Fraud Examination and Forensic Accounting

Financial fraud is not a new topic in business.  For years famous management fraud cases such as Crazy Eddie's and ZZZZ Best were used as cautionary tales for auditors, regulators and business leaders, but in late 2001 the $70 billion collapse of the energy-trading giant Enron caused the country to become more serious about fraud prevention.  After Enron there occurred a fairly quick succession of other financial failures due to management fraud.  WorldCom, Tyco, Adelphia and scores of similar cases removed doubts that the Enron fraud had been an isolated case caused by "a few bad apples" and the economic losses of shareholder wealth and employee pensions increased public awareness and motivated political action.  One result, the well-known federal securities law called the Sarbanes-Oxley Act of 2002 (SOX), tightened oversight of the key players, especially corporate managers and external auditors.  SOX has changed American business in many ways that are still evolving and being evaluated, but for accountants there has been one very dramatic effect: with the signing of SOX accountants effectively lost control of their own profession.

Fighting Fraud
The true economic losses due to fraud are not known with certainty, but they are massive.  The best estimates put the figure at  $600 billion per year, comparable in size to the US military budget.  Accountants, law enforcement offficers and government workers collectively fight this fraud problem.with multidisciplinary training in financial analysis, psychology, criminology, and computer skills.  Typically this work is very demanding, requiring highly developed skills and rigorous use of professional judgment.  For these reasons entry level positions in anti-fraud work tend to be a bit like old fashioned apprenticeships, where years of casework with experts is necessary to gain the skill set and acumen to work independently in the field.

Fraud Examination and Forensic Accounting
Fraud Examination and Forensic Accounting are sometimes used synonomously; they do overlap, but to most professionals they do not mean precisely the same thing.  Forensic Accounting is both narrower and broader than Fraud Examination.  Forensics involve the gathering of evidence to support litigation or negotiation and is used not just in cases of fraud, but in divorce proceedings, business valuations, insurance claims and antitrust cases.  Fraud Examination focuses on actual or potential fraudulent acts of employess, manager, owners, customers and vendors, but considers all facets of prevention and internal control, as well as detection and investigation.

Anti-Fraud Education
Financial fraud is not a new topic in business education, but the string of financial failures that motivated the passage of SOX also caused the country’s business schools to reexamine their curricula.  In the accounting department at UIC we have integrated fraud topics into many courses, with a major thrust in the area of information systems.  Accounting 474 now contains both a substantial unit on fraud as well as a consideration of internal controls and fraud throughout the course.  Many students express an interest in this area, either as ancillary training or as their major professional focus.  The links below provide information about fraud and forensics topics.

Fraud Examination and Forensic Accounting Links

Association of Certified Fraud Examiners

Forensic Accounting Information

AICPA Antifraud & Corporate Responsibility Center

Corporate Governance





Office of Accounting Information Systems
Department of Accounting
University of Illinois at Chicago