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Helping Forensic Accountants Detect Fraud

Many useful books are available to help forensic accountants in their quest to detect fraud. A new book, Statistical Techniques for Forensic Accounting – Understanding the Theory and Application of Data Analysis, takes a different approach. The book, by Dr. Saurav K. Dutta, Associate Professor of Accounting at SUNY Albany, builds upon the foundation of probability and statistical theory to help forensic accountants, auditors, and investigators apply mathematical tools in identifying financial frauds.

David A. Cace, a partner in EisnerAmper’s Litigation Services practice and who advises the firm on audit and statistical sampling matters, provided the Foreword to Dr. Dutta’s book, and in it he writes, “Taking a sample from a population and drawing a conclusion about some characteristic of that population is something accountants do all the time; however, this is usually done in the context of an audit for financial statements, where data is already accumulated in journals and summarized into ledgers, and the accountant/auditor has had an opportunity to study the internal control environment. Moreover, financial statement audit conclusions are based on the results of many interrelated tests, such as confirmation with third parties, analytical analysis, and timely physical inspections, not just the result of the audit sample. This is often not the case in a forensic investigation.”

Expanding on the distinction between a financial statement audit and forensic accounting, Cace goes on to say, “Unfortunately, when accountants/auditors are taken out of the financial statement audit comfort zone and engaged to conduct a forensic investigation, they often apply the audit sampling approach permitted by their professional rule-making body that permits reliability and precision to be expressed qualitatively instead of quantitatively. This can only led them into trouble. It is the ability to quantitatively measure reliably and  precision that makes statistical sampling the only real choice in litigation support services engagements.”

As Dr. Dutta makes clear in the preface to his book, financial fraud is a global problem – with technology making it easier to commit and harder to detect. With the proviso that “prior to the use of statistical evidence in forensic accounting, an understanding of the applicability and limitations of such methods is imperative,” Dr. Dutta has written a book which uses numerous real world cases that show how the discipline of mathematics can be applied within the context of the discipline of forensic accounting. To read the first chapter of Statistical Techniques for Forensic Accounting – Understanding the Theory and Application of Data Analysis, published by the FT Press, please click here.

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