Presentation to the Beta Alpha Psi Western Regional Conference, February 18, 2012

1. Presentation by: Mike Rosten
February 18, 2012
Presented at:
Western Regional Conference
Beta Alpha Psi
Las Vegas, Nevada

2. Outline of Presentation:
1. Introductory Information.
2. Organizations & Credentials.
3. Thoughts on Forensic Accounting.
4. Typical Assignments / Duties / Skills & Abilities.
5. Type/source of Records.
6. Forensics – Accounting, Investigation (vs. Auditing).
7. Representative Cases.
8. Questions & Answers.

3. Introduction:
Mike Rosten – CPA/CFF, CFE, CVA, CFFA
• Cal State Bakersfield, BS in Accounting – 1985
• CPA Certificate – 1988
• CFE Credential - 1997
• Forensic Accountant (full-time) – Since ~ 1998
• Previous to forensics – Audit/Tax/Small Business

4. Organizations / Designations:
CPA – License granted by individual states.
Other designations – Merely certifications from the
sponsoring organizations.
1. AICPA – CFF (Certified in Financial Forensics)
2. ACFE – CFE (Certified Fraud Examiner)
3. NACVA – CFFA (Certified Forensic Financial Analyst)
4. ACFEI – Cr.FA (Certified Forensic Accountant)

5. Forensic Accounting:
Material/opinion suitable for presentation in court.
• Work with financial information … Convey
complicated information in simplified manner.
• Most large CPA firms offer forensic accounting.
• Numerous boutique consulting firms providing
specialty forensics or valuation services, such as
insurance defense and corporate fraud investigations.

6. Forensic Accounting:
• Hired by attorneys to investigate the financial trail of
persons suspected of engaging in criminal activity.
• Retained by bankruptcy court when submitted financial
information is suspect, including missing assets.
• Retained by divorce attorneys to find hidden assets or
evaluate income/earnings.
• Calculate losses (Lost Profits, Revenue, etc.).

7. Forensic Accounting:
• Testify in court as an expert witness.
• Prepare visual aids and summaries for use in court.
• Like a crime scene investigator, with an intuitive sense
for the meaning of financial transactions.
• Forensic accountants include
auditors, accountants, investigators, etc., possessing a
common essential quality – the Ability to Think.

8. Forensic Accounting . . .
Process & Methodology:

9. Representative Characteristics:
Assignments:
* Money Laundering * Insurance Claims
* Fraud Investigations * GAAP/GAAS Violations
* Check Kiting * Contract/Procurement Fraud
* Asset Misappropriation * Securities Fraud
* Bankruptcy Fraud * Credit Card Fraud
* Embezzlement * Financial Statement Fraud

10. Representative Characteristics:
Duties:
* Financial Analysis * Evidence Integrity Analysis
* Writing Reports * Testifying (Expert Witness)
* Compiling Information * Maintain Documentation
* Present Value of $$ * Regression Analysis
* Tracing Illicit Funds(a) * Locating Hidden Assets
* Due Diligence Reviews* Compute Damages
(a) Integral to combating terrorism, by addressing financing aspects.

11. Representative Characteristics:
Skills & Abilities:
* Accounting Procedures * Legal System & Procedures
* Oral Communication * Written Communication
* Interpersonal Skills * Summarize Results
* Research Skills * Detail Oriented
* Analytical * Professional Skepticism
* Objective * Independent * Credible

12. Published in US Attorneys’
Bulletin (Mar ‘05; May ‘05):
Reference Material:
• Financial Forensics I: Counterterrorism-Conventional
Tools for Unconventional Warfare
• Financial Forensics II: Forensic Accounting-
Counterterrorism Weaponry
Darrell D. Dorrell, CPA/ABV, MBA, ASA, CVA, CMA, DABFA, CMC President
Gregory A. Gadawski, CPA, CVA, CFE Principal
financialforensics®

13. Books & Records
Foundation: Integrity of Management
Source: Dictionary for accountants by Eric Kohler

14. Standard Records Triad:
Financial Statements & Underlying Accounting Records (a)
Tax Returns (b) Bank Statements (a)
(a) Detailed transaction records.
(b) Summarized information. Reported to IRS, increasing reliability.

15. Source of Records:
Control Documents
Bank Statements
Internal Documents External Documents
Operating Reports Attest Reports

16. Accounting & Investigation
Accounting
Investigation

17. Focus of Procedures:
The forensic accounting process is typically oriented
towards fact finding & accountability – What really
happened? Who is Responsible? How much was
misappropriated?
Accordingly, we have the following…
1. What happened?  Prepare an Accounting.
2. Allegations founded?  Investigative Accounting.

18. Forensic Accounting:
Objectives:
• Reconstruct transactions from records, and tie to
supporting documents.
• Identify anomalies and inconsistencies among
sources.
Two Distinct Processes:
• With a valid control point.
• Without a valid control point.
What Happened?

19. Forensic Investigation:
Objectives:
• Determine what has happened and who is
responsible.
• Quantify economic losses.
Processes:
• Determine reliability and completeness of the
accounting records.
• Reconstruct accounting, if necessary / cost effective.
• Analyze transactions and supporting records.
How Much? Who is Responsible?

20. Forensic Accounting Investigation Process
|----Business Organization/Operating Entity----|
1. Allegations (Predication) Realm of Potential Deception
•Contained in a legal complaint
Reporting
•From discussions with attorney 4. Engagement Outcome
Internal & External operational and financial reports
•From discussions with Allegations
management + Understanding
+ Forensic Techniques
Processing Information Conclusions
•Accounting system
•Interpretation of data
•Transactional support
Environment of Business/Entity
•Organization and personal integrity and ethical values 3. Forensic Techniques
•Apply to financial data
•Operating characteristics of management
2. Gain An Understanding Of Using:
•Operating philosophy/style
•Business goals & Objectives •Business operating data
•Competence of personnel
•Reporting requirements •Transactional support
•Processing environment •3rd party information
•Contractual rights and obligations •Background searches

21. Compared with Auditing:
Forensic Accounting Auditing
 Focus procedures on:  Perform exam in accordance with
(1) fraudulent accounting/reporting generally accepted auditing
(2) misappropriation of assets standards (GAAS).
 Provide opinion on financial
 Seek to confirm or refute existence
of specific problems or statements for general or limited
allegations, extent and cause. use.
 Conduct procedures in accordance
 Normally has few predetermined
boundaries and greater access to with an accepted methodology &
executive management. procedures w/in materiality levels.
 Founded upon representations of
 Analyst infuses process with
completeness & integrity. management. (Rep Letter)

22. Representative Matters:
Church Daycare/School……… Skimming/Embezzlement
Regional Mall……………………… Special Master – Allocated Costs
Heavy Equipment……………….. Court Order – S/H Dispute
Divorce – Family Business….. Forensic Analysis – Rev & Exp
Estate & Trust……………………… Damages Analysis – Tracing
Nationwide Distributor………. Lost Profits of Startup Business
Gaming Industry…………………. Patent/Trademark Infringement
Homeowners Assoc Mgmt.... Fraud Investigation
Industrial Printing……………….. Alter Ego (Piercing the Veil)

23. Questions & Answers
mrosten@pbtk.com