139-429-1-pb

Volume 1, Issue 5 (May, 2014) Online ISSN-2347-7571

4 Available online on www.saiompublications.com

Published by: Sai Om Publications

Sai Om Journal of Commerce & Management A Peer Reviewed International Journal

FINANCIAL FORENSICS: WAY TO ABATE CORRUPTION

Supreet Kaur Assistant Professor, Sri Guru Gobind Singh College of Commerce,

New Delhi, India

Email: [email protected]

ABSTRACT

In present time, though we have plethora of investigative agencies and anti- corruption departments

but Corruption continues to have a devastating impact on societies and individuals around the world.

Something must be done to enable people to live their lives free from the damaging effects of

corruption.

Government guarantees of greater accountability do not always bring about tangible results at the

local level. India is ranked 94th in corruption Perception Index. This rising corruption is the root cause

of other looming problems as poverty, unemployment & inequality. This Paper focuses on using the

concept of Forensic Accounting which is a way to investigate various scams and accounting

embezzlements in the books of accounts. It states about relevance of evidence accumulation. The study

also focused on the various techniques of forensic accounting which can be used to detect the frauds.

Keywords: Financial Forensics; Forensic Accountant; Fraud Detection; White Collar Crimes

INTRODUCTION

Due to rise in number of financial scams and accounting embezzlements the concept of financial

forensic has come into limelight. Financial Forensic is simply analysis of evidences. Financial

forensics is composed of two words: First is Financial which is related to money and financial affairs

and second is forensics which means relating to, or used in courts of law or public debate or argument.

So, Financial Forensics means financial fraud investigation which includes the analysis of accounting

records to prove or disprove financial fraud and serving as an expert witness in Court to prove or

disprove the same. In India Forensic accounting can be traced back to the days of kautilya who was the

first person to mention the famous forty ways of embezzlement in his famous Arthashastra during the

ancient mauryan times. Another was Birbal, who was a scholar in the time of King Akbar. He used

various tricks to investigate various crimes. Forensic Accounting is a vital instrument for the detection

or investigation of crime and the administration of justice. Now a day’s demand for fraud examiners is

growing fast because of the use of information technology to commit crimes, growing business

competition and harsh economic times that are making some workers to steal from their employers or

sell company secrets. Forensic Accountants specialize in forensic analytics which is the procurement

and analysis of electronic data to reconstruct, detect or otherwise support a claim of financial fraud.

Forensic accountants utilize an understanding of economic theories, business information, financial

reporting systems, accounting and auditing standards and procedures, data management & electronic

discovery, data analysis techniques for fraud detection, evidence gathering and investigative

techniques, and litigation processes and procedures to perform their work. Forensic accountants are

also increasingly playing more proactive risk reduction roles by designing and performing extended

procedures as part of the statutory audit, acting as advisers to audit committees, fraud deterrence

engagements, and assisting in investment analyst research. Financial Forensics is a way to investigate

the corporate frauds and other related frauds and in India there is a separate breed of forensic

accountants called Certified Forensic Accounting Professionals who investigate various scams.

Sai Om Journal of Commerce & Management

A Peer Reviewed International Journal

5 VOL. 1, ISSUE 5 (May 2014)

Online ISSN 2347-7571

LITERATURE REVIEW

The literature on financial forensics in accounting is limited and is a borrowed concept from various

other countries. George A. Manning in his book "Financial Investigation and Forensic Accounting"

defines Forensic Accounting as the science of gathering and presenting financial information in a form

that will be accepted by a court of jurisprudence against perpetrators of economic crimes. The

integration of Accounting, auditing, and investigative skills yield the specialty known as Forensic

Accounting which focuses very closely on detecting or preventing accounting fraud. Ozkul defined FA

as “the integration of accounting, auditing, and investigative skills.” Simply put, FA is accounting that

is suitable for legal review offering the highest-level of assurance and including the now generally

accepted connotation of having been arrived at in a scientific fashion. Zyzman states that forensic

accounting is the integration of accounting, auditing and investigative skills. Furthermore this

technique provides an “accounting analysis that is suitable to the court which will form the basis for

discussion, debate and ultimately dispute resolution” Akintoye (2008) said forensic accounting is

accounting that is suitable for legal review, offering the highest level of assurance, and including the

new generally accepted connotation of having been arrived at in a scientific fashion and providing the

needed findings in settling disputes. He said the primary orientation of forensic accounting is

explanatory (cause and effect) analyses of phenomena including the discovery of deception (if any)

and its effects introduced into an accounting system. Crumbley et al. (2009) define forensic accounting

as the action of identifying, recording, settling, extracting, sorting, reporting and verifying past

financial data or other accounting activities for settling current or prospective legal disputes or using

such past financial data for projecting future financial data to settle legal disputes. Mehta and Mathur

(2007) posited that forensic accounting involves a financial detective with a suspicious mind, a

financial bloodhound, someone with a „sixth sense‟ that enables reconstruction of past accounting

transactions and an individual who looks beyond the numbers.

RESEARCH OBJECTIVES

The Objective of current research study is to identify the wrong accounting practices which would not

stand to legal scrutiny, Finding Wrongs in financial records and investigate the white collar crimes.

The current study focuses on the use of forensic accounting to investigate various scams in the

country. It also helps in ascertaining the role of forensic accountants in analysis of financial books.

RESEARCH METHODOLOGY

This paper is based on analysis from both primary and secondary sources. To ascertain the impact of

financial forensics a questionnaire was developed and on the basis responses were collected from 40

respondents and a brief description of responses has been provided in the paper. Its main purpose is to

ascertain whether this concept of forensic accounting has been fully adopted in India or not. Various

scams statistics has also been presented.

Scams Statistics in India

Scandal Year Amount Location Key Players Summary

Chopper

Scam

2013 3600 crores National Politicians, Defence

officers

Bribes accepted to

clear a contract to

supply 12 Augusta

west land AW 101

helicopters to India

Coal block

Allocation

Scam

2012 1.86 lakh crores National CAG of India, The

coal ministry, Many

electrical boards and

private companies.

Coal blocks

allotted, not

auctioned, leading

to estimated losses

as per the CAG of

India



6 VOL. 1, ISSUE 5 (May 2014)


Scams Statistics in India

Scandal Year Amount Location Key Players Summary

Tatra

Truck

Scam

2011 750 crores National Top officials of

defence and Bharat

Earth Movers Ltd.

Sold Tatra truck at

an inflated price

Rail gate

scam

2013 90 lakh National Former Railway

minister nephew

Vijay Singla

Bribe given in

exchange of

getting a higher

position on railway

board

2 G

Spectrum

Scam

2010 176000 crores National Nira Radia , A. Raja Communication

bandwidth

auctioned for

lower than market

value

Various other scams are as below

Hawala Scandal

Taj corridor Scandal

Cash for Vote Scam

Fodder Scam

Common wealth games scam

Haryana Teacher Recruitment Scam

Air India Family Fare Scheme Scam

Haryana Seed Scam

Bokaro Steel Plant Scam

Ketan Parekh Stock Market Scam

Harshad Mehta Scam

Virbhadra Singh Bribery Controversy

Gujarat arbitrary land allotment scandal

Gurgaon Toll Plaza Scam

Highway Scam

Himachal Pradesh Pulse Scam

Toilet Scam

Punjab Paddy Scam

NHPC Cement Scam

Haryana Forest Scam

Goa Mining Scam

Aadhar Scam



7 VOL. 1, ISSUE 5 (May 2014)


Types of Frauds

1. Corporate Fraud: Corporate Fraud usually involves accounting schemes designed to deceive

investors, auditors, analysts and other regarding the true financial condition of the corporation.

2. Securities Fraud: This involves fraudulent sales of securities.

3. Health Fraud: It includes duplicate billing, up coding of items, billing for services not

rendered.

4. Bank Frauds: This type of fraud is prevalent in major operational areas in banking.

5. Cyber Frauds: Frauds related with internet transactions, ATM Card, Credit Card.

6. Mortgage Frauds: They occur at entry or exit points, the victims of which include financial

institutions and investors.

7. Management Fraud: It is perpetrated by the top management of a company who has the

intention of misleading investors. The most common form is through accounting manipulation.

Uses of Forensic Accounting

Leads to better corporate Governance

Helps in Criminal Investigation

Prevents Frauds commitment

Creates a Positive work environment

Leads to efficiency in employees Performance

Helps in bringing transparency

Helps in Dispute settlement

Fraud Detection where employees commit fraud

Arbitration Services

Primary research was conducted on 40 respondents on the basis of the questionnaire formulated.

Following questions were asked to the respondents:

1. Is forensic accounting fully adopted in India?

2. Is there need for the services of a forensic accountant to be employed in an organization?

3. Has forensic accountants helped in detecting and preventing fraud?

4. Do you believe that the money paid to a forensic accountant is equivalent to the services

rendered by him?

5. Forensic accountant is different from the traditional auditor

6. Do you believe that the use of a forensic accountant in an audit will increase the cost of the

audit

7. How did hear about forensic accounting

8. Do you believe that employing a forensic accountant would make some positive impact on the

detection and prevention of fraud in your organization?

9. The knowledge of forensic accountant by accountants and auditors in your organization will

make some positive impact on the nations fight against fraud and embezzlement



8 VOL. 1, ISSUE 5 (May 2014)


Interpretation

The Responses were collected and it was noticed that few of them not even know the meaning of

forensic Accounting but many of them know and believe in it. Various respondents were feeling that

there is an urgent need for this profession as the country is gaining the title of becoming most

corrupted nation in the world so this concept of financial forensics would help abate corruption, scams,

embezzlement in the books of accounts and would help reduce white collar crimes in the country, if

the employees are cautioned that their transactions are going to be analyzed by the fraud examiners

they will become loyal to their employers company secret. So, If adopted fully financial forensics can

be a way to abate corruption.

CONCLUSION

Forensic Accounting is a new concept which can help to investigate white collar crimes and

embezzlements and various frauds in the financial statements. Financial examiners are required in a

country like India who can take this concept to newer better heights and robust research for

collaboration between accounting examiners and information systems. Financial Forensics can help us

preventing fraud, better corporate governance. In fact it can integrate accounting, auditing and

investigative skills to conduct an examination into a company’s financial affairs. Almost every

department now has a forensic department to look into one’s financial affairs.

REFERENCES

1. www.wikipedia.com

2. http://www.fbi.gov/news/stories/2012/march/forensic-accountants_030912/forensic-

accountants_030912

3. www.indiaforensics.com

4. http://www.gmiratings.com/home/2013/05/the-decline-of-accounting-and-the-rise-of-forensic-

finance/

5. Cpi.transparency.org

6. (Bhasin, 2013).International journal of accounting research, vol.1, No.1.

7. www.scamsinindia.com

8. (Wadhwa, 2012). International journal of applied engineering research, Vol.7 No.11.

9. Statistical techniques for forensic accounting

139-429-1-pb

Documents