, art, ethics, humor, and cost accounting together to provide a better way of learning the managerial accounting process. Lenny Cramer, a professor at Columbia University, tries to help a wealthy friend of his university. As a managerial professor, he uses his forensic accounting background to solve a “whodunit” plot. Along the way, business practices and accounting concepts are elucidated in a way both students and instructors will find gripping as well as informative.

Shell Games
Sara McIntosh  

Twelve rich men conspire to purchase one trillion dollars worth of premium land with money acquired from fraudulent financial security transactions. Super sleuth Marjorie Stevens is their downfall. Read more in David Albrecht’s The Summa, February 25, 2010, review.

   
The CPA's Handbook of Fraud & Commercial Crime Prevention
Tracy L. Coenen et al., 2010, 9th edition
AICPA
220 Leigh Farm Road
Durham, N.C. 27707-8110   

This loose-leaf handbook is an excellent reference to controllers and public practitioners responsible for preventing, detecting, and exposing fraud. The authors have developed a comprehensive collection of tools and guidance on a wide range of fraud prevention and detection topics. There is a companion CD-ROM which provides ready-to-use, time saving checklists. For example, the 2010 update for Chapter 9 includes expanded discussions on defining the scope of an investigation, evidence gathering, interview techniques, and the required professional skills for forensic accountants.

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