What is Forensic Accounting

Forensic accounting utilizes accounting, auditing

and investigative skills to conduct an examination
into a company's financial statements. Forensic
accounting provides an accounting analysis
suitable for court. Forensic accountants are
trained to look beyond the numbers and deal
with the business reality of a situation. They are
frequently used in fraud cases.
• Forensic accounting is defined by Zia (2010)
as: “The science that deals with the relation
and application of finance, accounting, tax and
auditing knowledge to analyse, investigate,
inquire, test and examine matters in civil law,
criminal law and jurisprudence in an attempt
to obtain the truth from which to render an
expert opinion.”
BREAKING DOWN Forensic Accounting
Forensic accountants analyze, interpret and summarize complex financial
and business matters. They may be employed by insurance companies,
banks, police forces, government agencies or public accounting firms.
Forensic accountants compile financial evidence, develop computer
applications to manage the information collected and communicate their
findings in the form of reports or presentations.
Along with testifying in court, a forensic accountant may be asked to
prepare visual aids to support trial evidence. For business investigations,
forensic accounting entails the use of tracing funds, asset identification,
asset recovery and due diligence reviews. Forensic accountants may seek
out additional training in alternative dispute resolution (ADR) due to their
high involvement in legal issues and familiarity with the judicial system.
The objective of a fraud audit is for the auditor to assess
the likelihood that fraud will be detected or prevented in
a corporate or regulatory environment. Typically this
assessment is made by reviewing existing controls to
prevent and detect fraudulent transactions.
5 Characteristics of Forensic Accountants
Think of a forensic accountant as a financial detective who spends his or
her day sifting through various account records to try to locate illegal
activity, primarily related to fraud. Anyone engaged in this kind of work
would likely work in conjunction with law enforcement primarily, though
could be hired by a company to detect criminal activity among
employees, according to the 
Association of International Certified Professional Accountants. What
makes a good forensic accountant? Read on and learn.
1. Analytical Mind
Essentially, being analytical means you’re good at
breaking down problems into smaller parts in order to
find a solution. It should be no surprise to find this
characteristic strongly associated with this career. To get
an idea of what we’re talking about, Sherlock Holmes and
Albert Einstein were both highly analytical people. To be
analytical requires focus and brainpower. Though you can
improve your analytical skills with practice, you probably
need some natural ability in order to thrive. Problems
posed to you while working in this field are likely to be
large and complicated because people try to hide their
crimes amidst the sheer volume of information.
2. Detail-Oriented
A good forensic accountant probably needs to have some inherent bent
towards detail. As opposed to analytical thinking, it’s harder to learn how to
be detail-oriented, At its essence, this means you need to be able to see
beneath the obvious effects to uncover the causes. A detail-oriented person
is efficient, hyper-organized, and not willing to accept anything less than a
perfect result. As you might imagine, due to the volume of information that
is often presented, this career would not be suitable for someone who is
unorganized or makes no use of systems to insure important pieces of
information don’t slip through the cracks.
3. Ethical
If this is not an obvious characteristic of working in the field, it
should be. As much as society demands an ethical compass from
its law enforcement, the same could be said for anyone who works
in conjunction with a law enforcement agency. When your main
task is rooting out those who have committed crimes, obviously,
you need a strict code of morals and ethics. This is one area where
you’re probably not going to be able to fake it for very long. And if
you develop a reputation as an investigator that can’t be trusted to
do the right thing, you won’t be investigating anything.
4. Inquisitive
It’s a reality of human nature. Some people have the ability to meander
through life and never spend a moment’s time in reflective curiosity about
something they encounter during the day. Such a person would likely not be
happy or well-suited to the field of forensic accounting. On the other hand, if
you can’t stand to leave a good puzzle unsolved and find yourself frequently
pondering why this is or how that came to be, well, you might have just
landed on your dream job.
5. Intuitive
It would be nice if all you needed to be a success in this field were the
previous four characteristics but, alas, that’s not the whole picture. We
can’t forget about a little thing called intuition, which separates the men
from the boys and the women from the girls. Intuition is the ability to
make logical leaps without conscious reasoning, taking in disparate
pieces of information and automatically making connections. In this area
in particular, you’ve probably got it or you don’t. This isn’t to say an
unintuitive person can’t work as a financial investigator, but he or she
might find the going tougher.
Types of Forensic Accounting
 Financial theft (customers, employees, or
outsiders)
 Securities fraud.
 Bankruptcy. ...
 Defaulting on debt.
 Economic damages (various types of lawsuits to
recover damages)
 M&A related lawsuits.
 Tax evasion or fraud.
 Corporate valuation disputes.
 
The Qualities of a Professional Forensic Team:
It is essential that a professional forensic team has:
• Knowledge of the elements of economic crime;
• The ability to collect evidence and to exercise proper control over large
volumes of documentary evidence;
• The appropriate skills and level of relevant experience;
• Investigation background;
• the ability to work in a team with instructing attorneys and police and have
the ability to co-ordinate, manage and administer the litigation support,
assemble the documents, and organize meetings;
• Knowledge of legal aspects such as the basic rules of evidence relating to
admissibility of evidence and the drawing of inferences;
• an understanding of what needs to be proved so that evidence documented in
his or her reports, letters and affidavits are compiled in a concise, logical and
persuasive manner;
• The ability to testify and stand up to cross-examination in a court of law
Where Forensic Accounting can be applied?
Forensic Accounting may be conducted into the following
: Fraud and white collar crime investigations; Forensic Accounting ICPAP
Page | 3

• Criminal and civil investigations;

• Preparation of expert reports, reviews and evidence;
• giving oral evidence in court;
• insolvency and liquidation support investigation;
• Fraud prevention and awareness strategies;
• Fraud and fund tracing;
• Civil and criminal actions regarding fraud and financial irregularities;
• Breach of contract;
• Breach of warranty, particularly on company acquisitions;
• Insurance claims;
• Liquidation support;
• Regulatory enquiries;
• Special and confidential investigations;
• Fraud and risk management surveys and reports.
A forensic accounting engagement and investigation is typically substantially longer than any other
investigation. Continuity of staff on the part of the client is therefore often difficult to maintain.
This makes it all the more essential that the forensic accountant conducts his work in a manner
which is concise, detailed documented
 Forensic Accounting as
Prevention
In developing an appropriate fraud response plan, it is essential that an
institution considers the following steps:
What are the organization’s major risk areas and what is its policy stance
on perpetrators of fraud?
What is the level of fraud awareness within an organisation?
Are controls effective?
Are customers or trading partners aware of the company's policy on
fraud?
Do employees understand the company's attitude to fraud and dishonesty?
Can employees report fraud confidentially?
Are recruitment practices compatible with an honest workforce?
Do disciplinary proceedings dispense justice even-handedly and more
importantly, are the seen to do so?
The Key areas of Forensic Accounting
 Fraud Investigation
 Resolving Commercial Disputes
 Family Law
 Insurance Claims
 Valuations
 Business Intelligence
 Data Recovery & Conversion
Financial Auditors, Fraud Auditors, and
Forensic Accountants
Forensic accountants are experienced, trained, and knowledgeable in all the
different processes of fraud investigation including: how to interview people
(especially the suspect) effectively, how to write effective reports for clients
and courts, how to provide expert testimony in court, and rules of evidence.
The ACFE refers to this definition of forensic accounting as fraud examination.
In recent years, the broadest of these terms in the antifraud profession is
forensic accounting, which typically refers to the incorporation of all the
terms involved with investigation, including fraud auditing; that is, fraud
auditing is a subset of forensic accounting.
Fraud investigation usually encompasses about the same thing as a
fraud audit except investigation typically involves a lot more nonfinancial
evidence, such as testimony from interviews, than a fraud audit. So
fraud investigation includes fraud audit but goes beyond it in gathering
nonfinancial forensic evidence.

Litigation support refers to a forensic accountant assisting attorneys

in prosecuting or defending a case in the legal system. That support
can take on a variety of skills but ultimately is intended to conclude
with the forensic accountant offering an opinion in a court of law as
an expert witness on whether a fraud occurred.

Analyst [CVA]) has to establish a value on the loss associated with

a fraudulent event, whether it is a spouse trying to hide assets in
a divorce case, or a customer claiming exorbitant losses in an
insurance claim, or a victim entity suffering from a bad
merger/acquisition that ended in a bankruptcy of the subsidiary.
 Financial Auditors

Financial auditing typically refers to the process of evaluating

compliance of financial information with regulatory standards,
usually for public companies, by an external, independent entity.

Financial auditors have expertise in their knowledge of accounting

and financial reporting (such as in generally accepted accounting
principles [GAAP],or International Financial Reporting Standards
[IFRS]), auditing (generally accepted audit standards [GAAS]), and
how those standards apply to business transactions. As expressed
in the GAAS literature, the most important financial auditing
attributes are independence, objectivity, and professional
skepticism.

financial auditors focus on misstatements that singularly or in the

aggregate are large enough to be material. Fraud auditors and
forensic accountants are not constrained by materiality.
Fraud Auditors
The skills fraud auditors require include all of those that are required of
financial auditors, plus the knowledge of how to gather evidence of and
document fraud losses for criminal, civil, contractual, and insurance
purposes; how to interview third-party witnesses; and how to testify as an
expert witness
Fraud auditors must know what a fraud is from a legal and audit
perspective, an environmental perspective, a perpetrator’s perspective, and
a cultural perspective
fraud auditing is the process of detecting, preventing, and correcting
fraudulent activities. While completely eliminating fraud is the goal, it is
simply not feasible
Accounting-type frauds are usually accompanied by the modification,
alteration, destruction, or counterfeiting of accounting evidence. But
accounting records can be either intentionally or accidentally modified,
altered, or destroyed, by human error or omission.
Fraud auditing is creating an environment that encourages the detection and
prevention of frauds in commercial transactions. In the broadest sense, it is an
awareness of many components of fraud, such as the human element, organizational
behavior, knowledge of fraud, evidence and standards of proof, an awareness of the
potentiality for fraud, and an appreciation of the red flags
Forensic Accountants
Forensic accountants may appear on the crime scene a little later than fraud auditors, but
their major contribution is in translating complex financial transactions and numerical
data into terms that ordinary laypersons can understand. That is necessary because if the
fraud comes to trial, the jury will be made up of ordinary laypersons. Areas of expertise
of forensic accountants are not only in accounting and auditing but in criminal
investigation, interviewing, report writing, and testifying as expert witnesses. They must
be excellent communicators and professional in demeanor
Differentiating Financial Auditors, Fraud Auditors, Forensic
Accountants
Financial auditors are those who perform financial auditing. Fraud auditors are part of
the forensic accountants—in broader manner—who have skills, abilities, and knowledge
related to the fraud cycle (experts at detecting and documenting frauds in books of
records of accounting and financial transactions and events). And, forensic accountants
are those who not only expert in accounting and auditing process but in criminal
investigation, interviewing, report writing, and testifying as expert witnesses
A. The distinction is related to one’s goals. Financial auditing attempts to enable the
auditor to render an opinion as to whether a set of statements upon which the opinion is
rendered are always the representations of management. The auditor is primarily
concerned with qualitative values (hence the concept of materiality comes into play) and
generally is not concerned about whether the financial statements communicate the
policies, intentions, or goals of management

B. Forensic accounting is a general term used to describe any financial investigation

that can result in a legal consequence. Fraud auditing is a specialized discipline within
forensic accounting, which investigates a particular criminal activity, namely fraud.
Investigative auditing involves reviewing financial documentation for a specific
purpose, which could relate to litigation support and insurance claims as well as
criminal matters.

C. The objective of financial auditing is to provide the auditor with a degree of

assurance in giving an opinion with respect to a company’s financial statements. The
materiality level of an investigative auditing engagement is much lower and more
focused than that of the normal financial auditing engagement
Fraud
Fraud as a crime Fraud is a generic term, and embraces all the multifarious means that
human ingenuity can devise, which are resorted to by one individual, to get an advantage
by false means or representations. No definite and invariable rule can be laid down as a
general proposition in defining fraud, as it includes surprise, trick, cunning, and unfair
ways by which another is cheated. The only boundaries defining it are those that limit
human knavery.
Corporate fraud Corporate fraud is any fraud perpetrated by, for, or against a business
corporation.
Management fraud Management fraud is the intentional misrepresentation of corporate
or unit performance levels perpetrated by employees serving in management roles who
seek to benefit from such frauds in terms of promotions, bonuses or other economic
incentives, and status symbols.

Fraud defined. "Fraud" means and includes any of the following acts committed

by a party to a contract, or with his connivance, or by his agents , with intent to
deceive another party thereto or his agent, or to induce him to enter into the
contract
Essential Elements of Fraud

The following are the top 10 essential elements of fraud.

1. False and Willful representation or Assertion: To constitute fraud there must be some representation
or assertion, which is untrue. In the absence of representation or assertion except in the following two
cases, there can be no fraud.

 Where silence may itself amount to fraud, and

 Where there is active concealment of facts

The person making the representation should not believe it to be true, otherwise he/she will not be
guilty of fraud. Moreover, to constitute fraud, the false representation must have been made willfully or
intentionally. For example, X, intending to deceive Y, informs him that his estate is free from
encumbrance. Y thereupon buys the estate. The estate is, however, subject to mortgage. The contract is
induced by fraud.

2. Perpetrator of Representation: The false representation or misstatement must have been made by a
party to the contract or by anyone with its connivance, or by its agent. If a stranger makes the
misstatement to the contract, it cannot result in fraud. For instance, A suggests B to buy C’s car, which
according to A runs 15 kmpl, Later on, B finds that the car runs only 8 kmpl. A was, however, acting
neither on instance of C nor was his agent; he was a stranger. The contract that took place between B
and C cannot be stated to be induced by fraud.

3. Intention to deceive: Intention to deceive the other party is the essence of fraud. In order to commit
a fraud, a person asserts or misstates the fact with the intention that it should be acted upon. As a
matter of fact, misrepresentation elevates to fraud when it is prefixed by the element of intent ion to
deceive the other party. For example, A, intending to deceive B, falsely represents that 1,000 tons of
sugar is produced annually at his factory, although A is fully aware that only 600 tons of sugar can be
produced annually. B ° thereby agrees to buy the factory. A has resorted to fraud to obtain the consent
of B.
4. Representation must relate to a fact: The representation made by the party must relate to a fact,
which is material to the formation of the contract. A mere statement of opinion, belief, or
commendation cannot be treated as fraud. For instance, A states that the detergent produced at his
factory washes whiter than whitest. The statement made by A is merely a commendation of the product
and not a fact. But if A describes the ingredients, which the detergent contains, it becomes a statement
of fact. And if that is found incorrect it amounts to fraud provided A does not believe it to be true.

5. Active concealment of facts: ‘Active concealment’ must be distinguished from ‘passive concealment’.
Passive concealment implies mere silence as to material facts, which barring a few cases, does not
amount to fraud. Whereas, active concealment results in when the party takes positive or deliberate
steps to prevent information from reaching the other party and this is treated as fraud. For example, A
sells a horse to B in an auction despite knowing that the horse is unsound. A says nothing to B about the
horse’s soundness. This is a case of passive concealment of fact and cannot tantamount to fraud.

6. Promise made without intention of performing it: If a person while entering into a contract has no
intention to perform his/her promise, there is a fraud on his/her part, for the intention to deceive the
other party is there from the very beginning. For example, an English merchant appointed an Indian
woman as his personal secretary and promised that he would marry her. Later she came to know that
he was already married and had made the promise without any intention to perform it. It was held that
she could avoid the contract on the ground of fraud.

On similar count, a purchase of goods without any intention of paying the price is a fraud and the
contract can be avoided on this ground.

7. Representation must have actually deceived the other party: The representation made with the
intention to deceive must actually deceive. The party, induced by fraudulent statement, must have
relied on it to accord its consent. .

According to Explanation appended to Section 19 of the Contract Act,

‘A fraud which did not cause the consent to a contract of the party on whom such fraud was practiced
does not render a contract voidable.’

Thus, an attempt to deceive does not amount to fraud until the other party is deceived thereby. A case
in point is the following example. A had a defective cannon. With a view to conceal the defect, he put a
metal plug on it. B without examining it bought it. The cannon burst when used by B. B refused to pay
the price and accused A of fraud. It was held that B was bound to pay because he was not actually
deceived, as he would have bought the cannon even if the deceptive plug had not been inserted.
8. Any other act fitted to deceive: The expression ‘any other act fitted to deceive’ obviously means any
act, which is done with the intention of committi ng fraud. This category includes all tricks, dissembling,
and other unfair ways, which are used by cunning and clever people to cheat others. For example, a
husband persuaded his illiterate wife to sign certain documents telling her that by the papers he w as
going to mortgage her two plots of land to secure his indebtedness. But, in fact, he mortgaged four plots
of land belonging to her. This was held as an act done with the intention of deceiving the wife.

9. Any such Act or omission that the law specially declares as void: This category includes the act0 or
omission that the law specially declares to be fraudulent. For example, the Insolvency Act and the
Companies Act declare certain kinds of transfers to be fraudulent. Similarly, under the Transfer of
Property Act, the transferor of real estate is bound to disclose to the transferee the following details:

 Material defects, if any, in the property such as, cracks in the wall or in beams, and/or

 Any defect or dispute as regards transferor’s title, such as property is subject to encumbrance,
i.e., mortgaged or is subject to some dispute pending in a court of law. An omission to make
such disclosure on the part of transferor amounts to fraud.

10. Party mislead must have suffered some loss: The party deceived must have suffered some loss
because as a general rule there can be no fraud without damage and there can be no damages without
an injury. The damage or injury may be some loss in terms of money or money’s worth or some other
detriment, which can be assessed with ease.
• Specific Frauds and Categories:
•  Accounts payable fabrication
•  Accounts receivable lapping
• False and misleading statement
•  Arson for profit •  False claim
•  Bank fraud •  False collateral
•  Bankruptcy fraud •  False count
•  Benefit claims fraud •  False data
•  Bid rigging •  False identity
•  Breach of fiduciary duty •  False information
•  Breach of trust • False ownership
•  Business opportunity fraud •  False pretenses
•  Bust out •  False report
• •  False representation
 Cash lapping
•  False suggestion
•  Check forgery
•  False valuation
•  Check kiting
•  False weights and measures
•  Check raising •  Fictitious customer
•  Collateral forgery •  Fictitious employees
•  Commercial bribery •  Fictitious person
•  Computer fraud •  Fictitious vendors
•  Concealment •  Financial fraud
•  Consumer fraud •  Financial misrepresentation
•  Conversion •  Forged documents
•  Corporate fraud •  Forged signatures
•  Corruption •  Forgery
• •  Franchising fraud
 Counterfeiting
•  Fraud in execution
•  Credit card fraud
•  Fraud in inducement
•  Defalcation
•  Fraudulent concealment
•  Distortion of fact
•  Fraudulent financial statement
•  Double dealing •  Fraudulent representation
•  Duplicity •  Industrial espionage
•  Electronic funds transfer fraud •  Infringement of copyrights
•  Embezzlement •  Infringement of patents
•  Expense account fraud •  Infringement of trademarks
•  False advertising
The vendor payables cycle touches on bookkeeping and financial reporting.
When a company receives goods and promises to pay at a later date,
a bookkeeper credits the vendor payables account and debits the
merchandise account. The last account is part of a corporate balance sheet,
similar to accounts payables.

A lapping scheme is a fraudulent practice that involves altering accounts

receivables to hide a stolen receivables payment. The method involves
taking a subsequent receivables payment and using that to cover the cover
the theft. The next receivable is then applied to the previous
unpaid receivable, and so on.

Arson for profit is insurance fraud, a criminal meth- od of obtaining

money from afire loss policy. The losses for arson are
staggering! Arson fires do not always do what they are told, es- pecially
when set by amateurs.
Bid rigging is an illegal practice in which competing parties collude to
choose the winner of a bidding process while others submit
uncompetitive bids. Bid rigging stifles free-market competition, as
the rigged price will be higher that what might have resulted from a
competitive bidding process.

Definition of benefit fraud. The Department for Work and Pensions (DWP)
define benefit fraud as when someone obtains state benefit they are not
entitled to or deliberately fails to report a change in their personal
circumstances. The DWP claim that fraudulent benefit claims amounted to
around £900 million in 2008–09.

reach of Fiduciary Duty Law and Legal Definition. A fiduciary duty is an

obligation to act in the best interest of another party. ... A person acting in a
fiduciary capacity is held to a high standard of honesty and full disclosure in
regard to the client and must not obtain a personal benefit at the expense of
the client ...
Breach of trust is a type of civil wrong. Breach of trust or Breach of
Trust may also refer to: criminal offences relating to breach of trust by a public
official (s. 122) or a trustee (s. 336) under the Criminal Code (Canada)

Business opportunity fraud involves “selling consumers bogus

promises of jobs, government grant, or some other money-
making opportunities.”

A "bust out" is a fraud tactic, commonly used in the organized crime world, wherein a
business' assets and lines of credit are exploited and exhausted to the point of
bankruptcy. Richie and Tony profit from busting out Davey Scatino's sporting goods
store in this episode

A lapping scheme is a fraudulent practice that involves altering accounts

receivables to hide a stolen receivables payment. ... The next receivable is then
applied to the previous unpaid receivable, and so on.Jan 19, 2018

The term "forged check" is often used to describe a check on which the
drawer's signature is forged or unauthorized. Such a check is meaningless as
far as the drawer whose signature is forged is concerned. The drawee bank
that pays aforged check is generally held responsible for the resulting
loss.Apr 25, 2018
check kiting or cheque kiting is a form of check fraud, involving taking
advantage of the float to make use of non-existent funds in a checking or
other bank account. In this way, instead of being used as a negotiable
instrument, checks are misused as a form of unauthorized credit.

A check-raise in poker is a common deceptive play in which a

player checks early in a betting round, hoping someone else will open. The
player who checked then raises in the same round.
 Fraud Detection
FRAUD DETECTION
AXIOMS
There are several axioms concerning fraud detection that are
important to remember when designing an antifraud program or
activities. A key to fraud detection is to remember that frauds are
more often associated with the absence of controls rather than weak
controls; that is, a weak control is generally better than none. They
are also more often detected by reactive measures rather than
proactive ones; thus there is a lot of room for improvement. There is
an overreliance on external audit to detect fraud. Lastly, frauds are
often detected by intuition, suspicion of investigators, managers,
auditors, or an exception (anomaly) detected in the accounting
records. However, frauds are most often detected by proven
detection methods.
COMMON DETECTION METHODS

Periodically, the Association of Certified Fraud Examiners (ACFE)

conducts a study on frauds resolved in the previous 12 to 18months and
reports the statistics to the public in the form of a report entitled Report to
the Nation (RTTN). The ACFE has issued a RTTN in 1996, 2002, 2004,
2006, and 2008

the most common detection method has been tips. In some years,
tips accounted for about twice as much in percentage of detection
as whatever method ranked second.

In all years, the least effective detection method, other than law
enforcement, is external audit.

the 2008 RTTN shows external audit as the most popular control
employed by the victim entities (almost 70 percent of the entities were
using external audit, 61.5 percent a code of conduct, 55.8 percent
internal audit).
 Effective General Methods

The ACFE’s RTTN classifies fraud controls by efficiency to detect or

prevent fraud. Specifically, the 2008 RTTN asked respondents to identify
which fraud countermeasures were in place when the fraud being reported
was discovered, as well as the amount of the loss. Then a simple ratio
depicting fraud loss reduction was calculated on each countermeasure,
antifraud control, based on whether that control was in place (‘‘yes’’) or
not (‘‘no’’), and the average loss for each of the two groups

It depicts the analysis of the controls along with the ratio, which shows
surprise audits as the most effective antifraud control, if measured in its ability
to reduce the amount of losses incurred. It is followed by job rotation/
mandatory vacation, anonymous hotlines (tips and complaints), employee
support programs, fraud training for managers and executives, internal audit or
fraud examination department, and fraud training for employees. Each of these
controls reduced losses by at least 50 percent. Many of these methods would
be considered detective controls, and would be useful in deploying antifraud
controls that can provide early detection.
 Other General Methods

Methods can be developed for frauds in general, or specific groups of frauds (e.g., a
category), or even individual schemes. Some methods that could be used for general
detection, regardless of the scheme, are:
 Internal audit function actively engaged in proactive antifraud activities
 banesSar-Oxley Act (SOX) section 404 results can lead to identification of
weaknesses in internal controls that can cause a higher risk for fraud in that area or
business process
 Horizontal and vertical analysis of financial reports, especially when comparisons
are made between business units and their data
 Ratio analysis, especially trends over several years, and by business unit compared
to other units and the entity as a whole
 Surprise audits and/or cash counts
 Anonymous tips and complaints system to which employees, vendors, and
customers have access; comfortable, convenient, easy to use
 Data mining for applicable red flags using Computer-Assisted Auditing
 SPECIFIC DETECTION METHODS

Financial Statement Schemes

 Financial auditors’ application of SAS No. 99
 Horizontal and vertical analysis of financial
reports
 Ratio analysis, especially trends over several
years
Beneish’s five earnings manipulation ratios
 Examination of generally accepted accounting
principles (GAAP) tax rate versus cash tax rate
 Irrational price-to-earnings ratios: benchmark is
20 to 25, S&P average is about 36
 An audit committee that meets SOX
requirements and is actively engaged in an antifraud
program, especially in holding executives accountable
 Running background checks on executives
 External auditors maintaining a professional
skepticism
AS 99 requires auditors to look for fraud throughout the
entire audit process. The standard defines fraud as an intentional act
resulting in a material misstatement in the financial statements. ... The
appendix to SAS 99 provides examples of each of the three conditions.

SAB 99” refers to the U.S. Securities and Exchange Commission

Staff Accounting Bulletin No. 99, “Materiality.” In SAB 99, the staff of
the SEC provides guidance on legal and accounting considerations in
the interpretation of materiality with respect to financial statement
items
Asset Misappropriation Schemes
 Sending the bank statements to a person in
the entity separate from accounts payable and any
check-writing personnel, and having that person
review the statement and cancelled checks, then
forward them to the person responsible for the
bank reconciliation
 Rotating duties or mandating vacation for
key employees
 Examining all types of transactions that have
a review/approval level, extracting all
transactions just below that level, and classifying
them by employee, vendor, and customer
 Reconciling inventory and confirming
receivables regularly
Cash Larceny (theft)
 Investigating shortages in cash drawers, deposits, registers
 Investigating missing or altered sales records
 Having two people independently verify deposits on bank
statements to postings in the general ledger
 Maintaining and reviewing daily cash availability amounts
Having deposits delivered to the bank under dual control
 Secretly determining the deposit prior to its transmittal to
the bank and then independently confirming with the bank the
amount of the deposit
 Making sure deposits in transit are the first to clear on the
next statement (flag associated with lapping deposits)
 Conducting surprise cash counts
 Reviewing cash and check ratio of daily bank deposits (for
those who steal only cash)
 Reviewing timeliness of deposits from remote locations to
central treasurer function
 Observing cash receipting at all points of entry
Billing Schemes
 Shell Company
 Sorting payments by vendor, amount, and invoice number
 Expense exceeds budget, especially if it is exactly double (i.e., possibly producing two checks,
one for the legitimate vendor, and one for the fraudster)
 Examining charges in largest expense account, as fraudsters often charge billing schemes to the
largest account in an attempt to hide the crime
 Horizontal analysis
 Verifying service-only vendors’ invoices
 Using a CAAT software tool to cross-reference employees’ addresses with vendors’ addresses
 Testing for turnaround time from receipt of invoice to payment
 Verifying that vendors are legitimate. While this test may appear daunting, it can become
manageable by verifying only the vendors added since last audit and only ones specific to the
applicable business unit. Look them up in the phone book or in the online white pages. Use Google
to search for the firm. Check with the local chamber of commerce. Contact others in the same
industry.
 Reviewing cancelled checks
 Not paying a suspicious invoice/vendor and seeing who follows up on payment
 Taking special precaution with those employees who can add a vendor to the authorized list
(segregate that duty if possible from invoice approval)
 Data mining for as many of the red flags as possible Verifying the legitimacy of any vendor who
uses Excel-generated invoices
 Printing the vendor list alphabetically and searching for two vendors with nearly identical
names and data
Pass-Through Vendor
 Examining all invoices just below the approval level, sorted by vendor or employee who
approved the invoice
 Comparing market prices for prices on invoices, using a CAAT and some rehear

 Reviewing invoices for what is being bought and the prices

No accomplice Vendor
 Sorting invoices by vendor and looking for unusual invoice numbers
 Classifying vendor by invoice amounts and looking for unusual amounts
 Verifying invoices that led to vendor refunds
 Requesting that the bank notify the proper person if someone endorses a check where the
company is the payee, and use the stamp ‘‘For Deposit
 Only’’ for all endorsements
Personal Purchases
 Spot-checking expenditures on credit cards, looking for unusual vendors or items bought
 Surprise audits of employees who are authorized to use credit cards or sign checks
 Examining unfavorable balances on performance reports
 Vendor payment trend analysis
 Extracting all purchases with no purchase order, summarized by both vendor and employee
 Extracting all purchases just below the review/approval limit, summarized by both vendor and employee

Payroll Schemes
 Ghost Employee
 Where feasible, reconciling employees in the payroll database with
 employees in the human resource (HR) database; the ghost should be
 missing in HR
 Getting a copy of the Social Security number (SSN) file and, at least once a
 year, reconciling that file with your employees’ SSNs
 Periodically and unannounced, distributing checks manually, requiring ID
 to pick up check
 Investigating any payroll checks with dual endorsements (a sign that an
 employee accomplice is working with a real person who is serving as the ghost)
 Rotating duties of handling printed paychecks, or requiring vacation timed with issuance of paychecks (pay
day)
 Data mining payroll data looking for these red flags:
 Post office box versus a physical address
 Physical address matches that of another employee (i.e., a ‘‘duplicate’’)
 Direct deposit account number that matches that of another employee
 Missing phone number, or a phone number that matches either another employee or a work phone
 Dates of paychecks compared to termination dates (employees being paid after terminated, and used as a ghost
by an existing employee)
Commissions
 Randomly spot checking all of the transactions involved in sales commissions for a
pay period or a salesperson
 Investigating higher rates of returns or credits for a salesperson
 Creating and reviewing a linear correlation between sales and commission paid, by
employee
 Tracking uncollected sales by employee
 Creating exception reports for employees whose compensation has increased over
last year by some unusual percentage
 Having a designated and independent official verify all changes in commission rates

Falsified Wages
 Data mining all transactions over a certain number of overtime hours (e.g., more
than 20 hours per week)
 Creating exception reports for employees whose compensation has increased over
last year by some unusual percentage
 Randomly verifying the pay rates in a pay period or for an employee over pay
periods
 Having a designated and independent official verify all changes in pay rates
 Maintaining careful custody of time cards—after approval, process them
immediately
Check-Tampering
 Periodically rotating personnel who handle and code checks
 Requiring dual signatures for checks over a designated threshold
 Using a positive pay system at the entity’s bank
 Having the bank statement sent unopened to someone in management completely separate from accounts payable—
in the case of smaller companies, perhaps the owner/manager. Review the statement and cancelled checks, even if it is
online, before passing the statement on to the person who will do the bank reconciliation.

Skimming
Skimming frauds happen before a booking entry is made. Because it is an off the- books fraud, this type of fraud is one
of the most difficult to detect. One methodology to detect skimming is to perform invigilation. Individual skimming
schemes are related to sales (unrecorded sales, understated sales), receivables (write-off schemes, lapping schemes,
unconcealed schemes), and refunds. Suggested methods to use for this type of scheme are:
 Surveillance of employees at point of sale (e.g., cameras above registers and meal tables)
 Discovery of ‘‘markers’’ near registers (fraudsters use markers to keep up
 with the amounts skimmed; for example, a penny for $100, a nickel for $500)
 Investigating gaps in pre numbered receipts
 Checking registers for excessive no-sale transactions, voids, or refunds
 Posting a sign at the register or in plain view of customers: ‘‘If you did not receive a receipt, please contact the
manager and your meal will be free.’’ Using a trained secret shopper to look for signs of fraud
 Using an invigilation for an approximation of missing monies, or to determine if skimming is occurring
 Measuring variances in revenues by employee and by shift Creating a pro forma income statement, using cost of
goods sold an standard markups to ascertain the level of sales that should exist, then comparing it to actual for an
approximation of missing monies
Corruption Schemes
 Classifying transactions by vendor and examining unusual, unexplained
 higher-than-expected volume
 Random investigation of all vendors, including owners, major shareholders,
 and any relationship with employees
 Reviewing contracts and approval of invoices periodically, even if only a
 sample during each audit
 Verifying the authenticity of vendors as part of internal audits, even if it is only a sample
 Looking for related-party transactions where the relationship has been hidden
 Reviewing approvals for transactions with related parties annual

Bribery and Economic Extortion

 Rotating duties of approving contracts and/or vendors, and bid responsibilities
 Segregating duties of approving vendors and awarding contracts or approving
invoices
Financial Statements Analysis
What Is Financial Statement Analysis?
Financial statement analysis compares ratios and trends calculated from data found on financial
statements. Financial ratios allow you to compare your business' performance to industry
averages or to specific competitors. These comparisons help identify financial strengths and
weaknesses.

Financial Ratios
Financial ratios fall into four categories of financial measurements: "profitability, asset
utilization, liquidity, and debt utilization," says Stanley Block and Geoffrey Hart in "Foundations
of Financial Management."
Profitability Ratios
Profitability ratios measure profit realized from different financial sources. They are the profit
margin, return on assets and return on equity. To calculate any of these ratios, divide net income
by sales, total assets or stockholders' equity, respectively

Asset Utilization Ratios

Asset utilization ratios determine how efficiently a company's assets are managed. These ratios
are receivables turnover, average collection period, inventory turnover, fixed asset turnover and
total asset turnover. Except for the average collection period, all of the above ratios are
calculated by dividing sales by the asset category named in the ratio title.
Liquidity Ratios
Liquidity ratios measure what amount of assets can be immediately converted to cash. These
ratios are often used along with cash flow statements to determine a company's ability to pay its
creditors. Liquidity ratios are the current and the quick ratio -- current assets and quick assets
divided by current liabilities.
Debt Utilization Ratios
Like asset utilization ratios, debt-utilization ratios measure how efficiently a company uses its debt.
These ratios are debt to total assets, times interest earned and fixed charge coverage. Debt to total
assets is calculated as it is stated, while the others are a little different -- income before interest and
taxes divided by interest and income before fixed charges and taxes divided by fixed charges.
Trend Analysis
Trend analysis lets you compare companies' performances over specific periods of time. For
example, over five years, managers can compare how their profit margin has improved or
worsened. Complete analysis must also include industry standard

Financial Statement Analysis Limitations

Financial analysis is an important part of small business management. Business owners often
review financial information to ensure their business is generating enough capital to pay for
expenses and provide the owner with a profit. While many different types of financial
analysis exist in the business environment, financial statement analysis is a common
management tool. Financial statement analysis usually involves a personal review by the
business owner.
Facts
Financial statement analysis usually includes quantitative and qualitative reviews by business owners.
A quantitative review includes the use of various financial ratios. These ratios measure the company
ability to meet short-term financial obligations, profitability of goods or services sold to consumers, use
of financial assets to generate income and other information. The qualitative review uses personal
judgment or inferences when making decisions based on the information.
Financial Ratio Limitations
Financial ratios provide a limited analysis of the company financial statements. These ratios calculate
numerical indicators or percentage values based on the financial information contained in the
statements. However, these indicators mean very little if not compared to a competing business or an
industry standard. Small business owners may find it difficult to compare their information to another
company with similar business operations or financial obligations.
Qualitative Review Limitations
Business owners using qualitative analysis on financial statements may be limiting their reviews to the
final output of financial information. While financial statements usually indicate how much profit the
company has generated during a certain accounting period, financial statements typically do not
provide enough information about the efficiency of business operations. Small businesses often can
turn a profit even though too much money was spent on generating this income.
Introduction to Financial Statement Analysis
Financial statement analysis is a common technique that allows small business owners to review their
company operational performance. Small business owners will need to create financial statements from their
company business transactions before conducting a financial statement analysis. Financial statements
represent an aggregate total of the company’s business information during a certain time period.
Types
Business owners can use two types of financial statement analysis: quantitative and qualitative. Quantitative
analysis uses formulas or ratios to break down the company's financial statements into indicators.
These indicators provide business owners with benchmarks to compare the company's information
against the industry standard. Qualitative analysis involves business owners using personal judgment or
inferences when reviewing financial statement information. Business owners use quantitative or qualitative
analysis to make decisions regarding business operations.
Quantitative Analysis Features
Quantitative analysis features different financial ratios for analyzing financial statement information. Ratios
include liquidity, asset turnover, financial leverage and profitability. Liquidity ratios indicate how well the
business can meet short-term financial obligations. Asset turnover ratios provide information on the
company's ability to use assets when generating sales. Financial leverage ratios determine the long-
term solvency of the business. Profitability ratios help business owners calculate the amount of profit from
consumer goods or services. Forensic Accounting ICPAP
Page | 41

Qualitative Analysis Features

Businesses conduct qualitative analysis by comparing several financial statements at one time. This financial
statement review process commonly is called a horizontal or trend analysis. Business owners can prepare a
single document containing the current month's financial statement and that of several previous
months. Reviewing individual accounts or line items can help business owners discover trends in company
operations relating to sales, cost
Considerations
A computerized accounting system is useful in conducting financial statement analysis, and several
inexpensive accounting software programs exist. Users can customize accounting software for
capturing a company's business information according to pre-programmed directives. A
computerized system also can limit calculation errors made by business owners when reviewing
financial statement information.
Misconceptions
Financial statement analysis is not always the best management tool for measuring a company’s
performance. Although financial statement analysis may indicate positive performance indicators, other
issues may exist in the company. Business owners also should review production output, employee
productivity and other internal business functions to avoid a myopic business decision-making process.
Financial Statement Analysis for Managers
There isn't just one best method for evaluating business performance. Every business may differ slightly in operation,
environment and methodology, which leaves many trial and error opportunities. Financial statement analysis provides a
primary foundation for evaluating business performance and adapts to every business. All owners and managers should be
skilled in analyzing financial statements to understand the impact business decisions will have on the organization.
Cost-Volume-Profit
Cost-volume-profit analysis provides owners and managers with an understanding of the relationship between fixed and
variable costs, volume of products manufactured or sold and the profit resulting from sales. The financial relationship
includes contribution margin analysis, break-even analysis and operational leverage. Financial statements provide the data to
perform cost-volume-profit analysis.
Contribution Margin
Contribution margin analysis allows managers to look at the percentage of each sales dollar remaining after payment of
variable costs, including cost of goods, commissions and delivery charges. Managers and owners use this analysis to help
determine the pricing, mix,

introduction and removal of products. Contribution margin analysis also aids managers with determining how much
incentive to use for sales commissions and bonuses. Comparing each product offered affords the opportunity to look at
product profitability and product mix.
Break-even
Break-even analysis considers the sales volume at which fixed and variable costs are even. Owners and managers must
consider two primary figures when calculating the break-even. First, gross profit margin, which is the percentage of sales
remaining after payment of variable costs.
Operational Leverage
Every business model contains slightly different operating leverage, which compares the amount of fixed costs to sales.
Businesses with higher fixed costs will experience a larger multiplier in their operating leverage, indicating less sales growth
results in more profit. However, the same is true for losses, where small reductions in sales exponentially increase net losses.
Less operating leverage results in less growth of net income.
Financial Ratios
A financial ratio expresses a mathematical relationship between two or more sets of financial statement data and commonly
exhibits the relationship as a percentage. Profitability, solvency, leverage, asset turnover and liquidity comprise the five
standard ratio categories. Managers and owners should review the ratios period over period, determining where unfavorable
Financial Statement Analysis Tools
Financial statements are usually the final output of a company accounting operations. These statements contain information relating to the
revenues, expenses, assets, liabilities and retained earnings of the business. Business owners often pay close attention to this information since
the statements can provide detailed information about the company operational performance. Many business owners and managers use specific
analysis tools to closely review their company financial statements for decision-making purposes.
Financial Ratios
A traditional financial statement analysis tool is financial ratios. These ratios take information from the company financial statements and
calculate economic indicators for comparison to another company or the industry standard. Financial ratios include liquidity, asset turnover,
financial leverage and profitability calculations. Liquidity ratios calculate the company ability to meet short-term financial obligations. Asset
turnover ratios indicate how well the company uses its assets to generate profits. Financial leverage ratios calculate the long-term solvency

of a company. Profitability ratios help companies determine how much profit they are generating from the sale of various goods or services.
Horizontal Analysis
A horizontal financial statement analysis compares current financial statements to previous year financial information. Companies often conduct
this analysis by putting several years of financial statements in a side-by-side comparison format. This enables business owners and managers to
review the same month over several years to determinate if revenues, expenses, assets or liabilities have increased, decreased or stayed the same.
Companies can also use a horizontal analysis to compare changes in dollar amounts or a percentage change when comparing financial
statements.
Vertical Analysis
A vertical financial statement analysis is conducted using common size financial statements. A common size financial statement shows each
item on a financial statement in a percentage figure for each statement line item. A vertical analysis gives managers a different option for
reviewing financial information; managers may be more comfortable looking at percentages rather than dollar amounts. The percentage figure
represents how individual line-item amounts compare to the aggregate total of the financial statements. For example: business owners or
managers may wish to know what percentage office supplies were out of the total expenses reported on May income statement. A common size
statement would divide May total office supplies expense by the total expenses listed on May income statement. This percentage is then listed
where the office supplies expense amount would be on the financial statement.
Trend Percentage Analysis
A trend percentage analysis is an enhanced horizontal analysis technique. Trend percentage analyses help companies identify consistent
revenues or expenses from past accounting periods. These trends can help managers make business decisions regarding future operations.
Companies will use a specific financial statement as a base year for comparing all future financial statements. Changes for each future time
period are expressed as a percentage when compared to the base financial statement. Companies can conduct a trend percentage analysis at
various times of the year or use different financial statements as the base during this comparison process.
Advantages of a Financial Statement Analysis
To meet their financial reporting obligations and to assist in strategic decision-making, firms prepare financial
statements. However, “the information provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone.” Firms employ financial analysts to read, compare and interpret
the data as necessary for quantitative analysis and decision-making .
Definition
Properly comparing a balance sheet with the corresponding profit and loss account to determine the strengths and weaknesses of a business describes
financial statement analysis. “In a technical sense, financial statements summarize the accounting process and provide a tabulation of account titles and
amounts of money,” reports Reference for Business. Financial statements help communicate what financial decisions have been made and how they affect
the bottom line.
Significance
Financial analysis determines a company's health and stability. The data gives you an intuitive understanding of how the company conducts business.
Stockholders can find out how management employs resources and whether they use them properly. Governments and regulatory authorities use financial
statements to determine the legality of a company's fiscal decisions and whether the firm is following correct accounting procedures. Finally, government
agencies, such as the Internal Revenue Service, use financial statement analysis to decide the correct taxation for the company.
Liquidity
The balance sheet provides liquidity rations that show how much monetary worth the company has on a given day, which helps determine if the firm’s
financial reliability. The current ratio shows “the 'working capital' relationship of current assets available to meet the company's current obligations,”
reports Credit Guru. The quick ratio is similar, calculating those assets easily convertible into cash, determining the immediate working capital relationship.
The debt to equity ratio establishes who owns more of the company, creditors or shareholders.
Efficiency
Efficiency ratios measure how efficiently the company turns inventory into revenue. The day sales outstanding ratio focuses on the time required to turn
inventory into cash and the age of your accounts receivable. The inventory turnover ratio “indicated the rapidity with which the company is able to move its
merchandise,” reports Credit Guru. Accounts payable to sales shows the percentage of sales funded with supplier's money.
Profitability
Profitability ratios reveal a firm's success at generating profits. “The profit margin of a company determines its ability to withstand competition and adverse
conditions,” reports Credit Guru. Return on assets, reveals the profits earned for each dollar of assets and measures the company's efficiency at creating
profit returns on assets. Net worth focuses on financial returns generated by the owner's invested capital. Forensic Accounting ICPAP
Page | 45

Limits
It is important to know that financial statement analysis has limits; simply manipulating numbers hides the actual state of the company. Different accounting
methods will look different on paper, and the method a particular firm uses can change the visible health and profit levels for either better or worse.
Quantitative financial analysis is an art, and different analysts may get slightly different results from the same information, or may return different data
about the same business.
Evidence Created By Forensic
Accountant
 A Forensic Accountant is often retained to
analyze, interpret, summarize and present
complex financial and business related issues
in a manner which is both understandable and
properly supported

When engaging forensic accountants, it is important to consider three qualifications

The first is forensic accounting experience.
.The second qualification is industry experience.

The third qualification is the breadth of services offered by

the accounting firm and its global reach

A Forensic Accountant is often involved in the following:

 Investigating and analyzing financial evidence;
 Developing computerized applications to assist in the analysis and presentation of financial
evidence;
 Communicating their findings in the form of reports, exhibits and collections of documents; and
 Assisting in legal proceedings, including testifying in court as an expert witness and preparing
visual aids to support trial evidence.
Digital Evidence Importance:

In December 2006, strict new rules were enacted within the Federal Rules of Civil
Procedure requiring the preservation and disclosure of electronically stored
evidence. However, a more comprehensive foundation is required. The American
Law Reports lists a number of ways to establish the comprehensive foundation and
suggests the proponent demonstrate:

 The reliability of the computer equipment

 The manner in which the basic data was initially entered
 The measures taken to insure the accuracy of the data as entered
 The method of storing the data and the precautions taken to prevent its loss
 The reliability of the computer programs used to process the data
 The measures taken to verify the accuracy of the program
 Evidence in Forensic Accounting
Forensic accounting is the science of finding evidence using investigative and
accounting practices together. The goal in all forensic accounting cases is the
evidence,
Methods
 Forensic accountants have several methods they use to find evidence. What these
professionals do is find statistical correlation between numerical data found in paper
and electronic documents. One technique that has been used, and proven successful in
the past is Link Discovery (LD). This is when the forensic accountant use statistical and
practical tasks to develop deterministic graphical evidence. Using Bayesian
probabilistic and other techniques, investigators are able to find hidden links amongst
documents to put together to form evidence. A new approach has been raved about is
the Hybrid Evidence Correlation (HEC). Still relatively new, this technique uses first-
order logic with probabilistic semantic inference to find suspicious patterns that aren't
easily noticed.

Benefits
 The evidence forensic accountants find are beneficial in criminal and civil courts.
Evidence can either prove or disprove the presence of wrongdoing. After combing through
thousands of transactions and finding patterns or links, forensic accounts put their finding in
reports and charts. These reports and charts accompany the correlated documentation to
create evidence that would be allowed in court. This evidence can be used to solve
shareholder disputes, find employee fraud, assist in matrimonial disputes, determine
damages and losses in insurance claims and help litigation in obtaining a conviction
 Process

The first thing that they must do is to meet with the client.

 After the meeting, the forensic accountant starts to collect records--credit

card statements, journals, bank statements, databases, emails, memos and
ledgers are all types of records that are considered as records.
 Not only do they go over the records with the intent on discovering
fraud, but they also conduct interviews just like any other type of
investigator. They thoroughly go over the information they have
(interview taps and records) to find holes in it.
 decipher patterns and find hidden links between the documentation and
interviews.

 presented with a report that verifies whether

fraud was committed or not.
 Warning
 The evidence that is collected by forensic accountants is valued and fragile
information. The reality is that the evidence is only as valid as the investigator that
collected it. Because of this, forensic accountants must adhere to the same laws as
police detectives during an investigation. The information is sensitive and the
reputations of everyone involved are at jeopardy. The forensic accountant must
protect the rights of everyone by being discreet during and after the investigation. If
the evidence was collected illegally, or individuals feel as if their rights were violated,
the forensic accountant will have to face the repercussions and the evidence will be
discredited, thus making it useless in court.
 DOCUMENT COLLECTION
it means that all evidence submitted to prove a claim must be the original.
1 Where the original is not available, the offering party must generally offer both evidence to
show why it is unavailable and proof that the offered copy is accurate.2 There are some
exceptions to this rule; however, it is wise to view it as being inflexible.
Sources of Documents
First, you will obtain documents from the victims of the financial crime.
Next, you will seek to obtain records and documentary evidence from third parties.
Finally, you will probably attempt to collect evidence from the suspect herself.
Documents from the Victim As soon as you receive the complaint or allegation, you
should begin collecting documentary evidence. When you meet with the complainant,
she will probably have some documentation available to substantiate her claim. If she
does, collect it.
If you allow the victim to hold on to the evidence and she misplaces, or worse,
destroys it, the basis for your case may be gone.
Finally, even if the complaining witness is not involved, the suspect may have
accomplices in the company who have access to the documents. If so, removal, alteration
or destruction is a real danger
Assure the victim that your evidence handling procedures are as secure as or better than
his own; then make the appropriate copies for his files and issue him itemized receipts
for everything you take.
 TYPES OF DOCUMENTS TO EXPECT
Signed statements.

Transactional paperwork
Intranet sources. In today’s business world, more and more companies are establishing
intranets that connect all employees and departments together .
unofficial communications channel in a firm.
gossip might prove to be a valuable place to begin looking for other clues.
E-mails.
suspect’s contacts can be broken down into five basic categories. First, the business or
suspect will undoubtedly have contacts in the financial sector. These contacts can
include banks, brokerage houses, and insurance professionals. Second, the suspect may
have contacts within the professional community including lawyers and accountants.
Third, the suspect will have industry contacts such as business organizations,
associations, and networking groups. Fourth, there will be contact between the suspect
and the government, and finally, every suspect will have personal contacts, which,
while not necessarily integral to the suspect’s illegal activities, may still be a valuable
source of information.
Pay particular attention to chat facilities, weblogs, and other semipublic areas where
suspects and witnesses may both lurk.