How Forensic Accounting Is Used to Combat Terrorism in the United States

How Forensic Accounting Is Used to Combat Terrorism in the United States


By
Khamis M Bilbeisi, PhD, Forensic Accounting Professor, Clayton State University
Richard T. Brown, MBA, Clayton State University





Abstract



The purpose of this paper is to provide a concise overview of how forensic accounting is used to combat terrorism in the United States, especially since the September 11, 2001 World Trade Center attacks. A brief explanation of the work of forensic accountants, along with a description of how these financial specialists help the Department of Homeland Security and Federal Bureau of Investigation (FBI) combat terrorism in the United States, will be provided. Additionally, a timeline of major terrorist cases since the 1920s, along with references to a few famous quotes of Sherlock Holmes, will be used to emphasize some of the analytical methods employed in forensic accounting. This paper concludes with a summary of the employment outlook for forensic accountants in the next few years.


Key Words: Forensic Accounting, Terrorism, Federal Bureau of Investigation, Homeland Security, Internal Revenue Service, Money Laundering, United States, Internet, Electronic Data, September 11, 2001, World Trade Center, Sherlock Holmes


Originally published in The Forensic Examiner - October, 2015



Introduction


The importance of forensic accounting has been growing, primarily due to the use of computerized recordkeeping, enhanced modern communication methods, and, of course, the wide use of the Internet.  Many organizations of all sizes, both public and private, have virtually replaced paper accounting registers with electronic files.  While automated recordkeeping methods are generally easier to use and much more cost-effective than the old paper bookkeeping systems, the modern mode of recordkeeping allows those committing fraud to more easily hide the evidence of malfeasance.  Additionally, modern technology often makes detection difficult due to the numerous hiding places in the virtual world that electronic recordkeeping allows.  Consequently, great care must be exercised when dealing with computerized evidence to maintain integrity for possible use in American criminal investigations and resulting court cases.  The idea of tracing a “paper trail” has become antiquated due to the aforementioned modernization that took off in the late 20th century, especially with the advent of the Internet.  Forensic accounting has evolved from conventional auditing due to the specialized skills that are unique to forensic investigations, such as the need to look outside of GAAP on a regular basis, scrutiny of minor or immaterial transactions, interviewing or interrogation skills, and the ability to act as a credible expert witness in court.  The need for such specialized auditors has been extremely critical in the United States almost immediately after the September 11, 2001 terrorist attacks, and the demand for forensic auditors is expected to steadily increase in the foreseeable future.  The increased need will be even more significant if the United States Congress continues to enact additional laws in this area, or the war on terror expands.  Thinking of forensic accounting as a critical component of combating terrorism may seem far-fetched unless one understands what these professionals do and how their investigations can interrupt the cash flow of terrorists.  This paper will provide a brief of overview of how forensic accounting is used to combat terrorism in the United States during the 21st century while incorporating traits and quotes of the infamous Sherlock Holmes to reinforce these points.


Forensic Accounting Overview


What is forensic accounting?

Forensic accounting is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using past financial data for projecting future financial data to settle legal disputes. (Crumbley, Heitger, and Smith, 2013, p. 5)


A common misconception is that a forensic accountant and an auditor perform the same duties.  While there may be some overlap in the skills and tasks of both professions, forensic accountants are often involved with a wider scope of work or scrutiny than fraud auditors.  Additionally, forensic accountants may be used as expert witnesses in court or could be hired by an attorney to give authoritative opinions about accounting or fraud-related matters. Consequently, forensic accountants must have excellent quantitative and communication skills to clearly and effectively convey complex financial matters in ways that jurors or other laypeople can understand, along with convincing judges that they are qualified to be expert witnesses in court cases (Crumbley, et al., 2013).  Objectivity, along with a “thick skin” against criticism and other verbal attacks, is necessary for forensic accountants in legal proceedings due to the numerous questions or comments from opposing attorneys and occasionally a judge casting doubts on conclusions or the credibility of forensic accountants hired as experts.  Such professionals must maintain composure to deliver expert testimony or opinions based on facts rather than emotion or other irrelevant biases.  Sherlock Holmes stressed the need for information to begin an investigation by telling his close friend and colleague Dr. John H. Watson, “Data! Data! Data! I can't make bricks without clay”  (Searle, K. K., 2012-2013).


The Role of Forensic Accountants against Terrorism in the U.S.


The FBI’s definition of "domestic terrorism" means activities:


18 U.S.C. § 2332b defines the term "federal crime of terrorism" as an offense that is:


Certain conditions are necessary for members of a terrorist organization to live in the United States without being detected.  These circumstances accommodate financial profiling much like behavioral profiling of serial killers.  Effective employment of forensic accounting tools in the financial profiling of terrorists requires a thorough understanding of how the money that terrorists rely on flows.  One very important advantage for law enforcement is that forensic accounting tools can be applied regardless of the source, disposition, or even the nature of the money flow.  Fortunately, these tools are effective among all types of monetary flows such as electronic transfers, checking accounts, credit cards, debit cards, traveler's checks, purchase or sale invoices, payroll records, letters of credit, and cash. The common element is money since terrorists also have basic needs that must be met in order to execute their devious plans.  These requirements consist of physiological essentials, communications, and mobility, in descending order.  Each of these basic needs requires money so terrorists cannot effectively attack our nation.  These techniques typically leave financial trails that can be traced by forensic accounting back to the terrorists and possibly the sources of such funding.  Therefore, the better we understand how, along with where, terrorists acquire and spend their money, the more effective we will become in defeating their efforts (Dorrell & Gadawski, 2005).  Sherlock Holmes believes “there is nothing more deceptive than an obvious fact” (Searle, 2012-2013).  This could apply to the need for terrorists to blend into American society to carry out their evil deeds.


While the necessity for tracing financial activities of criminal organizations has been part of investigations of law enforcement agencies at all levels in the United States throughout the 20th century, the importance of forensic accounting grown exponentially soon after the turn of the turn of the 21st century.  Forensic accountants have been employed by the Department of Homeland Security to track down financial records leading to the international terrorists soon after the World Trade Center attacks of September 11, 2001.  These accounting specialists continue to screen financial records that might indicate any future attacks on our country, so forensic accountants are a vital link in ensuring the safety of the United States against terrorists’ attacks.


Accountants have been a part of the FBI since its creation in the summer of 1908, when a dozen bank examiners were included in the original force of 34 investigators.  About 15% of agents employed by the Bureau qualify as special agent accountants.  Non-agent accounting positions at the FBI date back to the early 1970s, when a group of accounting technicians was assembled to help agents working increasingly complex financial cases.  The FBI’s ability to address complex and sophisticated financial investigations was further enhanced with the addition of financial analysts during the S & L crisis of the 1980s and 1990s.  Sherlock Holmes would likely state: “My name is Sherlock Holmes.  It is my business to know what other people don't know” (Searle, 2012-2013), regarding the role that Homeland Security and the FBI play in combating terrorism in the United States.


The 21st century criminal landscape once again changed with large-scale corporate frauds and a multitude of other complex financial schemes, such as the collapse of Enron on December 2, 2001.  One key element was the 2009 creation of a standardized, professional investigative support position known as a forensic accountant within the FBI.  These accounting specialists conduct the financial investigative portion of complex cases across a wide variety of FBI programs investigating terrorists, spies, and criminals of all kinds who are involved in financial wrongdoing.  Forensic accountants contribute to the FBI’s intelligence cycle by such things as testifying about their findings in court, and they keep up to date with FBI policies along with procedures, federal rules of evidence, grand jury procedures, and national security protocols as expert witnesses.  Responsibilities of FBI forensic accountants include conducting thorough forensic financial analysis of business and personal records along with developing financial profiles of individuals or groups identified as participating in suspicious or illegal activity, participating in gathering evidence and preparing search warrants/affidavits associated with financial analysis, accompanying case agents on interviews of subjects and key witnesses in secure and non-confrontational settings, identifying and tracing funding sources and interrelated transactions, compiling findings and conclusions into financial investigative reports, and meeting with prosecuting attorneys to discuss strategies along with other litigation support functions, and testifying when needed as fact or expert witnesses in judicial proceedings.


In addition to the extensive accounting qualifications they possess, FBI forensic accountants take a six-week training course that focuses on FBI programs and systems, available investigative resources, financial investigative topics and techniques, legal training, and expert witness testifying techniques.  Forensic accountants are located in every FBI field office.  Larger locations might have one or more forensic accountant squads composed of both forensic accountants and financial analysts, while smaller offices have a couple forensic accountants.  The Forensic Accountant Support Team based out of Washington, D.C. responds quickly to significant, high-profile investigations involving large amounts of financial data anywhere in the United States.  FBI forensic accountants have been involved in a number of major cases, including a $200 million Medicare fraud case involving two Florida corporations, the largest hedge fund insider trading scheme in history (FBI, 2012).  Sherlock Holmes would probably say “there is nothing like firsthand evidence” (Searle, 2012-2013) when gathering proof during investigations or for testifying in a court of law.


The Terrorism Financing Operations Section (TFOS) of the FBI coordinates efforts to track and cut off terrorist financing while utilizing financial information to identify previously unknown terrorist cells and to recognize potential activity or planning.  TFOS builds on the FBI’s expertise in conducting complex criminal financial investigations and long-established relationships with the financial services sector.  The FBI has made tremendous progress in tracking and freezing terrorists’ assets due to the efforts of these accounting experts.  The work of TFOS includes conducting full financial analysis of terrorist suspects along with their financial support structures in the United States and abroad while coordinating joint participation, liaison, and outreach efforts to appropriately utilize financial information resources of private sector, government, and foreign entities.  TFOS also uses FBI and legal attaché expertise to use financial information from international law enforcement, including the overseas deployment of TFOS personnel.  This agency works jointly with the intelligence community to fully exploit intelligence to further terrorist investigations while working with prosecutors, law enforcement, and regulatory communities.  TFOS also develops predictive models and conducts data analysis to facilitate the identification of previously unknown terrorist suspects (FBI, 2010). Sherlock Holmes’ take on data and intelligence gathering is summed up by the following quote. “It is a capital mistake to theorize before one has data.  Insensibly one begins to twist facts to suit theories, instead of theories to suit facts” (Searle, K. K., 2012-2013).  This thought illustrates the need for accurate information and expert witnesses who are competent in complex financial matters that are often brought up in court, such as forensic accountants.


Timeline of Major Terrorism Cases


The FBI has been investigating and helping to prevent terrorist attacks since the 1920s.


2013



2012



2011



2010



2009



2008



2007



2006


2004



2003



2002



2000-2001



1990s



1980s



1970s



1920s



Sherlock Holmes’ view on terrorism can be summed up by the following quote: “There is nothing new under the sun.  It has all been done before” (Searle, K. K., 2012-2013).


Future Employment Outlook of Forensic Accounting


In general, the employment outlook for forensic accountants is good.  Experts predict the creation of 279,400 new accounting jobs in total between 2008 and 2018, with forensic accounting as one of the top growth areas.  Many of these jobs will be in the private sector as forensic accounting practices are adopted more widely outside of government agencies, especially if proposed rules for periodic, mandatory forensic audits are put in place.  There will likely to be an abundance of new forensic accounting jobs among businesses that are expanding through globalization.  A number of contributing factors will drive the demand for forensic accountants in the private sector, such as changes in financial law, new government regulations regarding publically held corporations, stockholders demanding greater accountability from businesses, larger numbers of new companies, and existing organizations hiring new employees as the economy swings up over the next decade (Job Outlook, 2014).


There has been an increased focus on accounting in response to corporate scandals and recent financial crises.  Stricter laws and regulations, particularly in the financial sector, will likely increase the demand for accounting services as organizations seek to comply with new standards.  In addition, tighter lending standards are expected to raise the importance of audits, since this type of loan policy is a key way for organizations to demonstrate their credit worthiness.  The continued globalization of business should lead to increased demand for accounting expertise and services related to international trade and international mergers and acquisitions.  Forensic accountants can earn more than $100,000 annually, especially in private practice.  Federal law enforcement jobs are among the higher paying opportunities, especially in the US Department of Homeland Security (US Bureau of Labor Statistics [DOL], 2014).


Conclusion


Forensic accounting is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using past financial data for projecting future financial data to settle legal disputes (Crumbley, Heitger, and Smith, 2013, p. 1-5) according to our textbook.


There has been a need to scrutinize financial records beyond the scope of normal auditing parameters even as far back in the early 20th century while the FBI has been investigating and helping to prevent domestic terrorism since the 1920s.  The importance of forensic accountants in combating terrorism within the United States significantly increased right after the end of 2001 due to the September 11, 2001 attacks and the accounting scandals that followed shortly thereafter, such as at Enron.  Forensic accountants are employed in the private and public sectors; however, the US Department of Homeland Security and FBI rely heavily on forensic accountants to combat terrorism by discovering and disrupting the funding that is critical to these radicals.  Forensic accountants are also essential in the prosecution of criminal acts since they give professional advice to attorneys or appear as expert witnesses in United States courts.


The job outlook for the next several years is good for accountants in general, but the demand for forensic specialists will likely outpace other accountants due to the extra skills needed to be a good forensic accountant such as knowing the rules of evidence, having excellent people skills to effectively interview witnesses, and possessing the ability to translate complex information into terms or ways that can be understood by lay people.


Perhaps the best known forensic investigator is Sir Arthur Conan Doyle’s Sherlock Holmes, and his most famous quote is “...when you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth” (Searle, K. K., 2012-2013).  In other words, forensic accountants must rely on facts and not be swayed by emotion due to being experts in the accounting field and the United States court system.  They must also uphold the high standards associated with their professional accreditation such as being a CPA, ACFE, ICAEW, etc.  These high standards are also demanded by the general public, business leaders, law enforcement agencies, and other stakeholders since such accounting specialists are often heavily relied upon to shed light on the shadow of fraud.



About the Authors



Khamis BilbeisiDr. Khamis Bilbeisi is a Professor of Accounting at Clayton State University. He holds a Master degree from the University of Georgia and a PhD degree in Accounting from the University of Mississippi. He has over 28 years of teaching verity courses in Accounting, and is involved with Forensic and Investigative Accounting. Dr. Bilbeisi is a member the American College of Forensic Examiners Institute, Association of Certified Fraud Examiners, and the Georgia Society of CPAs. Dr. Bilbeisi has numerous publications appeared in “Journal of Business, Economics, and Finance”, The CPA Journal, Journal of Financial and Economics Practice, and International Journal for Innovation Education & Research.



Richard T. BrownRichard T. Brown is currently an operations supervisor in a freight distribution company near Cleveland, Ohio. Previously, Richard was a front line production supervisor primarily in manufacturing since 1989. He earned a Master of Business Administration with an accounting concentration degree in 2014 from Clayton State University near Atlanta, Georgia and a Bachelor of Science in Mathematics degree with an actuarial science focus in 2007 from the College of Charleston in Charleston, South Carolina. Richard also completed undergraduate coursework in Mathematics and Actuarial Science at the Ohio State University in Columbus, Ohio and Lorain County Community College near Cleveland, Ohio. Richard became a lifetime member of the Beta Gamma Sigma International Honor Society near the end of his MBA program in June 2014. Richard is currently seeking a new career in Accounting or Finance, and he intends to sit for the CPA exam shortly after entering one of these dynamic fields.


Publisher Dr. Robert O'Block, American College of Forensic Examiners.