Investigative Techniques
Use of Technology in Forensic Accounting Investigation
Forensic accounting, rather than being lenient with answering questions of interest to a legal system, could be described simply as an accounting analysis that is suitable to the court and which will form as the basis for discussion, debate and ultimately dispute resolution. Also known as forensic investigation or forensic auditing, forensic accounting encompasses both litigation support and investigative accounting. On the other end of the spectrum, technological capabilities are increasingly becoming significant for financial capacity and output and for the purpose of determining the soundness of financial decisions. The use of technology, however, is not confined with financial developments within a company or organization. Information technology (IT) is also used to evaluate the financial reality of a certain situation hence technology is integrated in accounting, auditing and investigative schemes of forensic accounting.
In this paper, how technology plays a role – either constructive or destructive – in forensic accounting will be discussed.
Forensic accounting and technology
According to Hinders (2009), forensic accounting is a field that combines accounting with IT. One of the reasons is because forensic accountants, as the practitioners in the field, make use of sophisticated computer programs to analyze financial data and find evidence which would be legally valid during a court proceeding. Notably, objective verification is the primary goal of forensic accounting and is also the reason why forensic accountants are asked to testify in court cases as expert witnesses. Working on both civil and criminal court case, forensic accounting professionals may be asked to calculate economic damages or to present evidence of offenses. Informations need to be accurate because these are used to distinguish about how much something is worth. Today, information are mostly stored in the computers especially that businesses make use of IT at some level thus it is a duty of forensic accountants to understand and explain how IT plays a role in offenses and likewise how IT could pinpoint what particular components of information gathered plays a role in accumulating the offense.
One of the key areas that IT can definitely support forensic accounting is database knowledge and an understanding of how the database system works (Parizo, 2009). As such, forensic accountants may understand all the informations but not all the systems involved with these informations. Looking at an offense scenario from a fraud-awareness perspective, forensic data analysis would be simply with the aid of IT and, at times, IT experts in examining organizational data in order that patterns of fraud profile could be identified. These data/informations could be logical and/or numerical and statistical. Neural-net and other data mining technologies, for instance, could be utilized for the purpose of developing models of fraud detection, prediction and prevention where known fraud patterns are lacking or obscure. Developing an offense scenario, translating this scenario into an offense profile and applying appropriate investigative techniques to corporate databases would be convenient using different technologies.
Technological products for forensic accountants
Computer hardware and software could be both use in committing an offense but software manipulation proved to be more apparent. Operating systems software consists of programs which keep computers running as automatically as possible whereas applications software consists of computer programs that apply the computer to the user’s needs through carrying out a task the user wants performed, both of which present challenges for forensic accountants to uncover fraud and other offenses. These software tools require forensic accountants to use state-of-the-art facilities and software tools to equal the capacity of the two (Nunn et al, 2006). Iwata (2003) related that most of the criminals behind offenses use sophisticated technology and accounting tricks.
For the forensic accountants, there is the necessity then to dig deeper into a company’s computer system. Bigler (2001) assert that without the proper equipment such a process could be difficult for forensic accountants. Forensic accountants can use specialized software and computer hardware to facilitate the preservation, collection, analysis and documentation of evidence. There are many new technologies that aid and allow investigators to recover deleted files, crack encryption or codes and extract and sort data.
One among the newly developed software program is that of KPMG Forensic Accounting which helps in determining how fraud was penetrated. This is through the preparation of TRACE or Transactional Representation of Assets and Court Evidence diagram. TRACE diagram provides a computer-generated graphical and concise summary of a series of transactions. This diagram also presents informations on events or structures in an easy-read format for the purpose of mapping the flow of funds through the penetrator’s private companies/accounts while also identifying the parties involved. Sing (1999) also stressed that the diagram is useful in providing litigation support to the civil and criminal proceedings.
Another software program is called Gargoyle which can detect steganography, a process by which data can be hidden within other files. With the use of steganography stolen data could be hidden and would not be detectable until Gargoyle. Gargoyle software was released by WetStone Technologies in May 2003 and was developed to work with the National Software Reference Library (NSRL). NSRL housed a collection of digital file signatures known as hashes that are developed from thousands of common software programs. Such hashes allow investigators to check if any alterations have occurred. Piazza (2003) emphasized that in addition to steganography Gargoyle is also equipped with 550 Trojan horse toolkits, 94 wireless war driving software tools, 455 encryption programs and hundreds of key-logging and password-cracking applications.
Satov (2003) mention that a Houston-based company named ChurchStreet Technology also introduced a software which could be useful for forensic accountants and other crime-fighting agencies. The software developed enables the reconstructuring of shredded documents electronically, offering a speedier alternative to the laborious task of searching, matching and pasting strips manually. Such process uses proprietary digitizing techniques to scan shredded paper and then matches them with specialized software. This software can also reconstruct documents that have been cross-shred or cut into two directions into tiny pieces.
Advantages and pitfalls of computerized forensic investigation
According to Golden et al (2006, p. 387), the utilization of software applications and understanding their capabilities from basic to advanced can bring rapid and powerful results to the successive phases of an investigation. To tap its efficiency, users must know how and why to employ such tools, making it difficult to assess whether forensic accountants – experienced or otherwise – are skilled users of these software as investigative tools. Forensic accountants must thereby understand that being aware of advanced software tools could bring added value and quality to the investigation itself. One of the benefits to forensic accountants of computerized investigation is that they will be able to analyze a large number of transactions, identifying trends, spotting documents that need further review and gaining initial insights while drawing away from the constraints of time and cost as the process does not require the accountant to wait for the cumbersome process of collecting documents by traditional means and therefore devote the time to more important things like analysis.
Further, data mining proves to be cost-effective as well aside from being a more comprehensive approach than the hard-copy document review. Murphy (2009) notes that data mining is an art of analyzing large amounts of data in a manner that detects obscure facts, trends or inconsistencies in a complete and efficient manner utilizing intelligent computer applications. Data mining therefore benefits forensic accountant to proactively detect frauds and other offenses at the same time. In cases where hardcopy of documents may be incomplete, computerized information can assist in providing reasonableness of findings (Golden et al, 2006). Computerized information enables forensic accountants to investigate the entity of the offense be it corporate disputes, fraud, business economic losses and professional negligence among others by depending on computer records. Electronic data on its financial transactions are immense that is why forensic accountants are not limited to discreet number of records to base their findings from. With this, it would be also convenient for forensic accountants to present data in courts accurately and with supporting evidences.
On the other hand, forensic accountants must also understand the pitfalls inherent with computerized information. Manning (2005, p. 194) state that for one, data mining is just a component of the investigation process where computer and the amount of accounting-related information available could not be treated as a substitute for rational judgment and experience. Computerized information cannot replace document reviews, interviews and follow-up steps. Inherent to computerized information also is the risk of compromising data due to the fact that these are subjected to human manipulation. Likewise, these informations require double checking for accuracy and completeness. The rationale behind this is that an incorrect and incomplete data may contribute to premature and incorrect conclusions and findings. Carmichael and Graham (2009, p. 298) asset that limitations of software tools could also impede with the development of the investigation since there are certain data mining tools which may not be appropriate to certain tasks. The complexity of the tools used should be commensurate with the size and complexity of what it is being observed.
Computerized investigation could breed an atmosphere of complacency because the tendency is for forensic accountants to rely too much on the tool itself. So that the operational and financial benefits of data mining could be maintained, forensic accountants must bear in mind that skilled technical use of the tools must be combined with sound analysis and judgment. Forensic accountants must be also careful when it comes to copying a computer file because certain elements can be altered if not executed correctly (Singleton et al, 2006, p. 159). Proper computer forensic techniques should be used to avoid inadvertently altering evidence. Compliance with legal entities should be also considered particularly because not all environments are the same. Mohay et al (2003, p. 175) also commented that before commencing data collection, planned procedures must be allowed from a legal perspective and that any evidence gathered maybe used for legal purposes if required. Nonetheless, forensic accountant must be also aware of specific regulations applied to export of data/information and privacy regulations attached to it. Proper legal advice must be sought in this case.
Computerized forensic analysis as evidence
Mohay et al (2003p. 122) contend that a unique feature of computer forensics is the requirement that the application of the technology must be carried out with due regard to the requirements of the law. Failure to comply can result in digital evidence being ruled as inadmissible or as tainted. The court recognizes that the forensics technology and the evidences produced through such must embrace the legal requirements including admissible, authentic, complete, reliable and believable. Computer evidences to be successful in court must conform to certain legal rules before it can be put to a jury, must be possible to positively tie evidentiary material to the incident, must tell the whole story and not a just a particular perspective, must be nothing about how the evidence was collected and subsequently handled which causes doubt about its authenticity and veracity and must be readily available and understandable to members of a jury.
Amongst the mentioned legal requirements, admissibility is the most important as this relates with the conformity with common law and legislative rules. Vacca (2005, pp. 20-21) added that another requirement of the jury is that computer evidences should be free from interference and contamination to be regarded as real or testimonial evidence. A forensic accountant is obliged to determine whether computer evidences are of acceptable levels as a result of forensic investigation and other post-event handling (Solomon et al, 2004, p. 2). Certain elements must be present with computer evidences to be admissible before the jury which include well-defined procedures, an anticipation of likely criticism, the possibility of repeat test to be carried out, checklist to support methods used, anticipation of any problems in formal legal tests of admissibility and acceptance that any methods now described would almost certainly be subject to later modification.
Future of computerized forensic evidence
In the very near future, the computerized forensic or forensic technology will demand the necessity of a multidisciplinary approach for the purpose of further legitimizing evidences (Rogers and Seigfried, 2004). Because computer evidences pass through a process of identifying, preserving, analyzing and presenting in a fashion acceptable in a legal proceeding, the jury could require the collaboration with legitimate IT specialists other roles involve like computer technicians as expert witnesses as well as auditors, legal counsels and legal representatives among others. Computerized evidences also requires that forensic accountants of comprehensive understanding of laws affecting these evidences. Locating the desired evidence could also mean that forensic accountants to determine the vulnerability to data fishing or dredging. Acquisition and protection of computerized evidences could also give birth to new legal requirements of preserving or destruction of such.
References
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