Following the Money- Constructing the Prototype of Digital Evidence Forensic Accounting Standard Operation Procedure for Government Audits

Headnote

Abstract

Forensic accounting (FA) can prevent corporate fraud on an ex-ante, interim, and ex-post basis. Compared to traditional audits, forensic accounting enables reasonability assessments and confirmatory services and hence it serves better preventative purposes. After a number of major frauds over recent years, the demand for forensic accounting has been rising all over the world. Currently, there are no standard operating procedures or criteria for forensic accounting across countries, although some scholars and organizations have come up with relevant studies or work manuals for internal references. A number of journals and papers have examined how to deter corporate fraud. However, there are few discussions on the prevention of government agency fraud, let alone the integration of fraud auditing and forensic accounting in the context of government audits.

This paper explores the warning signs found by fraud auditing and digital forensic techniques of forensic accounting, in order to standardize the process and method of data gathering. The purpose is to reduce the likelihood of errors. The integrated and real-time information flow generated by technology is introduced into government audits. The construction of the Digital Evidence Forensic Accounting Standard Operation Procedure for Government Audits (DEFASOP for GOV Audits) can resolve the problems of understaffing in government audits and achieve continuous auditing (CA).

Keywords: DEFASOP, Digital forensic, Fraud auditing, Forensic accounting

JEL Classification: M41, M42, M48

1.Introduction

Forensic accounting (FA1) has been implemented in the U.S. for decades (Kuo, 2008). Also, the only organization dedicated to fraud preventions in the world, Association of Certified Fraud Examiners (ACFE), is also based in the U.S. In contrast, forensic accounting is still in its infancy in Taiwan and there is no specialized organization for it. In 2009, the National Federation of Certified Public Accountants Associations of the Republic of China established the Forensic Accounting Committee and since then, a summit on forensic accounting has been held each year by inviting practitioners, academics and government officials. It is hoped that the professional expertise of accountants can assist district attorneys in investigations (Lin, 2012) and the techniques of forensic accounting can enhance the business environment in Taiwan.

Forensic accounting has been extending its scope of services over recent years. In terms of fraud detection, it has transformed from a passive tool to...