How to become a forensic accountant

NATHANIEL COLE COME HIGHLY RECOMMENDED WITH 30 YEARS POST QUALIFICATION EXPERIENCE IN FORENSIC ACCOUNTING, HIS ARRAY OF FRAUD DETECTION CERTIFICATIONS IN THE UNITED STATES OF AMERICA PLUS HIS FELLOW STATUS WITH NIGERIA’S ICAN TELLS OF PRACTITIONER THAT HAS MOVED THE ACCOUNTING BEYOND THE BASICS AS OBTAINED IN NIGERIA.

IN THIS INTERVIEW WITH NIYI AKINSIJU, GOKE OLUWOLE AND SEGUN BANJO, NATHANIEL COLE EXPLORES THE OPPORTUNITIES INHERENT IN THE PRACTICE OF FORENSIC ACCOUNTING AND PROSPECTS OF ELEVATING THE NIGERIAN JUDICIAL SYSTEM TO A HIGHER LEVEL WITH THE ADOPTION OF EXPERT WITNESSES. PHOTO: OL’VICTOR OJELABI

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It would appear that forensic accounting has more to do with excess bank charges, what other roles has forensic accounting in corporate governance?

Actually forensic accounting has no direct link with excess bank charges by definition of what forensic accounting is all about. According to the Black Law Dictionary, forensic is defined as what is used in or suitable to court of law or public debate, so how do bank charges come into that?

When you now marry forensic with accounting you now get forensic accounting, this will not still mean bank charges; it only shows how poor our knowledge of forensic is all about, it is because we are not sophisticated here in Nigeria. Bank charges is only a minute area which forensic covers, not the totality of its operation. Anybody can review excess bank charges but the person must put in mind that the evidences can be used in a court of law and the chain of command must be put into consideration in terms of how the evidences are being handled, explaining how the evidences are being obtained and how they are being kept, since the day they were obtained and before they are tendered in court that day.

It is suitable to be used but when it is not properly handled it can be objected to, for the mere fact that it was not properly handled, losing the legal value in the same sense.

This is also the reason we emphasize training for forensic accountants on how to handle evidences from obtaining to presentation in court of law even if it is a share certificate. For instance if you want top use the share certificate as evidence in a court of law it must not be defaced. You have to treat it with reverence from the time you are picking it up and if you must make a note on it you must put it in a nylon package and then paste a paper on the nylon and write the details on it. You also note in the detail the history of the document and it has been preserved. This is why I always say that if Nigerians really know their right, it is very easy to reject many evidence presented in our courts.

Let’s come back to forensic accounting?

Since you already know what forensic is and what accounting is, forensic accounting simply means accounting that could be used in a court of law and not accounting just for the purpose of auditing; this is because you can be the best auditor and yet be the worst forensic accountant. Let me demonstrate with a simple analogy: when you go for an audit and you ask for an invoice and they give it to you, an auditor will not ask further question, but a forensic accounting expert would ask further questions like; did the invoice sent by mail or delivered by hand? Now, if I was the one conducting the investigation, I can tell the source of the invoice the moment I am handed the invoice, so if I ask if the invoice was posted by mail and you gave me a crisp unfolded invoice, I already know it is not posted. Invoices are mostly folded, must show creases, or have stapler’s sign on them. Now if that invoice became evidence in a matter in the court I can controvert its origin if the other party in the matter claims that it was sent by mail I can affirm that the invoice was not delivered by mail. It is all about forensic style of gathering evidence; on the other hand, auditors are not required by law to go beyond what is asked.

Does that mean that an audited report cannot be used in a court of law?

It can be used in a court of law, but it will not carry the weight of a forensic report, it cannot stand; unfortunately, we don’t even have many forensic experts in Nigeria. Auditors are by law not empowered to uncover fraud because in auditing they are guided by the concept of materiality, while forensic experts don’t have the limitation of materiality; you know what I mean by materiality?

When an auditor is auditing for a multi-national or conglomerate, $1million may not matter to such large companies but in auditing a small company like an Ajanleobo and Sons, N50,000 will be important. Therefore, for an auditor, if he can’t track $1million in the auditing process it may not matter but to a forensic accountant who is on the look out for fraud, there is nothing like materiality, everything matters. It is a relative thing, that is where fraud and forensic crossed each other’s part.

Fraud doesn’t necessarily end up in court, but forensic accountant has to make evidence suitable for admission in court. The way both are handled differ, like the mail example I just demonstrated, which one will you believe: the folded invoice or the crisp one? Whenever I train auditors this invoice example always amazed them; it tells them how gullible they’ve been over the years, this is not limited to auditors in Nigeria but even in the USA. It is a stereotype thing, as long as auditors are concerned, audit report is supposed to be a mere true and fair view of an account, but when if you are to prove or disprove an allegation of fraud, there must be a forensic accounting investigation and report.

You’ve been practising as forensic expert for a very long period, how would you describe the practice in Nigeria?

We don’t have forensic accountants in the real sense of it, so to speak, in Nigeria. Now, how many times have you heard of a chartered accountant testifying in a fraud case? That is why I tell people, though I love the way EFCC is prosecuting all theses corrupt people but if they are smart enough they will come looking for forensic experts like us, because that same document that the EFCC is brandishing as evidence will be used against EFCC in court by re-interpreting it to the judge in different dimensions, challenging the handling of the documents being used as evidence. It might have been tampered with, ours is not to determine whether the suspect is guilty or not, but to give a better interpretation to the evidences.

It is an open challenge to any government agencies that present any forensic document, which I will equally examine, to check its authenticity. There are lots of procedures in forensic that you cannot violate like that chain of command, you have to know how the evidences were taken and preserved to avoid cases of tampering with evidence in our court.

One major weapon accountants have is the use of questions in conducting auditing jobs; there is no way you can start working without questioning, that is the most critical thing, but not many accountants know its utmost usage, in forensic, we call this embedded incompetence. Before you go for forensic training, you must thoroughly understand the interview techniques. What actually determines the success of the forensic report is the interview technique.

Does that mean that the national accounting bodies have not embraced forensic as an integral part of our accounting system due to a lack of expertise to even start?

I know ICAN, which I am a member, has embraced it; I am sure others will have to; recently, the current ICAN President began pushing very strongly on the issue of forensic; they’ve even gotten a forensic faculty in ICAN. Mind you, the American Institute of Certified Public Accountants [ICPA] only started giving certifications to forensic accountants in May, 2008. I led the ICAN team to visit them in September, 2008. I was also surprised to learn from the ICPA that I was among the only 1,400 certified forensic accountants in the whole of the United States of America where there are over 300,000 ICPAs.

That made me proud as a Nigerian and it humbled the ICAN team but that showed that even in America, forensic accounting is just evolving too.

Does it also mean that every forensic expert must also be an accountant?

No, you are already moving into wider areas because we are only talking about forensic accountants, but in my own case, I am a certified forensic consultant, that means I can testify in any case like a case involving engineering, like the post election tribunal forensic experts were involved in the defence of some aspirants; in that case, it is not about forensic accountants but forensic experts which you have in other fields like fingerprint experts. I was certified by the body overseeing forensic practice in the USA as a certified forensic consultant because I was already an anti-fraud examiner and a certified fraud specialist, which exposed me to forensic techniques.

How does the forensic accounting impact on the society?

It impacts on the financial sector of the economy, like I read in the newspaper that the new EFCC chairman was quoted as saying that EFCC will soon be going after anybody in Nigeria that lives flamboyant lifestyle. To me that is a joke, it really shows how ignorant we are in Nigeria in matters relating to investigating corruption cases. This EFCC approach is not correct and I was also concerned that such an utterance was coming from the Chairman of EFCC.

As a forensic accountant we have what we call ‘net worth’ analysis; this was what she needed to say, not flamboyant lifestyle. She only needs to go back to a date like December 2002 and review what that person was at that time and track it to he is worth in December 2008. Look at what the person was worth in the first year of that period and subtract it from the current worth, this will give you his net worth. In doing this, you look at the legal income; if he can account for it, good, but if not, he would be investigated as to where the money came from. The fact is that you can be flamboyant and still do legitimate business under the law.

You see, if I look at your income and you are worth N5m today and by one year from now, you are worth over N50m, and the only legal income we can trace to you is only about N5m, where the rest of the money comes from will be the question she should be asking those people. And these are jobs of forensic accountants and these are what the EFCC chairman was supposed to say.

It is so easy to investigate illegal incomes. Like the story of Al Capon, the Mafia boss in the US, he was so smart and so sure of himself that nothing could be traced to him, but he forgot the issue of networth; they just asked him that this was how much you were worth at so so time, how then are you this worth at this time? That was how he was nailed and he died in jail. I think that was what Madam Waziri was trying to say; perhaps she was quoted out of context.

We had on good source that EFCC has forensic accountants among their staff?

Though, I may not be able to confirm this, what I can tell you is that many of their staffers have attended some of my forensic trainings and workshops like the one I conducted for staff of the Federal Inland Revenue Services [FIRS]

How do you positioin forensic accounting in the fight against corruption?

Actually, forensic accountants play key roles like what I was just explaining. They enable us to check on the net worth of some individuals who are on salaries but with lifestyle that exceed their legal income. A forensic accountant that is investigating such a person can accost him with questions like: ‘We know you and your net worth, since your father didn’t leave a huge inheritance for you, how do you come about this wealth? I should note here that people can run other businesses beside where they earn their salaries provided they are legal and they pay their taxes regularly.

Generally, with forensic accounting, it is easier to fight corruption, I had said it many times and I am challenging the EFCC on this. Now there are certain principles to investigate money laundering all over the world. There is placement which we refer to in forensic as the placement of stolen loots in financial institutions. In Nigeria’s case, placement is as given because the loots are already within the banking system. This is so because a lot of corruption in Nigeria is committed in the public sector and the money involved is already in the banking system, it is not as if the beneficiaries of the corrupt act are just moving the funds into the banking system.

The other principles of investigating money laundering through forensic accounting techniques are Layering and integration.

The first like I said is Placement which involves the process of lodging the loots in the banks. Let’s use the money laundering effort of drug barons. After making dirty monies they’ll like to keep it in a bank because they cannot be going out with it in Ghana-must-go-bags. So, they pay the dirty money into a bank account, when they do this they have done placement. This is the best stage to pin-down money launderers; launderers will be looking for space to place the money in the financial sector of the economy.

That is what prompted the warning notice to depositors in banking halls with warnings that the bank is under bound to report lodgment of more thyan a million naira by an individual and more than five million naira by a corporate body to the National Financial and Intelligence Unit.

Placement is a big problem in the western world but is seen as a minor issue in Nigeria. Government monies stolen are already in the banking system, all corrupt officials need to do is to transfer it to their own account.

Layering is the systematic transfer of looted funds from one account to the other without economic purpose, but to make it difficult and to disconnect it from being traced to the same account, layer by layer. Integration is when the looters feel the time is safe to bring it back into the system, this is how the term money laundering emerged, literarily meaning – dirty money – being laundered and washed clean and brought back to the system.

In Nigeria there is a different system that is why you see the EFCC doing what they are doing, because the banks are supposed to report all transactions above certain thresholds to the NFIU, who now sends their recommendations to the EFCC for arrest and final prosecution. What I just want to sound out here is that there is too much power concentrated in the hand of EFCC as I object to them arresting suspects, investigating them, confiscating their assets, and eventually selling them off, that is, disposing by way of auctioning the properties.

The power to confiscate and auction should be concentrated in a separate body. How can an agency be empowered to seize assets and even sell? This is wrong, it is easy for them to corrupt themselves with the assets, our assemblymen, the lawmakers, should be sensible in letting an independent agency oversee the keeping and auctioning of confiscated assets, be it from police, immigration, customs and others; it has not happened anywhere and the legislature must not let this happen. With the review of the EFCC Act there must be room for checks and balances, but in the USA where I consulted for the banks, they don’t at times wait for the threshold before they report, because there is something they call Look-back. What this means is that the banks can just look back at the volume of a customer’s past deposits and transactions to compare with his transaction right now; the discrepancies may attract the bank’s attention.

We’ve been talking about EFCC, what about ICPC?

I was privileged to talk to one of their Ogas (heads) and I found out they are doing very well. It is only that they are quiet and they are not always on the pages of the newspapers celebrating their arrests, may be without the publicity you might think they are not doing well. In the US and other advanced countries, it is when they nail one big gun that you read about them in the newspapers.

Some of us just started hearing about forensic experts coming to revalidate the result of elections, what role did the forensic experts play at the various election tribunals, are they also forensic accountants?

Though, I didn’t follow that much, I was not around, the only one that caught my attention was a Nigerian professor of computer science, who could not operate a lap-top; if that is true, I felt sad for the future of this country when an expert witness on such an issue failed, it showed how backward we are in Nigeria. And seeing the enormous jobs on ground to be done, that is why people like us have set up the forensic and compliance training institute to train people on forensic, risk management, money laundering, and gradually moving them in into forensic experts, giving them only the skill they’ll need. Even our judges need to be well trained in forensic matters.

Let’s look at tax collection, it has become a major issue of controversy on what corporate bodies and individual should pay as tax.

I can speak on the Federal Inland Revenue Services as I’ve been opportune to train their staff and delivered papers at some of their conferences. I am a bit pleased with their model of operation. Before the current Chairman was appointed, you’ll remember that you hardly hear about FIRS arresting or going to seal up or confiscate defaulters’ property. The agenda she came with is what we are seeing; after the first training I did for them, some of them got exposed to their rights, we started hearing them breaking non-compliant tax evading companies’ gates, making arrest and even prosecuting. I never recall seeing them involved in the fight against evaders before the 2007, but with the new leadership of FIRS, training and retraining have changed the perception of the organization.

Let me also correct a suggestion credited to me by your magazine that I was ready to conduct forensic investigation on multinational oil companies on behalf of FIRS free of charge. No, I don’t think that would be proper, the expertise I will be deploying is of high value and it is only appropriate that the FIRS pay for such service

How relevant is forensic accounting to the private sector in Nigeria?

You know the relevance had made some private companies in Nigeria to now set up forensic department. To check excess fraud, I can tell you that one of the biggest telecommunication companies in Nigeria set up a forensic department to reduce frauds on recharge cards. In corporate environment because of fraud, every company will need the services of a forensic accountant. In the US, it is predicted that in the next ten years forensic accounting will be among the best ten paying jobs.

What is your take on excess bank charges, can it be curtailed?

Excess bank charges is a good starting point for forensic accountants in Nigeria, even in US, forensic accountants advertise for customer to come with their bank statement, the forensic accountant will be paid a certain commission on the recovered excess bank charges.

It is really an issue in Nigeria, I’ve experienced it with my bank here. I just found out that they just started charging me COT on wrongful lodgment, but when they corrected it they refused to remove the COT, they even charged me COT on capitalized interest on my account, I had to fight them to reverse the system, but I am not only fighting for myself but thousands who don’t know. I say it is a good way to start and have fun by identifying illegal bank charges, there is an opportunity in the area and being an experienced forensic expert, I’ve been around to do training for companies even their staffers on how to do some forensic accounting and compliance works, including excess bank charges. Real Accountants must key in to that, there is a job opportunity which excess bank charges can provide. We already have a website http://www.forensicandcompliance.com, but as a member of ICAN I still prefer working with them, we are also working with other corporate organizations in areas of fraud detection, forensic and compliance because of my vast knowledge having worked with a lot of organizations abroad for almost 30 years as a Certified Public Accountant [CPA] You know, there is always this humming in any gathering where I am introduced as a Fellow of ICAN, Certified Public Accountant [CPA] Certified Fraud Examiner, Certified Fraud Specialist, Certified Anti-Money Laundery Specialist, Certified Forensic Consultant, Certified Forensic Expert by the AICPA. I always tell them that that is what made me to be an expert witness, so when I am witnessing, the attorney will know that I know what I am saying because of my background.

Does our constitution have a place for an expert witness, and what is your view on this?

In the paper I presented at ICAN AGM I suggested it, that is why you’ve not been hearing about them in trials. Forensic accountant is an expert witness and he is defined as AICPA defines it – as anybody qualified by knowledge, experience, training, education, to provide a technical or scientific, specialized knowledge, opinion about the evidence or a fact, that will assist the trial of fact – the role is that of a practitioner who renders an expert testimony before a court of law, tribunal, by providing an impartial, objective and rational evidence that will help the case.

Testimony of an expert witness is supposed to be rational, and you cannot advocate for either side, you can tell the tribunal what your findings are and base on that you can tell the tribunal or judge your opinion about the case without taking side, at times you are to disprove the evidence, at time there is what we call reverse proof in fraud.

In America, again, we have what we call Rule 702 Testimonial of Expert and Rule 703 basis of opinion of the expert, which is the standard expected from an expert and the other one is the fact and the data and facts are based on your opinion or reference to it .The future is great, it will be more relevant if a law can be made for us to be more visible in law courts and I enjoin accountants to brace up for the challenges because the justice system will be more sophisticated like the jury examination I was once invited as forensic accountant in the US, I lectured the jury on what credit will do in revenue and what debit will do in revenue, at the end of the day the whole diversified members were impressed and they told my prosecutor how much they were impressed in me. Now that we are fighting more financial crimes because EFCC will soon find out they need more of forensic experts more than they need attorneys, we use chains of command and these enable us to get to the fact straight and direct., remember that you must be versed in using data-mining tools.

That is why I frown at our indigenous companies and even government parastatals engaging the services of too many foreign forensic experts to track fraud because we are training many Nigerians. When they even call some of this whites to come and train or audit, they will be alleging why a company gives bribe to Mopol [Mobile Police]; they will not know that it is this same police that gives them security, protects them throughout their stay with siren, but because they lack the local knowledge, we are superior to them.

As published in Issue 48 and submitted on http://www.fnc0486.wordpress.com