What is Forensic Accounting? Everything You Need to KnowAugust 15, 2019
There are 3,483 forensic accounting offices in the US. In 2018, it was a $4 billion industry.
Thanks to an uptick of fraud happening to businesses, forensic accounting continues to be a growing business. In fact, most businesses lose around 5% of their total revenue each year to fraud.
Small businesses with fewer than 100 employees are particularly vulnerable. Not educating yourself on forensic accounting examples can devastate you financially.
To help protect yourself and your business, keep reading.
We’re going to answer the questions, “what is forensic accounting” and “where can I find forensic accountants near me”.
What Is Forensic Accounting
Forensic accounting defined is the use of accounting, auditing, and investigative skills to examine the finances of a business or individual. A forensic accountant is trained to search beyond the numbers to help a business to realistically handle an unfortunate situation.
In most instances, a forensic accountant is necessary in embezzlement and fraud cases. Forensic accountants help explain financial crimes in court.
What a Forensic Accountant Does
What is a forensic accountant? These professionals analyze, interpret, and summarize what is often complex business and financial issues.
Forensic accountants are typically employed in the following industries:
- Government agencies
- Insurance companies
- Police forces
- Public accounting firms
These professionals gather financial evidence and create computer applications in order to manage all of the information they collect. They then present their findings as a presentation or report.
Testifying in Court
Often forensic accountants are asked to testify in court. They typically prepare visual aids to support their evidence.
In cases where a forensic accountant is investigating a business, they perform the following duties:
- Asset identification
- Asset recovery
- Due diligence reviews
- Tracing funds
Since they are often highly involved in legal issues, forensic accountants often have a high familiarity with the judicial system. They also typically seek out additional training in alternative dispute resolution (ADR).
Reasons to Hire a Forensic Accountant
There are many reasons to work with a forensic accountant for both business and personal reasons.
Standard audits often overlook or dismiss small irregularities. A forensic audit looks closer to determine the reason for the irregularities and if there’s a pattern emerging.
Forensic accountants can also look for unethical or illegal practices such as:
- Under-reported income
- Excessive payments to creditors
- Padded or ghost payroll accounts
- Large suspicious purchases from people without the income to buy the items
- Unsubstantiated debts
Hiring a forensic accountant for a company audit ensures your business stays viable and healthy for the long haul.
Marital and Divorce Disputes
Dividing marital assets, especially when there’s a lot of money and/or property at stake, can get complicated. Especially if one spouse used methods to hide assets from their partner such as opening offshore accounts and jumbling their financial records.
A forensic accountant can discover where all the money is so a fair settlement is awarded to both parties.
It’s not uncommon for individuals and/or companies to increase the value of their real and physical assets in their insurance claims. Some people also pretend they incurred a larger loss from theft and fraud than they really did.
A forensic accountant can investigate to see if there are any patterns in the financial records. This helps them determine the true worth of a claim being made.
Attorneys also sometimes hire forensic accountants to discover if an insurance company should have paid out a claim they refused to honor. If the evidence gathered is overwhelming, they can often get insurance companies to settle and back out of a court case.
Standard accounting methods don’t always catch embezzlers. They are becoming savvier which makes them more difficult to catch.
Today’s technology makes it easier for thieves to get away with stealing money without being caught. A CPA is sometimes hired, but they have no real investigation skills.
A forensic accounting team can discover if an executive was taking money from an expense account rather than getting paid via a standard paycheck that’s taxed. They can also discover if an executive is accepting payments in cash and pocketing those amounts.
Other Reasons to Hire a Forensic Accountant
You can also hire a forensic accountant to help you with the following issues:
- Mergers and acquisitions
- Contract disputes
- Inheritance disputes
Forensic accounting can help an individual or business ensure they keep the money that’s rightfully theirs. They also help catch thieves in the act.
Don’t wait until it’s too late. Make sure your business stays healthy. Click here to contact us to schedule an appointment.