Forensic Accounting

Agenda Definition History Skills Business scandals Cases

Forensic Accounting The forensic Accountant: The Sherlock Holmes of the accounting world. “Messmer, Max”

Definition Who is one part accountant, one part detective and one part legal expert. Is the specialty practice area of accountancy that describes engagement that result from actual or anticipated disputes or litigation. “Forensic means “suitable for use in court of law”

History As per the National Association of Forensic Accounting: It has been stated that the first known use of forensic accounting was in the conviction of AL CAPPONE!

Forensic Accounting Today’s forensic accountants perform their work in a number of diverse areas: “Fraud investigation and prevention – Forensic accountants often look for evidence of any criminal activity in company’s financial records. This could include anything from securities fraud and overvaluation of inventory to money laundering and improper capitalization of expenses.

Forensic Accounting But the work of forensic accounting professionals is not always crime-related. Businesses also value their guidance when considering potential structural changes. Their input during mergers or acquisitions. For example, can give all parties an accurate assessment of an enterprise’s financial situation and value.

Skills Unlike other accounting specialties, careers in forensic accounting often follow non-traditional paths. Forensic accountants typically possess a variety of backgrounds, including auditing and law enforcement. Many starts as Certified Public Accountants (CPAs), gradually learning forensic techniques simply by handling cases that require these skills. Some enter the field with a bachelors degree in business administration or accounting. The most common accreditation offered is Certified Fraud Examiner (CFE).

Case Studies

Decline in Profits Case Study Situation A client was experiencing an unexplainable decline in profits. The Chief Financial Officer was suspected of embezzling corporate funds, so the client hired forensic accountant and investigative team to look into the situation. Solution By analyzing the company's financial statements and records and uncovered a large fraud scheme. From available documents and records, and from interviews with key employees, a fraud report revealed that the CFO's fraudulent activities. The primary suspect was interviewed and confessed. The client is assisted in filing an employee dishonesty claim, and further assisted law enforcement in the prosecution process. Results - Chief financial officer gave a written confession and was then fired. The case was turned over to law enforcement and charges were filed by the local prosecutor. - New chief financial officer was hired. - Company is experiencing increased profits.

Inventory Losses Case Study Situation A large recreational wholesaler was experiencing significant inventory losses, a high number of customer complaints and a loss in revenue in the warehouse department. They decided to bring in an independent forensic team. Solution After meeting with the company's executives, the team of forensic investigators determined the company needed to proceed with some investigative work. Covert surveillance is conducted of the warehouse department, onsite interviews of warehouse employees, and analyzed the financial statements for key account variances. Results - Obtained key confessions from the warehouse supervisor and two warehouse employees. - Installed proper internal controls designed to safeguard the assets of the company. - Inventory variances have greatly improved. - Proper controls are in place, giving owners peace of mind.

Unexplainable Low Margins Case Study Situation A client in the service industry was experiencing unexplainable low margins. This was unacceptable to the client. He hired a forensic team to help him analyze the situation. Solution Experienced forensic investigators performed behavioral assessment interviews to determine each employee's level of fraud awareness. They also looked for internal control deficiencies and reasons for low margins. The client is provided with a complete report regarding the findings and recommendations. Results - Two employees were profiled as deceptive during the interviews-due to their responses and behavior. - One employee, who confessed to stealing, was fired. The case was turned over to local law enforcement; assistance in helping the client file an insurance claim. - The client implemented recommendations for improved internal controls over cash, resulting in increased margins.

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