When I tell people about my degree in forensic accounting, I can see a curious question mark arise on their faces. The dead bodies’ response is what really made it hit home for me. Forensics is a word that has been mostly used in connection with criminology. But what does it actually mean and why may someone who received specialized training in a field such as forensic accounting be useful to the next door neighbor’s business?
Maybe to clarify one thing first, the word “forensic” in itself simply stands for the gathering of evidence in a manner that makes it presentable in court. There is a chain of custody that experts in a court case are required to follow. Any original evidence needs to be kept untouched so that no one can make the accusation of evidence tampering. This part of a forensic accountant’s work is the cream on top of the cake and requires years of experience along with a team of experts from all different fields.
The part that makes someone educated in forensic accounting distinct from the regular professional CPA/Tax Accountant is the focus on the different ways businesses can lose money due to weak internal controls that create the opportunity for fraud. The forensic accountant is brought on board to investigate potential fraud cases and establish better controls to help prevent chicanery going forward.
Statistics in forensic accounting show that there are various simple methods, such as the implementation of a fraud hotline or policy designed to prevent deceit, which prove very efficient. As a matter of fact, according to the Report To The Nation 2016, only 4% of all fraud cases are uncovered via CPA conducted external audits. The reason for this is not because those auditors are not qualified enough. One primary explanation for such a small impact is the fact that a CPA, by nature of the assignment, is looking for materiality when conducting an audit. The sheer overwhelming amount of data to process does not give room to follow up on every single lead. Fraud auditors, on the other hand, look for anything that looks irregular, regardless of materiality or compliance with GAAP (Generally Accepted Accounting Principles). It is not uncommon that the first step of detection appears as a speck in a sea of transactions. Nevertheless, this red flag can be the proverbial trail of breadcrumbs. An organization known as ACFE (Association of Certified Fraud Examiners) globally unites experts in the field of forensic accounting. The credentials CFE are a reliable sign of someone having extended knowledge in the area of fraud detection and prevention.
So yes, in answer to spoken and unspoken queries, if you would consider a bankrupt company a dead body then this would be the final stage in the work of the forensic accountant. Our mission is to prevent financial woes by establishing better controls.
Bernadette Ruggiero
CEO of XFile Accounting
