Jose A. Martinez Souza is a former Brazilian legislator and business executive. He is an expert on doing business in Brazil and a member of the Accomplished Executive team at Boardroom Metrics.


I have been observing that companies providing auditing, compliance, and assurance are investing in multidisciplinary teams to perform forensic accounting services.  The market for accounting professionals in the forensics stream seems to be growing. After the Enron & WorldCom era,  measures were taken to comply with new requirements but, most recently, the sub-prime mortgage crisis gave to shareholders and public in general the idea that boards, audit committees, and public accounting firms, failed to prevent fraudulent operations.   Why were they unsuccessful?  What could be done by corporations besides implementation of proper regulation?  It is certain that one of the solutions lies on how corporations will expand their policies of fraud prevention.

Public and private entities  every fiscal year contract the services of public accounting firms to perform auditing services. Auditing is a method used by companies to evaluate internal control, processes, business activities, compliance with laws and regulations, and financial statements.  The auditing exam consists in specific tests assessing activities, accounting procedures, and they reduce potential deficiency in internal controls.

But, they do not eliminate fraud. There are some reasons why auditing procedures do not eliminate fraud.  One of the reasons is that the auditing process is performed in a test basis, and the exams do not have full extension. Organizations deal every day with too many transactions.  It is impossible for external auditors to analyze all of them. Another reason is that public auditors recognize that looking for fraud is a time consuming task. The scope of the audit work is designed based in tests and assessment made previously determining the exam extension.

Auditors know that white collar crimes occur frequently and it is complex to find them. They recognize that are many ways to take away assets from a company. Fraud perpetrators know how to commit them. Auditors do not have time to track down all fraud possibilities. They have a work schedule to be followed and the auditing process has a time limit. Once the completion date is reached and the service is completed, the auditing team is transferred to another client. Fraud examination takes time, requires investigation methods, specific systems, and specialized accountants.

The perpetrators of fraud, in general, know the internal controls and the procedures to be followed.  In many cases, the fraud executors are in charge of the procedures. The fraud can be hidden because the executors are expert in control procedures.  On the other hand, public auditors are trained to evaluate the overall systems of controls and reporting. Public auditors are not primarily trained for fraud detection. The fraud executors normally take a long time to build the fraud and have time to eliminate all traces of their action.  In that situation, the fraud executors may do better than the public auditors.

Considering that is difficult to find fraud, the companies’ boards and auditing committees understand that it is necessary to create long-lasting solutions. Those solutions are fraud prevention policies, internal fraud-prevention teams, and external professionals specialized in forensic accounting.

Observing those tendencies, public auditing firms are looking for accountants with abilities in this field.

It is time for talented accountants to embrace this growing stream.

Bibliography
Bragg, Janice M. R. Anderson & Steven M. The Controller’s Function. New York: John Wiley and Sons, Inc., 2000.