step-by-step guide for finding breaches of
controls to build a strong foundation for a fraud
by Barbara J. Shildneck
Forensic Accounting and Fraud
Investigation for Non-Experts
by Howard Silverstone and
294 pages; hardcover; $50
John Wiley & Sons, Inc.
Hoboken, N.J., 2007
experienced financial fraud examiners will find
this book handy for helping prevent and reduce
losses from fraud. Although the book has been
written as a primer, it presents a range of case
studies every fraud expert can use for quick
reference and a blueprint of successful approaches
to finding evidence of and proving workplace
The accounting professionals
training is key in fraud investigation, of
coursebut an investigative mind-set and
skepticism help as well. The authors say Statement
on Auditing Standards no. 99, Consideration
of Fraud in a Financial Statement Audit,
calls on external auditors to take on more
responsibility, to think like both a thief and a
detective and be constantly looking for the weak
links in the accounting system and among the
people who staff it. The investigative accountant
should look for any sourcegovernment information,
proprietary databases and court records, for
examplethat might have bearing on a case.
CPAs must be savvy in conducting interviews
with all suspects and reviewing evidence from
accounting records and documentation. To establish
a fraud, financial investigators must be able to
pick up on motivational and behavioral clues such
as a suspects domestic financial worries, for
A business has five typical
accounting cycles that leave audit trails:
The sales and
collections cycle can reveal many common frauds:
cash thefts, theft of other assets, kickbacks to
customers and front-end frauds such as
The purchase and
payments cycle includes noncapital procurements
for goods, equipment and services, which can lead
to dummy entities.
The payroll and
personnel cycle covers hiring, firing, salaries,
employee insurance and expense accounts, where
frauds such as paying ghost employees, overstating
expenses and filing false medical claims are
The inventory and
warehousing cycle controls the purchase and
storage of goods. The most common frauds consist
of ordering unneeded inventory and stealing it for
personal use, charging embezzlements occurring in
other areas of the company to inventory losses and
committing outright theft.
The capital acquisition
and repayment cycle accounts for debt and equity
financing, interest and dividend payments. Most
frauds in this category are developed at the
executive level; they include borrowing company
money for personal use and misuse of interest
income or of proceeds from financings.
The investigator must thoroughly examine all five
cycles for breaches of fundamental controls in
maintaining the audit trail, separating duties and
keeping proper documentation.
authors take the reader step-by-step through the
early stages of an investigation to build a strong
foundation for a fraud case. Some of the most
important work occurs before any actual interviews
have been conducted or documents collected, they
The 22-page chapter on
Interviewing Financially Sophisticated Witnesses
should be placed prominently in every CPAs
library. Its three sections address
The fundamentals of
whom to interview and why.
The dynamics of the
process, including the theory of cognitive
interviewing techniques that are applicable to
both suspect and nonsuspect interviews.
Specific strategies for
conducting successful, productive interviews in
white-collar crime cases.
Visual aids. Stressing that
visualizing difficult concepts through graphic
representation is the best aid in staying
organized and in understanding complicated topics,
the authors offer tools to help analyze cases.
Associational tools such as matrices and
social-network diagrams identify relationships
among people, places and organizations. Temporal
analysis toolstime lines, for exampleorganize
the flow of events or data over time. Inferential
analysis expands the concept of visual analysis
to include visualizing the relationships among
pieces of evidence.
documenting and presenting the fraud report and
testifying to its findings round out this book.
The authors say they adapted the trial lawyers
casebook system to the investigative arena to
ensure their system is applicable to frauds of all
sizes. The fraud analyst/expert witness who
follows their guidance should be amply prepared
for what lies ahead.
Barbara J. Shildneck
, a former editor of the JofA ,
is now a contributing editor to the magazine.