What is Forensic Accounting?

What is Forensic Accounting?

Who are forensic accountants and what are the differences between regular accountants and forensic accountants? Regular accountants look at the numbers; forensic accountants look behind the numbers. Accountants and CPAs who undergo the extensive additional training and education to become Certified Fraud Examiners (“CFEs”), provide clients with additional technical skills that can uncover costly and sometimes criminal acts. CFEs are anti-fraud experts who have knowledge and experience in four critical areas: fraudulent financial transactions, fraud investigations, legal elements of fraud, and fraud prevention and deterrence.

A forensic accountant is often witness to many dramatic personal stories, with partners and trusted bookkeepers shocking their partners, colleagues, and also frequently their spouses. A forensic accountant can help you to avoid being the next victim by helping you to prepare a risk assessment and helping your organization to pinpoint areas of business risk. Fraud detection and deterrence are crucial in successfully running your business. To deter your business from becoming a fraud statistic, here are some suggestions, based on our experience as forensic accountants, and supported by the conclusions and recommendations of our CFEs colleagues presented in the 2014 Report to the Nations on Occupational Fraud and Abuse authored by the Association of Certified Fraud Examiners:

1. Be involved in what is going on in your business. Here is a typical scenario: one partner does not like to be involved in keeping books and records and prefers to work with clients. The other partner is in charge of the financial aspects of the business and controls the business’ books, payroll, taxes, and financial reporting. The potential for mismanagement in this scenario is tremendous. When the business is successful, no one is asking any questions. But if the business is getting into problems and the money starts getting short, all of a sudden suspicions and accusations arise. That often results in a desperate search for a forensic accountant; however by then it is possible that it is already too late.

2. Have proper internal financial controls. Monthly reports, financial meetings, and reviewing bank statements on a regular basis are necessary to maintain proper internal controls. These controls allow managers to delegate responsibilities to subordinate staff and contractors, with reasonable assurance that what they expect to happen, actually does. Failure to do so could be and very often is far more costly in the long run.

3. Forecasting in order to clarify expectations and measure progress of your business. Preparing a budget, which will establish expectations for the coming fiscal year, gives you a data set to compare performance, measure progress, and establish realistically projected numbers. This tactic will let you set reasonable expectations, control progress of reaching your goal, and spot/investigate any wide deviations in numbers, if necessary.

  1. Set the tone at the top. The business owner, senior officials and/or upper management are responsible for setting the tone for an organization’s general ethical climate. Making known what will be tolerated and what will not be tolerated in your business is an important deterrent. Having a strong tone at the top is widely believed by business ethics experts to help deter fraud and other unethical practices from taking place.

5. Be proactive: set up a fraud-deterrence and detection system with a professional. An experienced forensic accountant can help your business set up systems that will keep you informed and set off alerts when something is suspect. Stay in touch with your professional forensic accountant; feel free to ask any questions that may arise. Keep in mind that based on recent statistics, the median duration — the amount of time from when the fraud commenced until it was detected — for the fraud cases reported to ACFE is 18 months.

Cerini & Associates, LLP provides forensic services, assists with litigation support, and conducts fraud examinations providing expert results when you need.

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