1. The Accountants Role in Fraud/Forensic Investigations Presented By: Friedman LLP – Accountants and Advisors Harris Devor, CPA, Partner John J. O’Donnell, CPA/CFF, CFE, CVA, Partner Roman Maslennikov, CPA, Manager

2. The Public’s Perception of a Forensic Accountant

3. Forensic Accountants – Who We Think We Are

4. Serves as the financial eyes and ears for counsel.
Overview
Why is forensic accounting important for Fraud / Forensic Investigations?
The forensic accountant brings financial and accounting expertise to a potential criminal matter or civil legal dispute.
Serves as the financial eyes and ears for counsel.
The forensic accountant’s primary role may include assessing financial information, quantifying the extent of losses, determining fraud methods used and identifying internal control weaknesses that may have allowed the loss.
Provides expert witness testimony as necessary.

5. What is Forensic Accounting?
Involves the application of accounting concepts and techniques in a focused manner to address financial issues pertinent to investigations and legal disputes.
Sometimes referred to as investigative accounting.
Forensic accounting is unlike audit or tax services which are normally provided by accountants and CPAs.

6. What does it take to become a forensic accountant?
Training and testing
Education (Post CPA)
Relevant experience with the matter at hand.
Prior testifying experience
Experience
CPA – Certified Public Accountant (AICPA)
CFF – Certified in Financial Forensics (AICPA)
CFE - Certified Fraud Examiner (ACFE)
Cr.FA – Certified Forensic Accountant (ABFA)
MAFF – Master Analyst in Financial Forensics (NACVA)
Accreditations

7. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement investigations
Civil litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

8. Public Misconceptions
Audits and Investigations are the same
These terms can be used interchangeably
An audit will uncover any and all frauds that were perpetrated

9. Three Major Categories:
What is Fraud?
Any act committed to intentionally deceive for the purpose of securing an unfair or unlawful gain.
Three Major Categories:
False Financial Reporting
Corruption
Misappropriation of Assets

10. Fraud Triangle What is Fraud? Motive or Pressure Opportunity
Rationalization

11. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

12. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

13. Ponzi Schemes Similarities Opportunity to beat the market
More than you want to realize
Opportunity to beat the market
Long time guaranteed results
Secretive Investment Strategies
Lax oversight
Exclusivity

14. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

15. Cash Misappropriations
Employee Fraud
Cash Misappropriations
Cash Skimming or Larceny
Fraudulent Disbursements
Billing Schemes
Payroll Schemes
Expense Reimbursements
Check Tampering
Register Disbursements

16. Non-Cash Misappropriations
Employee Fraud
Non-Cash Misappropriations
Theft merchandise
Fictitious expenses
Personal expenses
Corruption Schemes
Kickbacks
“Commissions”
Cost overruns quality under runs still use same vendor

17. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

18. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

19. Areas of Valuation That Impact Value
Business Valuations
Valuation – What is it?
Purpose
Standard of Value
Premise of Value
Approaches
Areas of Valuation That Impact Value

20. Purpose – What and Why? WHY are we valuing “it”?
Divorce
Shareholder Agreements
Buy out / Buy in
Purchase Price Allocations
Death – Estate Taxes
Gift Taxes
Succession Planning
Acquisition/Sale
Financial Statements
ESOPs
What is the valuation date?

21. Standard of Value: Fair Market Value
Widely recognized and accepted standard in business valuations (Federal and state tax matters – gifts, estates, etc.)
ASA Definition: “the amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts.”
Comports with Revenue Ruling 59-60
Market Value – most real property appraisals

22. Premise of Value
Assumes a set of actual or hypothetical circumstances in valuation
Going concern
Assumes an entity will continue to operate and have earnings capacity going forward
Liquidation
Must be considered when value is greater if individual assets are sold to the highest bidder and the entity ceased to operate as a going concern
Orderly – assets sold individually; normal exposure to appropriate secondary market
Forced – assets sold individually; less than normal exposure to appropriate secondary market

23. Approaches – General Asset Approach Market Approach Income Approach
Sum of values of individual assets
Market Approach
Comparable transactions
What your neighbor’s house just sold for is good indication of worth of your house
Income Approach
Capitalization of historical earnings/present value of future earnings; both are proxies of future benefit derived by owner

24. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

25. Types of Engagements:
Corporate Investigations and Financial Statement Fraud
White Collar Crimes
Ponzi Schemes
Asset Misappropriation and Embezzlement Investigations
Civil Litigation
Shareholder/Partner Disputes
Economic Damage Calculations 
Business Valuations
Marital Dissolutions
Due Diligence Services

26. hdevor@friedmanllp.com jodonnell@friedmanllp.com
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