Fraudulent activities are rampant among businesses and have increased steadily in recent years. With the Internet’s growing power and connectivity, experiencing fraud has unfortunately become easier than ever. According to the Global Fraud and Identity Report, 33% of businesses experienced higher fraud losses than the previous year. The need for a forensic accountant is now more relevant than ever.
Many people underestimate the importance of forensic accounting. Indeed, corporate fraud worth $360 billion hits the economy yearly and gets the most attention. Still, the reality is that forensic accounting finds its way into a wide range of situations. Forensic accountants must be ethical, analytical, and intuitive to perform their duties effectively. As a result, they can provide valuable insight into financial investigations, business disputes, divorce cases, and much more.
Taking complex financial accounts and records and conducting an in-depth investigation require diverse skills. Accounting, auditing, and investigating are three core skills that forensic accountants use daily. While many people turn to their expertise in times of need and desperation, businesses would be wise to consider forensic accounting as a preventive measure, particularly in the case of fraud. One of the primary benefits of consulting with a forensic accountant early on is reducing risk because their skill set is so diverse; numerous scenarios require the expertise of a forensic accounting firm. In this post, we will explain forensic accounting and highlight who forensic accountants are, how they go about with it, and why a small business also needs to hire a forensic accountant.
Who Is A Forensic Accountant?
As the level of fraud rises, forensic accountants are responsible for investigating the situation and determining what caused the suspicious financial activity. A forensic accountant must determine where the missing money is and how to recover it by analyzing data and numbers. The discoveries made by accountants are frequently used as a credible source of evidence in trials or to recover from a scam, and forensic accountants are frequently used as expert witnesses.
Forensic accountants’ work is essential to many industries, including public accounting and consulting firms, law firms, law enforcement agencies, and insurance companies.
However, each category deals with money differently, and the forensic accountant’s role varies depending on the circumstances. Those in specific fields, such as public accounting or insurance accountants, will focus on a particular type of fraud, such as insurance fraud.
Because of the high level of trust in forensic accountants, certain requirements must be met before one can claim the title. To become a forensic accountant, an individual must first obtain the certification of a public accountant and then have 1-3 years of work experience. Following this, many pursue a Ph.D. and complete various certifications.
Why Do Small Businesses Require A Forensic Accountant?
Forensic accountants must educate small business owners on financial fraud prevention and detection. They also play an essential role in assisting small business owners in managing their finances and calculating inventory loss damage in financial litigation cases; most courts rely heavily on the experience and expertise of reputable forensic accountants.
Forensic accountants typically provide small business owners financial advice, preliminary financial documents, and detailed financial reports of their findings to legal professionals for use, usually as evidence in court cases. Forensic accountants gather evidence using advanced modern tools and techniques such as data mining and laboratory physical and financial evidence analysis.
What Is The Forensic Accounting Audit Procedure?
Each audit procedure necessitates a distinct protocol, depending on the circumstances. However, three steps of the process remain consistent.
- Investigation: Before any claims for fraud can be made, the forensic accountant must first investigate the situation. They look for any evidence, particularly red flags and discrepancies in the data. They may also interview employees of the organization. The forensic accountant’s job is to determine the best next steps to mitigate the situation using all the information uncovered during the investigation.
- Reporting: Using the investigation’s findings, the forensic accountant compiles a summary report of all their findings and begins to build a case. They will use this information to determine who is involved in the fraud and how it occurred. The forensic accountant will then recommend the following steps the company should take and suggest ways to avoid future fraudulent activity.
- Litigation: The forensic accountant’s final role is to provide testimony and serve as an expert witness during the litigation. The investigation’s findings will be presented in court. The forensic accountant’s job is to communicate their findings and explain how they arrived at their conclusion in terms the general public can understand. The key function of financial accounting is litigation. Following this, it is up to the court to render a final decision.
Forensic accounting combines accounting and investigative skills to determine the causes of fraud. Forensic accountants can present their findings in court to correct embezzlement and fraud by looking beyond the case’s numbers, facts, and evidence. They play an essential role in rectifying the situation with fraudulent financial activity and also help settle business disputes.