Sunday, October 4, 2015

Cooked Books - Forensic Auditing: Information for Writers with R. E. Carr

We welcome author R. E. Carr to ThrillWriting.

Fiona - 
English: Oracle General Ledger Accounting cycle
Oracle General Ledger Accounting cycle (Photo credit: Wikipedia)
Rachel, you are writer by night and forensic accountant by day. Can you explain what a forensic accountant does and how you found yourself in this field? My graphic makes me dizzy just looking at it!

Rachel - 
A Forensic Accountant is a specialized subset of the general accounting field whose focus is on preventing and uncovering waste and fraud.

Many forensic accountants work as consultants and even assist in criminal investigations.

Others, like myself, work as internal auditors in a company.

I actually initially went to school for writing and majored in English, but I needed to pay the bills.

I was working at a small law office and the bookkeeper of many years had almost ruined the place due to fraud. Her replacement couldn't figure out how to fix anything. So, as one does, I taught myself accounting with an "Accounting for Dummies Book" and built on my few months of being a clerk and receptionist and took the job.
Rachel Carr (link to Amazon author page)

After a few years of working my way through any accounting job I could, I ended up going to school to get my Accounting Degree. I chose Forensic Accounting to protect those like my old boss who were nearly ruined by fraud.

Fiona - 
Here on ThrillWriting, we never teach the bad guy how to be successful at being bad, but we do try to point out places of vulnerability. What would make a business vulnerable to fraud?

Rachel -
It's funny, when you study Forensic Accounting, a lot of your training involves getting in the mind of bad guys and even role playing as them.

If you want to make a business vulnerable to fraud you need to do the following:

  1. All Accounting duties limited to one person. No separation of duties is practically opening the door to fraud. For example if you have one person you gets the mail, deposits the checks and enters them in your accounting system, you give one person an easy opportunity to pocket payments received. Even something as simple as having a clerk open the mail and make copies of the checks can be a powerful deterrent.
  2. Not reconciling bank statements. Every business should have an independent review of what hits the bank.
  3. Not using a computerized system. There is a reason why almost all accounting is electronic. Not only is it more efficient and reduces mistakes, it keeps much better logs than any ledger ever could.
Fiona - It seems to me that there's a lot of vulnerablitly in the accountants position - if anything goes astray it's on them. What can an accountant do to protect themselves from being the scape goat?

Rachel - 
Document, document, document. A good accountant keep meticulous records. Also, you never share access with anyone, period.

Many good accountants can be framed by being careless with their access. A shared password can let you be framed. I know someone who once tried to do a withdrawal with another supervisor's register code.
Lastly, as an accountant, never execute or approve any sensitive transaction that you generated. Always have a second set of eyes. Whether its posting a journal entry or depositing cash. Witnesses save reputations as well as ruin them.

Fiona - 
Can those electronic records be hacked/changed/what if it's the owner? You can't exactly hide the records from your boss - but your boss could be hiding funds...

Rachel - 
Electronic records can be altered, but it's not as easy as you think.

Every major accounting system keeps an audit trail of who accesses a record.

It's much easier to change or edit data before it goes into the system. For example, forging a Purchase Order or Expense Report to get bad info into the system, rather than try to change something once posted.

Superiors often commit fraud the same way, by submitting bad data and working it in. Perhaps they create an invalid vendor or employee to cash perfectly "valid checks".

Once again, even supervisors have to be defended against. Even CFOs often have to have a secondary sign off to prevent just that.

If a boss is high enough, they may be trying to manipulate the financial statements to affect stock prices (a la Enron) but while sensational, this type of fraud is actually really rare.

Fiona -
You think your boss is being fraudulent with the books - you need this job! It seems like such a moral dilemma especially if you know it means the end of the business and all of your co-workers would be without a paycheck. 

What would someone actually be required by law to do once they see that shenanigans are under way that would keep the accountant from committing a crime by not reporting. Where is that line in the sand?

Rachel - 
It's always a moral choice. A very tough moral choice.

While Sarbanes-Oxley protect whistle blowers in publicly traded companies, in private companies it's much tougher.

You think you'll be this hero, but fraudsters are often manipulators. If discovered, the boss might try to tell the employee to think about the reputation of the company, to protect those who need those jobs.

Jobs are certainly threatened and whistle-blowers rarely prosper. They may even carry a stigma that they are "untrustworthy" even though they are trying to be right.

Lastly, accounting departments often grow close over time, tight knits, with an "us vs. them" mentality, so it's tough to get people to open up.

I've personally seen employees try to fix it from within and cover up the fraud rather than expose it. Better to deal with it quietly than make a scene.

However, this is against professional ethics and an accountant can be stripped of credentials if they are believed to have covered up fraud.

Fiona - 
They can't be tried and jailed?

Rachel - 
In a public company, yes. Under Sarbanes Oxley criminal charges can be held against financial professionals who falsify financial statements.

Individuals who commit fraud are of course able to be tried for larceny, fraud etc, but in the private sector an accountant who knows about a fraud and does nothing isn't criminal, but they probably would be fired if that makes sense.

Once you got into a publicly traded environment it gets much more stringent. That is why Arthur Andersen went down after Enron did.

Fiona - 
Do the police have forensic accountants on staff or do they hire them in - do you know?

Rachel - 
I believe it depends on the size of the department.

I know the FBI and the IRS send a lot of hiring material out to Forensic Accounting graduates for in house positions, but I've never seen a police force.

Fiona -
The Personality game: Does the stereotype hold? What are some personality attributes that would make someone good as a forensic accountant v. a regular everyday accountant - and conversely what personality types would have a hard time? 

Rachel - 
Forensic Accountants have to share analytical skills and being detail-oriented.
As a forensic accountant you need to know how accountant's think.

However, Forensic Accountants have to be open and communicative, even empathetic to do their jobs. They are trained in interviewing skills as well as psychology and law - over and above accounting training.

A Forensic Accountant needs to have the ability to both drill-down and step back as the situation requires. Many accountants, particularly those who do data entry all the time, tend to get blinders and only focus on one little subset of skills.

A forensic accountant has to wear many hats and see how the whole process links together. Only then can they see what is wrong with the picture.

I've also noticed that since Forensic Accounting is a relatively new discipline, the average age tends to be younger than in traditional financial accounting.

Fiona - 
You studied psychology - what kinds of psychology?

Rachel - 
I had to take entry level psychology and criminal psychology as well as interviewing skills.

It's important to not only understand numbers but people to do your job.

Fiona - 
Does your job show up in your writing? Is there a skill set you learned on the job that you apply to your writerly life?

Rachel -
Well, how many people have a werewolf who does accounting in their work?

Fiona - 
I don't know... there are a few that make me suspicious.

Rachel - 
I think that the analytical skills help me break down characters more than I did in the past. Accounting also keeps you disciplined.

You have to work on a timeline constantly and that makes you a stronger writer.

Oh and it taught me that the first accountants were in Sumeria. That's just cool. Counting goats and taking names...

Fiona - 
Our time is almost up - what did you think writers should know about forensic accounting that I didn't know enough to ask you?

Rachel -

Well my mom till her dying day thought that I did the books for dead people. How ironic that I did sort out her finances after she died.

Forensic Accountants are a rare breed, but they are steadily growing in popularity after each financial crash.

Also forensic accountant can help prevent waste just as much as fraud. Not every mistake is a grand conspiracy, and while we are a paranoid lot, it's important to prove innocence as well as guilt.

Also did I mention SEPARATION OF DUTIES a million times yet? Just do that if you want to protect your virtual companies from fraud.

Fiona - 

Here at ThrillWriting it is a tradition to share your favorite scar story.

Well, I seem to have a bizarre almost Wolverine-esque healing factor so I don't scar easily.

However... I have this innocuous quarter inch little dot on my side.

That was where the underwire from my bra stabbed me and I didn't feel it because I was so busy closing the books.

I got good old fashioned blood poisoning from that and am lucky to be alive.

So ladies, never curse your bra!

Fiona -

It's a love/hate relationship.

BTW, I just read Rachel's Kind Scout winning book, FOUR. It's a fun ride.

Finding a job is never easy, and the only employment Gail usually finds is acting as Girl Friday for the mob. Lucky for Gail, Georgia Sutherland has just the job for her—that is, if she can handle working nights, managing a little blood, and a boss who's been dead for centuries.
In a single interview, Gail's world turns upside down as she discovers that all she’s seen in Hollywood isn’t quite true; vampires don't combust in sunlight, but they do fall in love.
Are Georgia's stories enough to persuade Gail to take the gig catering to an antediluvian vampire who's thirsty for a new personal assistant? If Gail wants to live out the year and retire rich, she just needs to remember the Four Rules that govern undead society. AMAZON LINK

You can stay in touch  with Rachel:
On Twitter @TotalRECarr
and on Facebook: R.E. Carr

Thank you so much for stopping by. And thank you for your support. When you buy my books, you make it possible for me to continue to bring you helpful articles and keep ThrillWriting free and accessible to all.