Thanks to the behaviour exhibited by characters such as the notorious Bernard Madoff, fraud continues to plague the international business community. Recent scandals involving Siemens of Germany, Satyam Computer Services of India, and Daniel Dantas of Brazil indicate that fraud has become endemic in our financial world. And it shows no signs of slowing down. If anything, rapidly deteriorating economic conditions will only serve to encourage even more unscrupulous acts. Those with careers in fraud examination should not find themselves unemployed anytime soon.
What is fraud?
Although no precise international legal definition exists, the term 'fraud' is generally used to describe a variety of acts – including deception, embezzlement, corruption, bribery, forgery, extortion, collusion, theft, conspiracy, misappropriation, concealment of material facts and false representation. In its broadest sense, fraud encompasses any crime for gain that uses deception as its mode of operation.
In general, fraud examiners work to resolve allegations of fraud. But their specific tasks are many and varied, depending on factors such as position, background, industry, and organisation type. A look at current job postings throughout the world shows that fraud examiners may perform audits, conduct financial analyses, interview witnesses and potential suspects, obtain documentary evidence, write investigative reports, present or testify to findings, research records, examine documents and transactions, occasionally conduct surveillance, and assist in the detection and prevention of fraud.
Although many fraud examiners are accountants, fraud examination is not the same as auditing or forensic accounting. Auditing encompasses a general review of financial data for the purpose of expressing an opinion on that data. And because many frauds are financial crimes, there is necessarily a certain degree of auditing involved. Forensic accounting – which is the use of accounting knowledge or skill for courtroom purposes – is often performed in a fraud examination.
Aside from accountants, there are numerous other categories of fraud examiners. They include law enforcement officials, attorneys, finance executives, educators, computer scientists, information technologists, corporate security specialists and private investigators. Organisations throughout the world employ fraud examiners. These organisations include government bodies at all levels, public and privately-held corporations, accounting and auditing firms, law firms, insurance companies, business consulting firms, banks, security consulting firms, detective agencies and small businesses.
The examiner's ideal profile
Given the variety of fields and contexts in which fraud examiners work, it should be no surprise that the skills they need are also many and varied. Not only are certain professional skills and qualifications required, but there are also certain character and personality traits that are invaluable to the field.
For example, fraud examiners working as forensic accountants in the healthcare industry must combine their accounting, auditing, legal, and investigative knowledge to analyse and interpret business and financial evidence. To be successful, they must possess strong analytical and research skills, along with knowledge of the inner workings of the healthcare industry. They must understand billing systems and the many types of fraud perpetrated by medical providers, patients and facilities. Many hold degrees and other professional designations in accounting, law, or a related field. Aside from having certain technical abilities, fraud examiners who work as forensic accountants must be ethical individuals who have remarkable curiosity, attention to detail, intuition and persistence.
Let us look at a more blurred role – that of the external auditor of a publicly traded company. Are these also fraud examiners? If not, do they have any responsibility for combating fraud? If so, what exactly is that responsibility?
Despite the fact that such questions have haunted auditors, investors and the public for decades, there are still no clear answers.
ISA 240, from the International Auditing and Assurance Standards Board, claims that although auditors are required to conduct audits with a healthy degree of scepticism (by obtaining 'reasonable assurance' that financial statements are free from material misstatement caused by fraud), the 'primary responsibility' for fraud prevention and detection rests with management and those charged with governance. But before they buy into this, auditors should take note of myriad lawsuits that have been brought against auditors around the world for failing to detect fraud. There also exists the reality that many auditors will encounter some sort of fraud during their career.
Of course, auditors won't catch every fraud. But this doesn't mean they shouldn't take steps to increase their chances. External auditors must be well-versed in fraud detection and prevention, in addition to their core competencies in accounting and auditing. They must also be ethical, inquisitive, analytical and detail‑oriented.
Aside from formal education and on‑the-job training, what can accountants and auditors do to cultivate their fraud examination skills? Those interested in becoming a fraud examiner may want to consider pursuing the Certified Fraud Examiner (CFE) credential, administered by the Association of Certified Fraud Examiners (ACFE). This globally recognised credential denotes proven expertise in fraud prevention, detection, and deterrence. By obtaining student membership (offered at a discounted rate) of the ACFE, students gain access to a comprehensive set of resources on fraud, including articles, tips, career opportunities and advice.
A career in fraud examination is challenging career and financially rewarding, and growth in the field of fraud examination will remain strong so long as fraud continues to invade the international business community. Given all current indicators, fraud examiners with the right combination of skills and experience should enjoy long standing careers.
Table – Auditing vs fraud examination: the differences explained
Joseph T Wells is founder and chairman of the Association of Certified Fraud Examiners
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