What is Forensic Accounting?
According to Investopedia, “Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct an examination into a company’s financial statements. Thus, providing an accounting analysis that is suitable for court”.
Forensic accounting is the process of uncovering misstatements in the accounting records of a business. These misstatements might be unintentional or intentional. This could be a small task or a very large task. Plain and simply said, this takes skill. It takes our deep understanding of the relationships in accounting transactions. It takes an understanding of how to recognize patterns that should be in the transactions and the variances in normal patterns when something is wrong. Most importantly, it takes time interviewing staff, examining documents and a good understanding of how the client business operates. This evaluation and probing process is not easy.
When would I need to call a forensic accountant? The need for a specialist usually arises with a tip from an employee. An employee knows something is going on or comes across transactions that do not make sense. For example, checks are being written to a vendor no one has heard of before, money wires being sent to a vendor that are “just under” the manager’s authorization level, or payments being mailed to an unknown P.O. Box. Or, in a divorce, the spouse has a business. Often a forensic accountant is brought in to verify the business transactions. These are just a couple of signs that fraud might be occurring. Don’t wait for this problem to grow bigger, call a professional. Call us.