An innovative approach in combating economic crime using forensic accounting techniques
| Pages | 1253-1271 |
| DOI | https://doi.org/10.1108/JFC-04-2020-0053 |
| Published date | 07 July 2020 |
| Date | 07 July 2020 |
| Author | Oluwatoyin Esther Akinbowale,Heinz Eckart Klingelhöfer,Mulatu Fikadu Zerihun |
| Subject Matter | Financial crime,Accounting & Finance |
An innovative approach in
combating economic crime using
forensic accounting techniques
Oluwatoyin Esther Akinbowale,Heinz Eckart Klingelhöfer and
Mulatu Fikadu Zerihun
Faculty of Economics and Finance, Tshwane University of Technology,
Pretoria, South Africa
Abstract
Purpose –The purpose of this study is to develop an innovative approach of combating economic crime
using the forensicaccounting techniques.
Design/methodology/approach –The approach considered the identification of the effective forensic
accountingtechniquesfrom the available literatureand also exploredthe anti-economiccrime policy, capableof
assistingin the combating of economiccrime. This brought aboutthe development of twoconceptual models,
which incorporate all the requirements for the implementation of forensic accounting and the integration of
forensicaccountingtechnique intothe organizationalcontrol systemfor effective fraudmitigation.
Findings –The analysis of the literaturereview indicated that one of the drawbacks, which has continue to
mitigate the implementation of forensic accounting as a tool for combating fraud is lack of a suitable
framework. This was the major focalpoint of this work, which produced two simplified conceptual models
suitablefor effective fraud mitigation.
Research limitations/implications –This study is limited to the development of conceptual models
for fraud mitigationonly.
Practical implications –The simplifiedmodel can easily be adopted into the structure of an organization
to provide a sustainablesolution to mitigate fraud occurrences.
Originality/value –The novelty of this studylies in the development of two simplified conceptual models.
The first model addressed the incorporationof forensic accounting into the organization structure while the
second captured the detailed investigationand comprehensive data analysis processes of uncovering fraud.
The development of conceptual modelswith all these peculiarities for fraud mitigation has not been widely
reportedby the existing literature.
Keywords Conceptual model, IT, Control system, Forensic accounting, Economic crime
Paper type Research paper
1. Introduction
One of the challenges bedeviling the financial institutionsis the increasing rate of economic
crime and lack of a suitable framework to tackle the challenge has left the public and the
financial institutions at the wits end. Nowadays, the business world is changing rapidly.
The reasons given for this is globalization, high information technology (IT) investments
and the fast pace of the technological changes combined with the escalating costs of
research and development. The usage of IT, broadly referring to computers and peripheral
equipment, has experienced tremendous growth in the service industries in recent past; its
role has shifted over the past decades to become an important part of organizational
management and resource control (Huang,2005). However, organizations are responding in
different ways and at different rates to the wide range of IT-based opportunities and
challenges. As a result, IT plays a critical role in modern business, especially regarding the
Combating
economic
crime
1253
Journalof Financial Crime
Vol.27 No. 4, 2020
pp. 1253-1271
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2020-0053
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
accounting functions (Ramaswamy,2005). Financial crime, which could be seen as a subset
of economic crime has eaten deep into the fabric of the world’s economies has continued to
impact negatively on the socio-economic environment. Forensic accounting, also called
investigative accountings, is a merger of forensic science and accounting (Akabom-Ita,
2012). It is the integration of accounting, auditing and investigative skills and can be
described as a field that deals with possible illegal and fraudulent financial transactions.
Forensic accounting emerged in response to the high rate of fraud incidence. Forensic
accounting, forensic accountancy or financial forensics is the specialty practice area of
accountancy, which describes the engagement that result from the actual or anticipated
disputes or litigation(Yadav and Yadav, 2013).
The purpose of this study is to develop an innovative frameworkfor the implementation
of forensic accounting for fraud mitigation in the financial institutions. The motivation for
this study stems from the fact that forensic accounting, which is the integration of
accounting, auditing and investigative skills can be effective in fraud mitigation if
adequately deployed. The report from PwC’s biennial global economic crime survey
published on Tuesday (27 February, 2018)revealed that South African businesses continue
to report the highest instances of economic crime in the world, reaching the highest level
over the past decade. In the USA, corporatefraud investigation is one of the primary focus of
the Federal Bureau of Investigation (FBI). At the end of 2010, a total number of 653 fraud
cases were reported to be under investigation by the FBI. The number increased to 726 at
the end of 2011, which translates to approximately 10% increase within the period of one
year. Over the period of five years, the number of fraud cases involving corporate financial
institution was reported to have increased by 37% accounting for lossesto investors in the
tune exceeding US$1bn (Dutta, 2013). In the UK, the magnitude of losses due to fraud
against all victims in year 2006, 2010, 2011 and 2012 were in the tune of £13bn, £30bn,
£38bn and £73bn, respectively. The 2012 estimate accounts for approximately 48%
increase in fraud perpetration within the period of one year (National Fraud Authority,
2012). In tackling economic-relatedcrimes, the financial institutions now expend about £5bn
annually (KPMG, 2018). There is no doubt that financial crime is increasingly assuming a
global and dangerous dimension every year with the impact on the financial institutions,
public and economy (Bhasin, 2013). Furthermore, lack of quality forensic analysis of the
financial statements and records as a result of lack of forensic accounting experts and
implementationframework is a major setback in the fight against financial crime.Hence, the
need for a simplified and sustainable framework for the implementation of forensic
accounting in the financial institutions for effective fraud mitigation. This work brings
about the development of an innovative framework capable of fraud mitigating in the
continuous effort for a sustainable solution to financial crime perpetration. The approach
used in this study considered the identification of the effective forensic accounting
techniques from the available literature. This brought about the development of two
conceptual models, which incorporate all the requirements for the implementation of
forensic accounting and the integration of forensic accounting technique into the
organizational control system for effective fraud mitigation. This study is limited to the
development of conceptual models for fraud mitigation only. The simplified models can
easily be adopted into the structure of an organization to provide a sustainable solution to
mitigate fraud occurrences. The novelty of this work lies in the development of two
simplified conceptual models. The first model addressed the incorporation of forensic
accounting into the organization structure while the second captured the detailed
investigation and comprehensive data analysis processes of uncovering fraud. The
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