Forensic principles can be used to help
accountants identify illegal activity.
Image: iStockphoto 

It’s hard to imagine accountants featuring in the next episode of CSI, but the time has come for them to take a starring role.

We think of forensics as being a high tech, foolproof, scientific way of making sure that ’good’ defeats ‘evil’, but what we don’t always think of is how accountants can use forensic principles to identify and respond to illicit activity and corporate failure.

Recent events have led to an ever-increasing need for financial accountability within the public and private sectors, but how do organisations really measure and communicate their financial performance? Most of us have spent time wondering how on earth large companies can simply collapse overnight and why nobody seemed to see it coming, let alone prevent it?

Given the volume of significant corporations such as HIH and OneTel that have made dramatic and expensive exits from the corporate landscape, now more than ever we need to understand how and why these collapses occurred, and, more importantly, how to learn from them.

Forensic accounting deals with the analysis of such corporate breakdowns in an effort to avoid repeating some of the less enviable moments in Australian corporate history. Through the marriage of principles from accounting, law, statistics and IT, the discipline focuses on prevention, fact finding, diagnosis and review.

“The collapses of HIH, OneTel, and ABC Learning – as well as the Commonwealth Superannuation Scheme fraud – have each required considerable effort from forensic accountants who must sift through volumes of information in deriving evidence of financial positions, relationships and events,” says Dr David Lacey, Lecturer in the School of Accounting and Business Information Systems in the ANU College of Business and Economics, and Chair of the ACT Institute of Chartered Accountants Forensic Accounting Special Interest Group.

“Industry and government leaders are only now really coming to terms with how forensic accountants can add value to their organisations before it’s too late. Whilst the more public and high profile collapses of late have cast forensic accountants as those that typically perform an accounting autopsy once an organisation is lost and uncertainty reigns, the real gains being made are for those corporates and government agencies that see forensic accountants as providing a key diagnostic capability geared towards the prevention or the mitigation of business risk.”

Lacey should know. Prior to joining ANU, he headed the Australian Crime Commission’s financial crime special intelligence operations.

“My time at the ACC and before that in the financial services sector in Sydney highlighted the critical importance of forensic accounting in business today.”

Forensic accounting can also help us ‘non-accountants’ to better understand the implications of events that are happening now, and the impact that they might have on future generations by looking at human behaviour through the analysis of financial events. By using accounting data, forensic accountants can explore why people choose to take action or not take action in certain situations, and in doing so make sense of what many of us would term ’unpredictable behaviour’.

“It’s a very human trait to try to find cause and blame, to be able to point the finger, and to try to make sense of chaotic behaviour,” Lacey says. “Forensic accountants are just like investigators, while they may have a pre-occupation with facts, opinions and assumptions, they are behaviouralists at heart.”

ANU is one of the first universities in the world to embark on the journey to make forensic accounting education and research more accessible to the accounting fraternity.

Lacey has conducted a national survey of forensic accounting practitioners and a number of focus groups with professional bodies to examine the nature of forensic accounting and the need for it within our society.

“To date our research has been focused on the preventative and diagnostic aspects of forensic accounting. Working with some of the world’s largest banks, telecommunication carriers and insurers has proved invaluable in enhancing knowledge of key risk control behaviours and measures that are geared towards best practice prevention and detection strategies.”

His research also found that there has been a considerable investment in forensic accounting capabilities by Commonwealth and state governments, along with private practice, however this is yet to translate into the development of tertiary courses to support growing demand.

ANU is bridging this gap through the introduction of a graduate course exploring financial analytics for investigation, making it one of the first tertiary institutions in the world to offer a course that captures the diagnostic elements and analytics of forensic accounting practice.

The course will be delivered intensively this month and has attracted strong interest from business and government.

As an additional contribution to defining and shaping the future of the discipline in Australia, the ANU College of Business and Economics will host the first National Forensic Accounting Research & Teaching Symposium in February 2010.

“The symposium will go a long way to defining the future direction of forensic accounting teaching and research in Australia in the short-to-medium term, and the discipline will benefit from the participation of researchers, teachers and forensic accounting practitioners throughout the region.”