Upfront: A Forensic Accounting Road Map

Fraud may not be a four-letter word in the literal sense, but ever since the accounting scandals of recent years and the subsequent passage of Sarbanes-Oxley, the "f-word" is certainly an expletive as far as finance executives are concerned. That's especially true for CFOs, who must ensure the veracity of the financial statements they sign.

Understanding the need for a single, comprehensive information source on the subject, PricewaterhouseCoopers has compiled "A Guide to Forensic Accounting Investigation" (John Wiley & Sons, 2006), in which authors Thomas W. Golden, Steven L. Skalak and Mona M. Clayton present everything you ever wanted to know about detecting and deterring financial fraud.

While much of the book's 546 pages is need-to-know for auditors only, there's plenty of information here that everyone in the finance function can benefit from. "The good news is that effective fraud management is good for business," the authors write. "The Association of Certified Fraud Examiners reports that the average U.S. company loses the equivalent of 6 percent of revenue to fraud and abuse. Consider the impact of an additional 6 percent of revenue dropping to the bottom line."

If everyone in the finance organization were versed in the psychology of the fraudster, companies would stand a good chance of eliminating at least part of that 6 percent loss. A healthy amount of skepticism is one of the first requirements, the authors note, as they trace the history of white-collar crime. While we all want to think that most people are honest, psychological studies cited by the authors reflect a harsher reality.