Catching or Disproving Fraud and Graft

Forensic accounting – combined with computer forensics – is all the rage. As the quantity of digital records about any given activity swells, the volume of forensically meaningful evidence grows. Digital repositories – like smart phones, social networks, cloud computing accounts and Internet-of-Things monitors – are teeming with clues about whether someone cheated on sales taxes . . . or (in the alternative) dutifully collected and reported sales taxes in accordance with law.

Blend Two Disciplines

Forensics is hard, time-intensive work, whether the investigator comes from the accounting profession or from computer science. But combined forensics that draws from both accounting expertise and computer expertise is even harder work. It requires mastery of two different talents and review of potentially overwhelming amounts of data.

Those investigators who are able to unite these talents are at advantage . . . especially if they can perform efficiently and stay within the budget and time constraints for a case. They are better able to discover hidden or probative meaning in the evidence . . . but they do it economically and on time.

Proof of Innocence

The talented investigator may, for example, be able to exonerate a client who has been wrongfully accused, by demonstrating conclusively that the client performed honorably. Their demonstration may be supported by educated analysis of innumerable nuggets of data, such as emails, journal entries, metadata, timestamps on records, geolocation coordinates on Instagram photos, et cetera. 

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Forensic Accounting, Enron, Worldcom And How You Can Prevent Investing In Frauds 

In summary, keep an eye for these:
1.Booking sales before the product is shipped.
2.Counting inventory that has already been sold.
3.Counting inventory owned by 3rd parties.
4.Disparity between inventory to cost of goods sold and accounts receivable to sales.
5.Overstated lifespan of assets thus decreasing annual depreciation expense.
6.Recurring negative cash flows from operations.
7.Unable to generate cash flows from operations but EPS and earnings growth goes up.
8.Unusual increase in gross margin, or margin in excess of industry peers.
9.Unusual growth in the number of days' purchases in inventory.
10.Insurance coverage that is less or greater than the inventory shown on the balance sheet.
11.Significant upward inventory adjustments at locations that were not observed by the auditors compared to the locations that were observed.
12.Changing the inventory valuation method (LIFO to FIFO) without disclosure of the change.


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