After Enron: doing the detective work

After Enron: doing the detective work

It's four years since Enron sent shock waves through the profession. Kicking off our look at the fallout from this momentous scandal, we look at the rise of the forensic accountant

The Enron effect isn’t all bad, if certain industry watchers are to be
believed. Admittedly, recent high-profile scandals left egg on some faces. But
they also succeeded in sexing up an industry still struggling to remove the
psychological shackles of that now infamous Monty Python sketch.

Another positive ramification of financial misdemeanours is that they have
played a significant part in shaping and raising the profile of forensic

Peter Silk, chairman of the ICAEW’s forensic group, set up seven years ago,
believes the career path of the forensic accountant is still less visible than
it should be. But it’s a market that is ramping up. And what has changed is that
the forensic accountant now plays a more proactive role in tackling fraud.

‘When companies perform a transaction such as share dealing, forensic
accountants look at the things that can go wrong,’ adds Toni Pincott, a partner
in Grant Thornton’s forensic and investigation services group. ‘It’s often about
loose accounting, valuing subjective contingencies and making sure the wording
of contracts is tight enough.’

Grant Thornton employs 90 forensic accountants in the UK – a 70% increase
over the past three years. ‘All of the firms are hiring,’ Pincott says. ‘The
corporate investigation side of things is very large for the bigger practices.’

But forensic accountancy is more than simply an extension of internal
auditing, she adds. ‘We’re seeing far more emphasis on “prevention” of fraud
rather than “cure”. As a forensic accountant you need different skills to an
auditor. It’s quite a broad church – it encompasses business valuations and

A PricewaterhouseCoopers survey this month found a distinct lack of
confidence among audit committee chairmen in the FTSE100 about the role internal
auditors play in providing assurance around key aspects of risk management.

Some 38% of respondents placed only low to moderate reliance on the internal
audit to help them carry out their role, and many said internal audit did not
have the full picture, the right skills or in some cases the right remit to
provide better assurance.

At the same time, the expectations on forensic accountants as expert
witnesses are higher than ever before, prompting calls for an accreditation
scheme for the specialism. ‘There’s a lot of debate around how forensic
accountants that act as expert witnesses need to behave in court,’ says Pincott.

‘We’ve been lobbying to create a register but the ICAEW is reluctant. It sees
itself as self-regulating and believes if you’re a qualified accountant and deem
yourself competent to practice as a forensic accountant, that should be enough.
The problem is, there’s so much more regulation today. Some form of kite mark
would be good,’ she says.

‘If we want to be the premier accountancy body in England, we should ensure
our members are suitably enabled to do their work,’ Silk adds.

The introduction of the Proceeds of Crime Act in 2004 marked a gear shift in
the role’s public perception. But other factors, including the global nature of
money laundering and increases in personal liability of directors including non
executives, have also played their role in expanding forensic accountancy to
take on a far broader business brief.

‘Increasingly, we look at very large outsourcing contracts that haven’t
worked in terms of how they were costed and point out where they were too highly
dependent on certain elements. We don’t look at the service quality, we look at
the numbers. A lot of it is hypothetical analysis,’ Pincott explains.

With evidence of a trend towards insourcing driven by growing disillusionment
with the value and quality of outsourcing contracts, this is surely an area
where forensic accountants will continue to pick up work.

At the same time, government initiatives to make sure a UK Enron doesn’t
happen have continued apace. Back in February 2004, the Home Office announced
the creation of the Serious Organised Crime Agency to oversee the work of crime
prevention agencies including the National Hi-tech Crime Unit, the Serious Fraud
Office and the National Crime Squad.

Due to be operational from 1 April, SOCA’s objective is to provide an
umbrella view across existing threads of crime prevention, each with their own
focus on financial crime. ‘It should result in more joined up thinking – it’s
Britain’s answer to the FBI,’ Silk says.

The job opportunities for forensic accountants resulting from SOCA’s creation
are likely to be significant. ‘They need people who can get behind the issues.
And let’s not forget HM Revenue & Customs – how many people do they now
employ to work on forensic investigations,’ asks Silk.

At the same time, research conducted by Grant Thornton on the future of
dispute resolution, due to be published at the end of this month, will highlight
growing use of in-house forensic accountants within business.

‘Clients are being much more sophisticated in their approach. We’re seeing
much more arbitration and dispute resolution and use of in-house lawyers and
legal risk management as part of corporate governance,’ Pincott says.

But the battle against fraud is far from over. Despite booming demand for
forensic skills, aspects of regulation brought in to clamp down on fraud could
be hampering efforts. ‘I think a lot of accountants are ignoring their duties
under the money laundering regulations because they don’t see any relevance but
also because they don’t see what is happening to the information that they
provide,’ says Silk.

Meanwhile, a shortage in the number of qualified auditors is in danger of
compromising the quality of UK audits. Recruiter predicts a
shortfall of around 50,000 auditors across Europe in the next year. Max
Williamson, a director of the company, says: ‘There are people being taken on
this year who wouldn’t normally get jobs.’

Bad news for audit quality perhaps, but good news for the forensic acc

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