Forensic Accounting Techniques

The book, "Fraud Auditing and Forensic Accounting," notes that, historically, detected fraud represents 6 percent of annual revenues in the U.S. Forensic and fraud accounting professionals apply many techniques to uncover these financial crimes.

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Data Mining
- Forensic accountants find patterns through database searches and statistical algorithms.Benford's Law, for example, reveals false invoices by identifying activities such as recurring fixed expenses. The law states that "certain digits appear more frequently than others in data sets." Statistical probability calculations, known as Bayesian Networks, flag discrepancies in key performance ratios such as debt to equity. Outier detection, which highlights amounts that appear to be abnormally high, shows unusual spending habits and possible kickbacks. Also used in credit card fraud investigations, the Luhn Algorithm, validates account numbers.
Analytical Tools
- Forensic accountants use trending to study financial figures over a period of time. They conduct ratio analyses of indicators, such as inventory turnover and working capital to identify fraudulent financial statements.
External Research
- The advent of the Internet has enabled forensic accountants to quickly compile information on individuals and companies. Software packages that bypass passwords to access suspect computer hard drives and programs that detect embedded information enhance their investigative ability.

New York State Society of CPAs: The CPA Journal Online; Forensic Accounting as an Investigative Tool

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Forensic Accounting Techniques

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