A Case of Fraud Vindication Updated Abstract 02212012 by ehopewell


Prosecutors rely on audit reports to indict business executives and administrators for financial fraud and financial misappropriations. However, the audit reports are not the end process that prosecutors believe. See what's behind the audit reports by examining an actual case.

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									                          A Case of Fraud Vindication
           Can A Forensic Accountant Prevent A Miscarriage of Justice?


A $100 million dollar contract was awarded by the Illinois State Lottery in 2005 to a
general advertisement marketing firm vendor who competitively beat many nationally
recognized marketing firms for the five-year contract. In the ensuing first-year of the
contract, the Illinois State Auditor General issued an audit report to the Illinois general
assembly and public that concluded millions of dollars from the contract was missing and
unaccounted for by the vendor firm. The Illinois Executive Inspector General
investigated and recommended the firm be criminally prosecuted for fraud. Facing an
onslaught of negative media publicity over the fraud allegations, the firm’s legal counsel
appealed to both Illinois governor and attorney general to allow an independent forensic
auditor to conduct an independent examination of the financial documentation before
proceeding to trial. Given a 90 day deadline, the firm’s independent forensic accountant
amassed more than 10,000 pages of documentation that vindicated the firm from the
fraud allegations widely publicized for months.

For reasons never publicly disclosed, the State of Illinois hired a competing independent
forensic accountant, Clifton Gunderson, LLC. This occurred despite the state having
performed four separate lapping audits of the accused firm’s finances for the same time
period, on top of, its executive inspector general separate investigation. Despite Clifton
Gunderson forensic accountants having reached a conclusion totally opposite from this
author as the forensic accountant for the accused firm, only one forensic accountant
prevailed. Whose forensic work was considered fair, impartial and objective and whose
forensic work withstood scrutiny and prevailed? Was opposing conclusions the
undisclosed intention of the State of Illinois in seeking its own forensic firm?

The details of this case and the exact role of the forensic accountant is examined to
provide empirical evidence of the importance of the forensic accountant for both
educators and practitioners. How did the forensic accountant overcome the evidentiary
obstacles of an audit report supported by working papers and an investigation conducted
by a legal expert, i.e., inspector general with statutory authority and powers? Does this
case hold special meaning for the profession of forensic accountants in light of the work
performed by auditors?

Keywords: Forensic accounting; forensic auditing, auditor responsibilities; fraud;
expectations gap; audit risk; materiality.


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