Fraud examination 2025

"It is always wise to look ahead, but difficult to look farther than you can see." — Winston Churchill

Fraud examiners must think innovatively to stay ahead of fraudsters and prevent fraud from growing exponentially. We all know this, but this maxim challenges practitioners and educators because the business environment is changing rapidly. For example, the "Internet of Things," with a potential economic impact between $4 trillion and $11 trillion in 2025, will affect the ways business is conducted and how we live, according to a 2015 report, Unlocking the Potential of the Internet of Things by the McKinsey Global Institute.

Microsoft's Cyberspace 2025 report projects 4.7 billion Internet users by 2025 with the biggest gains in emerging economies. The report projects an aging population, particularly in developed countries, of 850 million people over age 65 — a 60 percent increase over 2012.

Gartner, the American information technology and advisory firm, defines "big data" as high-volume, high-velocity and/or high-variety information assets. The challenge is to make sense of the terabytes, petabytes, exabytes, zettabytes and yottabytes of information and utilize it to create efficiencies and drive decisions for future growth.

What does all of this mean for higher education and others who are training future CFEs? Let's take a step back and see what the framework developed for fraud and forensic education tells us before we look to the skills and tools of the future.

The past 

About 10 years ago, in October of 2005, the final meeting of the Technical Working Group for Fraud and Forensic Accounting convened in Washington, D.C. The project, which the Department of Justice funded, focused on developing educational and training guidelines for fraud examination and forensic accounting. Mary-Jo Kranacher, CFE, discussed the draft guidelines in the Fraud EDge column (Kranacher was the first Fraud EDge columnist) of the January/February 2006 issue of Fraud Magazine. The guidelines identified the prerequisite knowledge and skills that students should have before focusing on the study of fraud and related topics:

1. Familiarity with basic accounting and auditing concepts.
2. Transaction processing cycles and control environment.
3. Business law concepts.
4. General business communication skills and business ethics.
5. Basic computer skills.

In addition to this foundation, core material in fraud examination and forensic accounting includes:

1. Definitions of fraud and forensic accounting.
2. Overview of who commits fraud and the Fraud Triangle.
3. Overview of the elements of fraud.
4. Discussion of fraud prevention, detection, deterrence, investigation and remediation.
5. Overview of common fraud acts such as financial statement fraud and asset misappropriation.
6. Discussion of "red flags" of fraud and fraud remediation.

In-depth knowledge of fraud and forensic accounting is layered on top of this foundation. The three areas that were specifically identified in the study are:

1. Criminology, legal, regulatory and professional environment, and ethics.
2. Fraud and forensic accounting — includes digital environment.
3. Forensic and litigation advisory services.

The report remains relevant today and provides a wealth of information to anyone looking to build a program or to reassess an existing one because it identified broad areas for the in-depth knowledge base.

The present

As I wrote earlier, the most obvious changes in business that affect fraud examination are related to technology. We all need an understanding of how technology can enhance practice. Cybersecurity is among the most challenging areas of practice; breaches of large systems are becoming more frequent.

A series of FraudEDge columns in 2014 and 2015 discussed in detail the role of digital forensics and data mining along with the importance of data visualization, text mining and predictive coding. A variety of tools can expose students to the possibilities that software and technologies have to offer the fraud examiner. Many software and technology tools are available to colleges and universities at no cost. (I have no financial or remuneration relationship with any of these companies.) Following are just a few:

IDEA: The IDEA academic partnership, sponsored by Audimation and Caseware, provides colleges and universities with software to equip labs and heavily discounted pricing for workbooks and software for students. This data-mining software is fully functional but is limited in the size of the data files that can be analyzed.

ACL (Audit Command Language): Similar to IDEA, ACL software offers colleges and universities data-mining software for downloading at no cost. It often accompanies auditing textbooks.

Tableau: This company offers access to free data visualization software to faculty and students for academic purposes only. Video tutorials and other resources are available at its website. All fraud examiners should use some type of data visualization software in their fraud examinations to easily identify outliers and deal effectively with large data sets, and incorporate into dashboards and reports.

SAS University Edition: SAS says the goal of this program, free to colleges and universities, is to develop students' analytical abilities.

Teradata University Network: This is a free web-based portal for faculty and students studying data warehousing, business intelligence/decision support and database. This content also can support introduction to IT courses at the undergraduate and graduate levels.

IBM Academic Initiative: This program offers free cloud-based access to its open-source platform IBM Bluemix and other software. Resources and cases are available for a variety of topics, including business analytics and security and information assurance.

The future

The business world of the future will place more emphasis on analytical abilities for fraud examiners with accounting and auditing backgrounds. A survey conducted by Forbes Insights and KPMG profiles the future auditor as an individual equally skilled in knowledge of the client's industry, critical thinking and investigative financial skills. Close behind are communication skills and data and analytical capabilities. Fraud analytics are expected to play a bigger role in the audit process. (See Audit 2020: A Focus on Change.)

As discussed in the Pew Institute report The Future of Privacy, the continuing tension between convenience and security will provide even greater challenges in the future — often sacrificing safety and privacy for speed and ease of use. For example, the ability to deposit a check via a smartphone is convenient but raises security issues. Heavy reliance on technology to control systems remotely might make life easier, but it also increases individual vulnerability to Internet disruption. Security over data, as I discussed earlier, continues to challenge businesses. While companies have been fairly successful at protecting the perimeter, risk associated with information that's already inside the company continues to escalate.

Malicious code embedded in messages or software downloads can quickly result in stolen information. Recently hackers were able to get IOS app developers to download a fake development kit, which contained a malicious code. Apps created using the downloaded kit automatically contain the code, so they're compromised right from the start. Better ways to keep this from happening or minimize the exposure need to be developed.

In the future, cross-functional teams of specialists will provide the depth of expertise necessary to solve complex cases and detection and prevention activities. Excellent communication skills will continue to be in demand whether face-to-face or online. Future fraud examiners will still need to write reports that make the complex simple. "Reading people" and interview skills will be in high demand. Of course, organizations will need fraud examiners who understand cultural differences and practices in the global business community as geographical boundaries continue to fade. The expanded use of social media and its role in deceptive practices will continue to challenge fraud fighters. Leveraging technology to identify patterns and trends in data will be essential to both detection and prevention of fraud.We find it difficult to think beyond next week, next month, next year, but educators still need to prognosticate so they can design agile and adaptable higher-ed programs that will supply their students with skills and tools they'll need in the workforce.

Educators need to maintain strong relationships with practitioners in the field, participate in fraud-related conferences and training, and obtain and maintain credentials like the Certified Fraud Examiner so what we teach is relevant.

Also, we should organize advisory boards of experts to review curriculum and make suggestions for new topics, courses and concentrations so graduates will be more employable. As technology continues to evolve and global boundaries vanish, it's an exciting time to be involved in preparing fraud fighters of the future.

Patricia A. Johnson, MBA, CFE, CPA, is the program coordinator of the Master's in Science in Forensic Accounting program at Canisius College in Buffalo, New York. She's chair of the ACFE Higher Education Advisory Committee. Her email address is: johnsonp@canisius.edu.