Have you ever watched CSI?

The forensic scientist flashlights in hand come every inch of a murder scene in search of clues.

Well, forensic accountants do the same kind of work, but in the financial rules.

 Forensic accountants investigate allegations of fraud and are quite often considered accounting pathologists. Their job is to come in and tell the story of how the crime happened. The incriminating evidence comes from bank statements and ledgers, usually called “follow the money”. Why? because the numbers tell the story.

Have you ever watched CSI?

The forensic scientist flashlights in hand come every inch of a murder scene in search of clues.

Well, forensic accountants do the same kind of work, but in the financial rules.

 Forensic accountants investigate allegations of fraud and are quite often considered accounting pathologists. Their job is to come in and tell the story of how the crime happened. The incriminating evidence comes from bank statements and ledgers, usually called “follow the money”. Why? because the numbers tell the story.

Why you should consider hiring a Forensic Accountant for your business?

$50bln – the annual sum of revenue stolen by employees

75% of fraud is committed by employees

5% of annual business is lost to fraud

16 months – average fraud takes 16 months to uncover

There are many reasons why organizations choose to conduct fraud investigations.

 In particular, a properly executed fraud investigation addresses several organizational objectives, including identifying improper conduct, identifying the person or persons responsible for the inappropriate conduct, stopping the fraud, sending a message throughout the organization that fraud will not be tolerated, determining the extent of potential exposure, helping facilitate the recovery of losses, stopping future losses, strengthening internal control weaknesses, also,  in some instances a fraud investigation might be required by law.

A duty to investigate can arise from statutes regulations, contracts, or common-law duties, for example, the corporation's directors and officers have a common law duty of care to their organization and shareholders.

Therefore when suspicions of fraud arise, it might be necessary for them to investigate to ensure that they have full knowledge of such issues affecting the company; likewise, some laws hold employers accountable for investigating employee complaints involving certain matters such as retaliation, discrimination, harassment, and similar types of issues.

Tips to identify fraud

Fraud can be discovered in several ways, such as by a tip or complaint and auditing procedure monitoring or even by just luck, however, more than 50% of all fraud investigations originate with a tip from an employee, customer, or vendor.

As explained above, external audits only account for approximately 3% of frauds.

 Tips are the most valuable resource for discovering internal fraud; Companies should proactively seek them out by implementing easily accessible anonymous fraud reporting tools such as a whistleblower and ethics program, additionally, these reporting programs should be extended to accept external tips from sources such as customers and vendors.

Not all tips are valid and while it is essential to consider the motives of individuals willing to supply information of this kind, all tips must be approached from the outset as if they will yield useful information; in many instances, the whistleblower provides information that is a value in commencing an internal fraud investigation.

In such cases, the tipster observes or becomes aware of activity that is suspicious and feels a sense of obligation to report it.

Allegations of fraud must be dealt with quickly discreetly and by an experienced team. If your

organization has suspicions of fraud, Forensic Accountants can help you with a plan that will include assessing if the investigation should be conducted internally or externally.

What you need to consider when selecting a forensic accountant.

Every transaction is a potential clip.  

Here’s an example: A big company suspected one of its executives of embezzling money but didn’t have the proof from investigating the company's travel and entertainment expenses. It was easy for the fraudster to hide a few small transactions, especially since the tickets were for a destination where the company does business. But the company did not do business at Christmas time, and tickets weren't purchased for five people, they were usually purchased for one, and staff isn't allowed to travel on the same plane for disaster risk mitigation purposes.

Forensic accountants turned to social media between Facebook Instagram and Twitter and were able to review the most lavish breathtaking and captivating holiday pictures posted by the wife and son, the real lifestyles of the rich and famous.

People leave breadcrumbs everywhere, no matter how sophisticated the crime.

Forensic accountants figure out everything that was going on in recent years.

Financial scandals like the Madoff Ponzi scheme have shown how important trained experienced financial investigators really are in the era of globalization, big data, and deregulation. There's a lot of temptation to make a fast buck or take advantage of consumers' trust for a bigger payday.

What does a fraud investigation involve?

Well, the term fraud investigation refers to your process of resolving allegations of fraud from cradle to grave and it is the primary function of the fraud expert.

The fraud investigation process encompasses phases that include obtaining evidence, performing analysis, reporting, and testifying findings.

Obtaining evidence. The value of fraud investigation rests on the credibility of the evidence collected; evidence of fraud usually takes the form of documents, statements by witnesses, and fraud investigators know how to properly and legally obtain documentary evidence and witness statements.

Analysis. A forensic investigator goes into the engagement with an independent and objective mindset. It is one thing being told what happened and another to see emails, financial data, and third-party documentation that supports allegations of wrongdoing.

At times evidence needs to be reconciled cross-referenced and supported. Supporting information needs to be organized and analyzed.

Data analytics software is commonly used to tell a simplified story of complex issues reporting Once the evidence has been obtained and analyzed, findings are been drawn from it.

The fraud investigator will report the results to the designated individuals, for example, management, the board, or the other committee.

Reporting.

A fraud investigation report is a narration of the fraud investigator's specific activities, findings, and, if appropriate, recommendations.

 Such communications are necessary so that those responsible can determine the appropriate course of action. The results of an investigation can be communicated in various ways; the appropriate method of communication depends on the facts at issue, but most reports are communicated orally and in writing. When communicating the results of a fraud investigation, the fraud investigator is responsible for providing clear, accurate, and unbiased reports reflecting the fraud investigation results and findings.

The responsibilities of a forensic accountant include preparing findings with the understanding that the research will probably be used in court, either in a civil suit or criminal prosecution.

A forensic accountant will provide litigation support, and this can entail calculating the economic damage, for example when somebody violates a written contract.

In addition, a forensic accountant will provide what is referred to as an investigative account. This can involve assignments related to insurance or securities fraud wrongdoing related to kickbacks, employee theft, and more.

A forensic accountant has all the skills needed to conduct in-depth examinations of complex financial records and accounts and communicate with other members of the legal investigation team to keep them up to date as developments occur.

A major part of a forensic accountant is the ability to effectively convey financial information in a manner that is appropriate for a courtroom setting. Explaining complex situations in a simple to understand manner is key, having life experiences to pull from and draw analogies, also having great communication skills really makes a difference.

A lot of what forensic accountants do is the same thing investigators detectives and the police have done always: look for clues, establish patterns and find motivation, but computer technology has transformed the business and along with it, transformed financial crime.

A strong forensic accountant will have strong skills in data collection, data analytics, and data visualization; As blockchain technology impacts accounting data, forensic accountants are developing complex tools and skills to successfully examine a company's finances for signs of fraud, cover-ups, or just plain incompetence.

In many cases, the culmination of the forensic accountant’s investigation will be a summary of findings breaking down complex financial transactions into simple language.

Certified Fraud Examiners can disentangle complex embezzlement schemes, detect money laundering and find hidden assets, saving your business potentially millions.

Are Auditors the same as Forensic Accountants?

You think an auditor and a forensic accountant are the same. But, in fact, they are not. You might think you are safe because you have had an auditor come and look at your books once a year, but an audit is not looking at data in the same way as a forensic accountant.

Let’s compare the auditor and forensic accountant’s objectives, responsibilities, professional standards, and engagement terms.

Auditors identify less than 3% of frauds.

A financial statement audit is not a forensic accounting fraud investigation. There is a popular misconception that financial statement audits are conducted with the primary objective to deter and detect fraud.

Auditing is a process of determining whether a company's reported financial position and performance are fairly represented and in accordance with certain accounting standards.

A forensic investigation is an examination of specific records and information to help determine facts related to suspicion or allegation of fraud.

Audits and forensic investigations are different services that are planned and performed to accomplish unique objectives.

Both have a responsibility to detect fraud, however, the degree of that responsibility is substantially different. Auditors help provide confidence in the world's financial system by performing audits of financial statements to provide assurance that company management is presenting a true and fair view of a company's financial position and performance forensic accountants assist entities in conducting an investigation by providing their expertise from the initial allegation or suspicion of fraud to resolution, whether the end result is restitution, litigation, and an insurance claim, referral to a law enforcement agency or proof that no fraud occurred.

Let's talk a bit about the objectives and the responsibilities of both roles.

The overall objective and of an audit is to obtain reasonable assurance about whether financial statements as a whole are free from material misstatement.

Whether due to fraud or error, this enables the auditor to express an opinion on whether the financial statements are presented fairly in all material respects, in accordance with an applicable financial reporting framework and to report on the financial statements and communicate as required by generally accepted auditing standards, in accordance with the auditor’s findings.

A forensic investigation is performed to assist an entity in gathering sufficient relevant data to present in a trial.

Whether or not fraud was committed, the objectives of the forensic investigation include gathering evidence to identify the type of fraud, quantifying the amount of loss, determining who was involved when it began, why it was able to be perpetrated and how it was concealed, reporting the findings verbally or in a written report along with supporting evidence forensics.

A forensic investigation requires a very high standard of support, report and legally obtain evidence objectively, succinctly, and sufficiently explain the foundation for matters, and litigation that can sustain the scrutiny of a court of law.

Other Notable Differences between Auditors and Forensic Accountants

• Timing – Audits are planned periodically and on a recurring basis. Forensic

investigations are unforeseen, reactive, and nonrecurring.

• Predication – A forensic investigation begins with an allegation or suspicion of fraud. The allegation or suspicion of fraud is not the basis of an audit.

• Obligation – Forensic investigations are typically conducted voluntarily

because a company has suspicion or allegation of fraud. An audit is an

obligated engagement for which a company must hire an auditor to provide

an opinion on the truthfulness and fairness of its financial statements.

• Performance – An audit is performed by auditors who are CPAs. Forensic

the investigation is typically performed by a multidiscipline team of experts that

often includes CPAs.

• Appointment – The appointment of an auditor is made by the shareholders of the company. A forensic accountant is appointed by the owners/ management, counsel, or a third party.

If you or your client suspect fraud, you need to retain a forensic accounting expert that has experience in investigating, reporting, and testifying before the court as a forensic accountant.