Economic crime is a significant and increasing issue that can have devastating effects for creditors and company stakeholders alike. Whether it is a small sum or a multi-million dollar loss, fraud can have significant legal ramifications and can result in creditors losing their investment, forever.
Fortunately, forensic accounting experts have the skills and knowledge to detect unusual financial activity and are therefore a crucial part of recovering creditor loss. Forensic accountants are part-financial-expert, part-detective. They can assist both defendants and prosecutors prove their case in court using strong, economic evidence and play a valuable role in settling cases involving fraud or insolvency (or both).
What is forensic accounting?
Forensic accounting is a proactive approach to traditional accounting that focuses primarily on situations involving fraudulent transactions and insolvency. Forensic accountants are trained to identify fraudulent transactions on behalf of creditors.
Expert accounting professionals are able to track a company's past and present data to locate potential instances of fraud that could have caused a loss to creditors. Forensic accounts trace funds and participate in asset recovery on behalf of insurance companies, banks, government agencies, and financial firms.
Forensic accountants are often called upon to provide court evidence in cases relating to:
● Family law — particularly divorce
● Fraud investigations and reports
● Due diligence reviews
● Litigation support (this can include identifying evidence pre-trial and assisting with mediation)
● Expert witness reports
● Asset recovery
● Valuation.
What skills does a forensic accountant need?
To begin with, a forensic accountant must have all the skills of a regular accountant. This includes an excellent understanding of best financial practises and legal processes businesses are expected to follow. Where the two differ is in the kind of details that they are looking for when searching through financial records.
A forensic accountant must have good knowledge of the common ways in which fraud is committed. Unfortunately, when a company is facing liquidation, company directors will often attempt to hide the true extent of the situation through misleading record keeping. A forensic accountant is trained to identify abnormal practises and can track one isolated transaction to uncover significant fraud.
A forensic accountant, therefore, also needs significant legal knowledge and understanding of the practises that must be followed in the presentation of evidence to a court. They may also use computer forensics to uncover doctored files and accounting software programs.
Finally, a forensic accountant benefits from being able to think creatively. Perpetrators will often go to extreme lengths to cover up fraud. A forensic accountant can be faced with dense financial records that are thousands of pages long. Thinking outside the box can assist an accountant fit the puzzles pieces together to form a cohesive picture of what has occurred.
What is a forensic accountant looking for?
A forensic accountant is looking for any sign within a company or individual’s financial records that something is amiss. This can include the timing and sequence of payments, signs of potential manipulation, and the purchasing of assets that seem out of character or repetitive transactions. For example, the director of a company going through extreme financial difficulty should not be able to purchase a new luxury car.
Other signs that a forensic accountant will be on the lookout for include:
● Missing assets
● Poor record keeping or removed records
● An unusually high number of cash transactions
● Insider transactions conducted between directors and shareholders.
Who can benefit from forensic accounting?
Forensic accountants will usually be appointed by parties to a court proceeding or in some instances by the court itself. In this situation, both defendants and prosecutors can benefit from the services of a forensic accountant.
For example, in the case of family law disputes, a forensic accountant can be hired to assist with a number of issues relating to the evaluation of assets and financial records. These services include:
● Valuation of business interests
● Tracing missing assets and income
● Reconstructing accounts
● Assessing the earnings of parties.
Forensic accountants are also increasingly being utilised by businesses looking to protect themselves from the effects of digital crime. These days, most of the world’s banking and business practises are carried out online. This exposes businesses to a whole range of added risks. A forensic accountant has the skills to identify these potential risks and sites of fraud from a digital perspective.
If you are the victim of economic crime or are experiencing financial difficulties and require the assistance of a forensic accountant, be sure to contact an insolvency specialist. Forensic accounting practitioners are able to offer a wide range of services that can assist parties assemble evidence for all types of legal situations.
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