What Is Forensic Accounting?

Business fraud is at record-high levels. Consider:

• 51% of surveyed organizations said they have experienced fraud in the past two years, according to PwC’s Global Economic Crime and Fraud Survey 2022. This is the highest that number has been in PwC’s 20 years of research on the topic.
• The amount of money laundered each year is estimated to range from 2% to 5% of global GDP, equaling nearly USD $2.03 trillion annually, the Institute of International Finance and Deloitte report.
• 69% of global executives and risk professionals surveyed expected financial crime risks to increase over the next 12 months, according to Kroll’s 2023 Fraud and Financial Crime Report.

Forensic accounting is vital in exposing these criminals. Dr. Veronica Paz, CPA, CITP, CFF, CGMA, faculty member at Purdue Global, discusses what it's like to work in forensic accounting.

Forensic Accounting: Definition and Overview

Forensic accounting is a combination of accounting and investigative techniques used to discover financial crimes. Professionals working in forensic accounting have to know Generally Accepted Accounting Principles (GAAP), investigative techniques, and the regulations that govern accounting.

Forensic accounting is about finding the intricacies. “You'll do a significant amount of data mining within financial records, looking for that puzzle piece to determine if fraud was committed,” says Paz. “A forensic accountant is a fraud investigator.”

A typical scenario could look like this: An organization suspects some type of fraud is being committed — money laundering, embezzlement, financial statement fraud. They then hire a forensic accountant to “play detective.”

“Organizations hire these professionals to come in and investigate,” says Paz. “To determine, how good are our internal controls? How good are the procedures? Is there room for improvement? Could a hacker get in? Could somebody within the organization try to embezzle money, or could a fraudulent transaction go through the financial statements and end up being issued?” These are some of the considerations in forensic accounting.

How to Enter the Forensic Accounting Field

According to the Association of Certified Fraud Examiners (ACFE), to become a forensic accountant, you’ll need a bachelor’s or master’s degree in accounting and at least 1-3 years of accounting experience. Many forensic accountants obtain this experience by working as a general accountant or auditor. Additional education in criminal justice or law enforcement is a plus.

Many companies encourage obtaining the Certified Public Accountant (CPA), Certified Fraud Examiner (CFE), and/or the Certified in Financial Forensics (CFF) credentials.

“First, I tell students to get the CPA,” Paz says.

The exam for this credential consists of three 4-hour “Core” sections and one 4-hour “Discipline” section of your choice. The Core sections are Auditing and Attestation, Financial Accounting and Reporting, and Taxation and Regulation. The Discipline sections are Business Analysis and Reporting, Information Systems and Control, and Tax Compliance and Planning.

“The CPA exam changed in 2024,” says Paz, “so it's more focused on IT, simulations, and data mining, which would be most beneficial to forensic accountants.”

Paz also recommends earning the CFE credential and then the CFF.

“Get heavily involved in accounting and auditing, but make it a point to also understand systems, data mining, and data analytics,” Paz says. “The financials tell you a story, and good forensic accounting can find fraud within that story.”

>> Read More: Do You Have What It Takes to Become a CPA?

Common Responsibilities in Forensic Accounting

According to the ACFE, expectations include:

• Conducting thorough forensic financial analysis of business and personal records, and developing financial profiles to understand the big picture of an investigation.
• Participating in the gathering of evidence and the preparation of search warrants/affidavits associated with financial analysis.
• Preparing and reviewing evidence, meeting with prosecuting attorneys to discuss strategies, and testifying in judicial proceedings.
• Preparing forensic accounting reports, affidavits, and proof of evidence.

What Skills Are Necessary in Forensic Accounting?

To work in forensic accounting, you will need excellent knowledge of Generally Accepted Accounting Principles (GAAP). You’ll also need:

• Data analytics skills. “The fraudster's trying to conceal their crime, and you're trying to find it, but you're searching through mountains of data,” Paz says. “This is where you need data mining and statistics knowledge.”
• Communication/interviewing skills. “Interviewing skills are very important when you're at a fraud engagement. You talk to everybody, from the CFO to the receptionist,” Paz says. “You're trying to understand their systems, how they can be penetrated, and how fraud could happen.”
• Technology skills. “Many organizations have millions of transactions. As human beings, we would never be able to analyze all that,” Paz says. “We use technology to help us. With tools like machine learning and artificial intelligence, we can process a lot of information. You need technology skills to see what the machine is doing for you and interpret that.”
• Knowledge of the legal system and courtroom proceedings. “You need to know about the legal framework and how to behave as an expert witness or a consultant,” says Paz. “You also have to understand court procedures.”

The 5 Most Scandalous Fraud Cases of 2023

The ACFE produces Fraud Magazine, and every January the publication highlights the most noteworthy fraud cases from the previous year. Here are their picks for 2023:

1. The Fall of FTX

FTX founder and cryptocurrency bigwig Sam Bankman-Fried was found guilty of 7 counts of wire fraud, conspiracy, and money laundering in November 2023. He stole nearly $10 billion from his customers to finance political contributions, venture capital investments, and other extravagances and faces up to 115 years in prison.

2. Medicaid Scam in Arizona

Criminals perpetuated a Medicaid scam in Arizona by setting up fake sober houses throughout Phoenix, then approaching Native Americans with a substance use disorder and promising them treatment and sober living. They failed to deliver on treatment and scammed millions of dollars from taxpayers until they were caught.

3. Human Trafficking for Fraud in Southeast Asia

When COVID-19 shut down the casinos and hotels of Southeast Asia, organized crime syndicates turned them into fraud operations staffed with people smuggled into the region. People who were trafficked say they were lured with online job ads that promised high salaries and nice perks, but once at their “new job,” they were forced to commit fraud.

4. Gen Z Hackers Use ‘Vishing’ to Hit 2 of the Largest Casino Chains

A group of hackers used the social engineering tactic to wreak havoc at MGM and Caesars. A portmanteau of “voice” and “phishing,” vishing calls for hackers to find an employee’s information on LinkedIn and then impersonate them to the organization’s IT department, in an effort to obtain login credentials for its systems. In these cases, fraudsters shut down slot machines, ATMs, elevators, and the hotels’ check-in systems; they also got guests’ sensitive personal information.

5. Exiled Chinese Billionaire Guo Wengui Bilks $1 Billion

Wengui was an outspoken critic of Communist China after coming to the U.S. in 2015. He assembled an impressive social media following, 5,000 of whom were allegedly bilked out of $1 billion to fund his lavish lifestyle. In March 2023, Wengui was arrested on multiple charges of wire fraud, money laundering, securities fraud, and bank fraud.

Take the First Step Toward a Career in Forensic Accounting

Until people stop being dishonest, the world needs forensic accounting professionals. If this career field interests you, learn more about Purdue Global's online bachelor's degree in accounting, which offers a concentration in auditing and forensic accountancy. Our format is 100% online to give working adults maximum flexibility. Reach out for more information today.