White-collar crime busters

Accountants have come a long way from the archetypal bean counters of the past. Today, they add tremendous value in specialised fields such as valuation, risk management and corporate governance, corporate finance and financial forensics.

Over the past years, the Institute has been provided with various interaction opportunities with students across secondary schools and institutes of higher learning to share and promote accountancy as a profession. Through these platforms, we seek to engage young minds and instil upon them the varied career options that are available, update them on the steps that have been or are being taken to future-proof the profession, and debunk any impression that accounting is a boring, desk-bound job and a dying trade.

In a similar vein, we gathered from exchanges with the general public that there is a perception that the work of professional accountants is limited to the mundane tasks of collection and payment preparation and processing, and balancing of the trial balance and balance sheet for statutory and management reporting purposes. Their understanding of the specialised nature of the profession would typically extend to external audit, which involves the gathering of evidence to support historical numbers and tedious sample-testing with the objective of expressing an opinion that a set of financial statements is true and fair.

Notwithstanding this, we do note that there is a high degree of interest among the students and aspiring professional accountants when the work of specialists within the profession was shared, especially that of the forensic accountants.

"As financial crimes and fraudulent activities increase in scale and become more complex, forensic accountants with deep financial knowledge are needed to effectively investigate and respond to potential financial crimes."

 

What forensic accountants do

Today, forensic accountants are more in demand than ever. As financial crimes and fraudulent activities increase in scale and become more complex, forensic accountants with deep financial knowledge are needed to effectively investigate and respond to potential financial crimes. These professionals are highly sought-after in the private sector by financial institutions, credit card companies, big corporations or just any company that could be vulnerable to white-collar crimes, other than accounting and advisory services firms. Within the public sector, law enforcement agencies are staffed by accountants who are trained in financial forensics to analyse and evaluate financial information and develop financial intelligence to help detect financial crime-related activities and transactions.

The role of forensic accountants includes analysing financial information and extends to the gathering and management of evidence and documents to provide litigation support for criminal prosecution, such as those involved in funding illegal activities, money laundering, embezzlement, etc. They are also required to extract financial information from accounting books and records to help parties resolve their financial disputes in court. In the courtroom, the forensic accountants are relied upon for their ability to communicate financial information clearly and concisely to the judge. They also enjoy diverse experiences and challenges; they could be working internally within their organisations or with clients for suspected fraud investigations, strengthening internal control and compliance frameworks or investigating white-collar crimes including misappropriation of funds, money laundering or activities surrounding the funding and financing of terrorism. Alongside this variety of work, forensic accountants have the satisfaction of helping to bring criminals to justice.

Due to the interconnected world we live in, the investigative work of forensic accountants often takes them beyond borders, and the number of cross-border investigations has also increased over time. Add the complexities of legal and cultural differences, and we have arguably one of the biggest challenges facing global corporations today. Forensic accountants will have to be acquainted with cultural, legal and regulatory differences within the country they are based in, and the countries where the investigations take place. They must be prepared to address the myriad cultural, linguistic and communication differences that may arise during the course of the investigations.

Going forward, there will be increasing challenges at every step of an investigation, and more so for cross-border investigation. The rate of globalisation is set to escalate. There will also be more rapid and ad hoc regulatory changes. The greatest impact will come from the seismic development in digital technology. This advancement in digital technology, which is already causing disruptions to businesses and industries, will invariably change the way we operate. Forensic accountants will need to be increasingly digitally savvy and possess the ability to leverage technology to interpret large data sets more efficiently and effectively. Incorporating data analysis in accounting processes would become a necessity because accounting and operational data are increasingly in electronic form and in vast volumes. If forensic accountants do not catch up with technology, the more tech-savvy criminals would have their way.

 

Being alert to white-collar crime

In the wake of burgeoning and increasingly complex white-collar crimes such as money laundering, terrorist financing, financial statements fraud and corruption, professional accountants are required to stay vigilant. Forensic accounting skills would be needed more than ever to identify suspicious transactions, and accountants must exercise reasonable judgement in lodging reports on suspicious transactions to the Suspicious Transaction Reporting Office (STRO) at the Commercial Affairs Department of the Singapore Police Force. The reporting of suspicious transactions is a statutory requirement for all professional accountants.

Reporting to STRO is especially crucial if the accountants know or have reasonable grounds to suspect that the transactions are related to money laundering or terrorist financing, as this ensures that they do not end up facilitating such activities. Failure to report such transactions may result in severe consequences for professional accountants as they may face criminal liability for non-compliance, which may result in hefty fines and jail sentences, and perhaps being struck off the professional register. In the “Terrorism Threat Assessment Report 2017” released in June 2017, the terrorism threat to Singapore remains the highest in recent years, with Singapore being specifically targeted in the past year. Hence, professional accountants have an important part to play in contributing to the well-being of Singapore and to the society at large by helping to counter such activities.

The Institute has issued the Ethics Pronouncement (EP) 200: Anti-Money Laundering and Countering the Financing of Terrorism – Requirements and Guidelines for Professional Accountants in Singapore in October 2014, and the updated Pronouncement is effective from 1 June 2017.

EP 200 covers:

(1) the legal obligations of professional accountants under the Singapore legislation, and

(2) requirements and guidelines on anti-money laundering (AML) and countering the financing of terrorism (CFT).

These requirements and guidelines are in line with the standards set by the Financial Action Task Force (FATF)¹. All ISCA members are required to comply with the requirements in EP 200, and apparent failure to do so may result in disciplinary action.

To support the accountancy profession in implementing the requirements of EP 200, ISCA has developed implementation guidances (IGs). Of note is EP 200 IG 2, which was substantially enhanced and published in June 2017, to provide illustrative customer due diligence flowchart and templates which professional accountants and professional firms can refer to for guidance.

Following the completion of the FATF’s assessment of Singapore’s AML/CFT framework, the “Mutual Evaluation Report” was issued in September 2016; one of the report recommendations was to strengthen the supervision of the non-financial sector such as legal firms, public accounting firms and corporate service providers. These businesses are in the focus as they tend to be used by money launderers to set up shell companies, which are used to conduct fraudulent activities and/or conceal illicit proceeds. Hence, it is imperative that professional accountants who are working in professional firms are cognisant of their obligations and the measures to be taken in conducting proper customer due diligence.

In another report, entitled “The Accountancy Profession – Playing a Positive Role in Tackling Corruption”, issued by the International Federation of Accountants (IFAC) in February 2017, it is shown that professional accountants play a positive role working alongside other professionals and stakeholders to combat corruption. A strong link was drawn between the proportion of professional accountants in the workforce, and the more favourable scores on the main global measures of corruption.

According to Transparency International’s 2016 Corruption Perceptions Index (Table 1), Singapore is ranked seventh out of 176 countries, with a consistently high score of between 84 and 87 out of 100, over the past few years. A country with a high ranking and a high score means that it is perceived to be clean, with low instances of corruption. Since 2012, the number of ISCA members has grown from about 25,000 to over 32,000 currently. Singapore’s consistent good score and rank correspond with the rise in the number of professional accountants in the city-state, and is congruent with the findings of the IFAC 2017 report.

With increasing sophistication and rise in white-collar crime rates, the specialised field of financial forensics would be a more relevant area than ever for aspiring and existing professional accountants who are working across industries. This also presents opportunities for those who are looking to deepen their skill sets and acquire specialised expertise as businesses and institutions strive to uphold Singapore’s reputation as a clean and low-corruption country, and regulations and compliance requirements continue to be tightened for specific industries.

 

The writers are Lem Chin Kok, ASPAC head of Forensic at KPMG in Singapore and Soh Suat Lay, Director, Pathways Development & Qualifications, ISCA. The views and opinions are those of the authors and do not necessarily represent the views of KPMG in Singapore.

 

¹ FATF is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions where its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. Singapore is a member of FATF.