Forensic Accounting

Forensic Accountants combine their accounting knowledge with investigative skills in various litigation support and investigative accounting settings. Forensic Accountants are  consulting firms specializing in risk consulting and forensic accounting services; or by lawyers, law enforcement agencies, insurance companies, government organizations or financial institutions. Due to heightened awareness and growing intolerance of fraudulent activity, demand for Forensic Accountants is rapidly increasing.

Forensic accounting is a specialty practice area where accounting, auditing and investigative skills are used to analyze information that is suitable for use in a court of law.

Forensic accountants are often engaged to quantify damages in instances related to fraud and embezzlement as well as on matters involving insurance, personal injury, business disputes, business interruption, divorce and marital disputes, construction, environmental damages, cyber-crime, products liability, business valuation and more.

Forensic Accounting Time Is Money

What do Forensic Accountants do?

Forensic accounting professionals are skilled at quantifying damages and determining the full extent of a loss. They are involved in four basic areas of forensic analytics: data collection, data preparation, data analysis and reporting.  Specifically, forensic accountants perform tasks that include examining business records, analyzing historical statements, looking for irregularities in business practices, reviewing journal entries, analyzing trends, tracing the flow of funds, interviewing relevant parties, analyzing electronic data and performing an overall evaluation of the situation in question. Beyond this, they can serve as consultants or expert witnesses. When required, they also collaborate with other experts.

Forensic accountants are sometimes relied on to train internal auditors and investigators. They can also help gauge an organization’s vulnerability to issues such as fraud. Plus, they can help companies implement controls that will reduce their exposure to criminal and civil wrongdoing as well as irreparable damage to their reputation.

Forensic accountants are regularly called on to provide evidence and expert witness testimony in courts, arbitration and mediation. This evidence may be used to help an attorney establish their case or reinforce the merits of their argument. In other instances, the evidence may be utilized to refute the conclusions that are being proposed by opposing counsel.  When serving as expert witnesses in court proceedings, forensic accountants give testimony that is based upon sufficient facts or data that is the product of reliable and accepted principles and methods.

Two areas of Forensic Accounting

Litigation Support

Litigation represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accountant quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes before they reach the courtroom.

If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness. Knowledge of the courtroom sets the forensic accountant apart from a typical accountant.

Investigation

Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, or insurance fraud have occurred. Investigation may also occur in civil matters. A forensic accountant may be hired to search for hidden assets in a divorce case.

While forensic accounting and fraud auditing are related, fraud auditing is more anticipatory. Fraud auditors try to control a situation before something happens, whereas a forensic accountant may be hired after the fact. A forensic accountant is usually hired after a company suspects theft, fraud or embezzlement.

Forensic accountants are suspicious. They must be able to apply their accounting knowledge to legal issues. A forensic CPA will be asked to write expert reports, assist in depositions, testify as an expert witness, conduct fraud investigations and assist in civil and criminal investigations.

Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentation – in essence assessing if the numbers reflect reality. Forensic accountants may be involved in recovering proceeds of crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering.

Forensic accounting audit procedures

A forensic accounting audit requires a different type of handling than a financial statement audit. Each situation requires a unique protocol. This process involves an initial investigation, information reporting, and a final litigation. The information below explores forensic accounting investigations and speaks to the importance of a forensic accountant's specialized skills while conducting research to make a claim.

1. Investigation

Forensic accountants typically begin an investigation and collect evidence when fraud suspicions already exist. Because of this, the data they look for when conducting an investigation include red flags and discrepancies that might indicate fraud has taken place. They may interview staff at an organization to gain more information and attempt to find the individual behind the fraud. Using the gathered information they begin to form a hypothesis as to what happened and create follow-up plans to continue to assess the business. Once this step reaches completion, the forensic accountant determines the next necessary action and relays this information to the company.

2. Reporting

Once forensic accounting professionals gather information/data and develop a case, they present a summary of their findings to necessary personnel. Using this information, these workers determine how the fraud occurred and who played a role. Then, the accountant determines how to handle the case and suggests steps the company should take next. In addition, they may recommend ways to prevent these incidents in the future by increasing/strengthening internal security and pointing out red flags. After submitting their report, the forensic accountant prepares for their role in court proceedings related to the case.

3. Litigation

The final step of a forensic accountant's process involves participation as an expert witness in the incident's court case. The professional presents their findings as evidence in court and testifies against the offenders. They explain any evidence and interpret financial documents in understandable terms, presenting how they identified the subject. This means that the accountant must not only find evidence but also use rhetoric that makes sense to the court. Once this step reaches completion, the court determines the final decision for the situation. The forensic accountant plays an important role throughout this process.