Forensics Journal - Stevenson University 2015 | Page 49

FORENSICS JOURNAL

Information Sharing Service, a Web service that links federal, state,
and local law enforcement information-sharing partners to ICEPIC’s
searchable data sets” (United States Government, Accountability
Office). According to the DHS 2013 Data Mining Report to
Congress, the Agency used a mixture of experience, judgment, and
intuition to determine if an individual is actually a person of interest,
rather than relying solely on its data mining results. When utilizing
data mining techniques, DHS can uphold privacy rights of citizens
without jeopardizing the protection from terrorist threats.

accounting for the cost of goods sold” (“Gross Profit Margin,” 2014).
A forensic accountant uses the gross profit margin test to determine
if money laundering is occurring within the business. To calculate
the gross profit margin, the accountant divides an organization’s
revenue, less the cost of goods sold, by revenue. The resulting ratio
should remain approximately the same from one period to the next
on the company’s income statement. Drastic changes in the resulting
ratio should trigger a red flag indicating a possible money-laundering
scheme, with further investigation necessary.

FINANCIAL STATEMENT ANALYSIS RATIOS

LAW ENFORCEMENT AGENCIES

Acid-Test Ratio
Organizations use a financial statement analysis to determine
if fraudulent activity is occurring. Forensic accountants use a
comparative balance sheet to analyze financial data from the previous
accounting period relative to the current period. The acid-test ratio
determines if the accounts receivable is fictitious. Fictitious accounts
receivable indicate inflated sales on a business’s financial reports.
Inflated sales may be the result of a shell company used to launder
money for terrorist groups. The acid-test ratio divides any cash,
securities, and receivables by current liabilities. If the acid-test ratio is
abnormally high and the business has no current liabilities to offset
the accounts receivable, this could be an indicator of fraudulent
activity. The acid-test ratio is one tool in which forensic accountants
locate shell companies used to launder money for terrorist activities.

Predictive Analytics
Law enforcement agencies use statistical methods to measure risk
and predict criminal activity. Some of these techniques use software
such as: ArcView Geographic Information Systems (ArcGIS),
Statistical Package for the Social Sciences Predictive Analytics (SPSS),
Probability Grid Method (PGM), and Risk Terrain Modeling (RTM).
ArcView Geographic Information Systems (ArcGIS)
ArcGIS is an analysis tool used by law enforcement agencies to create
a complete framework that permits individuals to gather, arrange,
oversee, dissect, and convey geographic data (“Introduction to
ArcGIS,” 2014). State, local, and federal government agencies use
the Geographic Information Systems (GIS) feature to produce and
compile information into intelligent maps. Spatial analysis tools apply
“geographic, statistical, and mathematical operations to…mapped
data” (“Introduction to ArcGIS,” 2014) that aid law enforcement
agencies in tracking terrorist activities. GIS technology aids law
enforcement agencies in determining where particular crimes are
occurring, the types of crimes committed, and the number of officers
and patrols to deploy during peak times of criminal activity. Arc/GIS
technology became necessary immediately following the attack during
the Boston Marathon bombing in 2013. Arc/GIS was used to “assist
local emergency response teams and news agencies with essential map
services…of the marathon route, points of interest, and the locations
of the bomb explosions” (“ArcNews,” 2013).

Profit Margin Ratio Test and the Net Worth Method
of Accounting
The income statement provides the basis for the profit margin ratio
test. The profit margin ratio test divides net income by net s