Against a backdrop of tough economic conditions and growing corporate governance, demand for forensic accountants is increasing, and Malaysia is leading the way
This article was first published in the March 2017 Malaysia edition of Accounting and Business magazine.
When the going gets tough, the forensics get going. Practitioners believe that the demand for the services of forensic accountants is growing because of the tightening economic conditions and the increasing scrutiny of how companies are governed. In such circumstances, there is heightened sensitivity to fraud, and that translates into more efforts to detect and prevent it, as well as to take legal action against the wrongdoers.
The garden-variety work done by accountants and auditors is often inadequate in this area because the scope and nature of that work is normally not designed to find something that has been artfully concealed in today’s complicated business operations. This is a job that calls for specialist experience and skills. In many instances, a forensic accountant is a detective, an examiner and an expert witness rolled into one.
While just about everybody agrees that forensic accounting is a specialised area of accountancy, if you ask 10 practitioners to define it, you are likely to get 10 different ways of looking at it. That just shows how much a forensic accountant may be required to do.
‘Simply explained, forensic accounting seeks to uncover the what, why and how behind the computation and reporting of figures. The aim is to ascertain or confirm the substance of those purported transactions,’ says Andrew Heng, a partner at Ferrier Hodgson MH, the forensic and litigation support arm of Baker Tilly Malaysia.
Tan Kim Chuan, forensics partner at KPMG in Malaysia, describes a forensic accountant as a financial investigator with specialised multidisciplined skills. He adds that a forensic accountant must be knowledgeable about business processes and fraud risk management because they are frequently brought in to help companies prevent and detect fraud and misconduct.
‘A more appropriate term is “forensic professional” because he not only investigates fraud and misconduct but also has the skills to help to mitigate the risk of fraud in organisations,’ he says.
To Pete Viksnins, a director with the PwC Malaysia forensics practice, forensic accounting encompasses a wide range of services – everything from traditional investigations of ‘cooking the books’ to predictive data analytics and compliance consulting. Therefore, he says, it goes well beyond financial investigations. ‘Rather, we perceive the unifying concept to be the application of the forensic “mindset” to help solve complex client issues, including quantification of economic damages and investigating complicated accounting schemes.’
Unfortunately, it appears that corporate Malaysia has yet to properly grasp what forensic accounting can do for it. Viksnins describes this as a transitional state in which many clients do not yet fully appreciate the capabilities of forensic accountants or the value these professionals can bring to businesses.
After the event
More often than not, companies turn to forensic accounting only when things have already gone wrong. Brian Wong, partner, assurance and business risks, at PKF Malaysia, notes that forensic accountants are usually hired after fraud has been discovered. ‘Their appointments are typically aimed at enhancing the quality of evidence to support an effective civil or criminal action,’ he says.
Tan hopes to see more companies invest in fraud prevention and detection programmes, including getting the help of forensic professionals. ‘Boards of directors should realise that fraud can impact their organisations and thus it is a business imperative for them to take preventive measures,’ he says.
‘More so, there are available analytic tools that can be leveraged in detecting any red flags of fraud within their organisations. In short, they should take a proactive approach instead of waiting until they are hit by fraud incidences, which are often very costly, both financially and to their reputation.
Viksnins agrees that it is almost certainly less expensive to prevent fraud than to deal with its after-effects. ‘I’d like to see companies being more open to conversations about the benefits of having a fraud risk assessment or proper compliance programmes in place,’ he says.
In Malaysia, that may happen sooner rather than later because there are several factors at play that will encourage corporations to seek the services of forensic accountants.
Make companies liable
A pivotal development in Malaysia is the government’s plan to make companies liable if employees commit bribery or other forms of corruption. Wong believes that this move will prod companies into establishing stronger governance and control mechanisms. He also highlights the regulators’ push to improve corporate governance in Malaysia, saying that this supplies the impetus for corporations to exercise greater corporate responsibility, and to improve their risk management and internal control frameworks.
Just as business is becoming more sophisticated, so, too, is fraud. Therefore, companies need assistance in dealing with this mounting challenge. Tan points out that dispute advisory is a growth area for forensic professionals. This involves providing expertise in civil disputes and giving evidence in court and arbitration proceedings.
The global economy also has a role. Given that instability and lethargy seem to be the order of the day, companies and individuals will have to deal with more financial pressures, and this tends to lead to an increase in fraud and corruption.
All this means that now may be a good time to become a forensic accountant. ‘The key element of forensic accounting is the wide variety of assignments one can get,’ Heng says. ‘Each assignment is unique, incredibly challenging and rewarding.’
Asked for the attributes that make a good forensic accountant, practitioners come up with a long list, thus reflecting the breadth of the role. Among the preferred qualities are technical competence, creativity, sound ethics and morality, communication skills, street smarts, a probing mind, attention to detail, ability to connect the dots, and perseverance.
‘Forensic accounting is an intriguing area, and for people who feel compelled to help solve puzzles, this is the field of choice,’ says Viksnins.
Errol Oh, journalist
"Boards should realise that fraud can impact their organisations and thus it is a business imperative to take preventive measures"