We recently received a newsletter article from theKFORDgroup, the San Antonio-based accounting firm we know and love, about the role of the forensic accountant. We find it in an interesting topic, as a forensic accountant can be helpful in a number of cases we oversee. For example, there might be an estate including a business owned by one of the parties that needs valuation, or there might concern about fraud or financial mismanagement impacting the value of the estate.
Therefore, we wanted to share more information about forensic accounting here, along with a few of our thoughts at the end.
When people hear the term “forensic science,” they usually think of the TV show CSI. What comes to mind when you hear the term “forensic accounting?” Accounting is a technical area of expertise – and, like forensic scientists offering opinions about scientific matters, forensic accountants may be called on to serve as expert witnesses in commercial litigation. Here’s how these experts can help clients unearth hidden assets and liabilities, revenue and expenses – and even help solve crimes.
How forensic accountants can help
If a client suspects that someone is stealing business assets or misrepresenting a company’s financial performance, it may be time to contact a forensic accountant. These experts specialize in conducting fraud audits and investigations to detect irregularities and troubling trends, looking for both telltale and subtle signs of white-collar crime.
Certified fraud examiners (CFEs) are specially trained in fraud discovery, recognition, documentation and prevention. They are also generally knowledgeable about human behavioral factors and motivations that contribute to the commission of fraud, such as the ability to rationalize fraudulent conduct.
Often, forensic accountants are retained to detect misrepresentations of financial data or to locate missing funds. It’s important to investigate fraud suspicions as early as possible to help mitigate potential losses.
What to expect
When you engage a forensic accountant, you can expect the expert to work closely with you and your client to tailor an investigation to the situation at hand. Depending on the type of fraud suspected, the investigation may be performed on a comprehensive, companywide or random, spot-check basis.
Forensic accountants will work to determine the scope of the fraud, including how long it has gone on and the parties involved. Investigations typically require extensive document review. In a case involving asset misappropriation, for example, experts might search for forged documents.
They also look for evidence of compliance – or noncompliance – with Generally Accepted Accounting Principles (GAAP). Of course, GAAP compliance doesn’t guarantee legitimate accounting, so an investigation might also focus on specific areas that wouldn’t necessarily be caught in an audit, such as the use of assets at the operational level. Are they being used as intended or for the benefit of an employee? Are all the assets accounted for?
When working with a forensic accounting expert, beware of attorney-client privilege issues. Because accountants lack this protective privilege, they must work closely with you to determine their roles and they need to be cautious about whom they interview. If, for example, plaintiffs’ attorneys become involved, these parties are likely to request any notes of interviews conducted by forensic experts.
When to expand the scope
Special investigations also can be effective in uncovering high-level financial fraud. A board usually receives its financial and operational information from a company’s highest executives. Investigations provide a method for the board to obtain access to deeper, more detailed information without going through the executive level of management. Instead, investigators can gather information directly from those in the trenches, using methods such as interviews, and immerse themselves in data and information unfiltered by top management. They then can communicate directly with the board.
Fraud investigations can be particularly useful to monitor the activities of top executives – even if only for policy lapses. Upper-management employees often are given greater latitude and may be tempted to bend the rules. When this occurs, it can influence the ethical environment of an entire company and encourage other employees to disregard policies or even commit fraud.
When to call
As soon as the inkling of financial impropriety arises, consult a forensic accounting expert. His or her early involvement can help minimize fraud losses, preserve confidentiality and admissibility of evidence, and can possibly even reduce your client’s overall litigation costs.
TheKFORDgroup has a financial team assembled and ready to assist you. Our litigation team is made up of experts with the knowledge and experience in expert witness engagements, forensic accounting, and business valuations. Our experts are trained and experienced in forensic accounting and will assist you and your client in ferreting out the fraud and the fraudster. For more information, please call us at 210-340-8351.
We want to add to this, when it comes to divorce, that there is often significant anxiety accompanying both divorce and financial management. Having an accomplished resource like a forensic accountant, especially when there’s suspicion of fraud or financial wrongdoing in a divorce case, adds a layer of comfort and strength for those facing the uncertainty that often comes with divorce.
(Note: Additional information included in the Ford article was provided by PDI Global / Thomson Reuters © 2018)