Forensic accountants use their knowledge of accounting and excellent skills of analysis to determine if certain actions have occurred, such as fraud. While forensic accountants receive traditional accounting training, they also learn specific clues and red flags that commonly happen if something is amiss. There are many specialties within the field of forensic accounting, including bankruptcy, computer forensics, and insurance fraud.
About Forensic Accounting
Although the term ‘forensic accounting’ was coined in the mid-1900s, the actual practice is ancient. The very first accountants were engaged in asset control, such as gold or livestock. They used the tools at their disposal to determine if the owner of the property was being cheated. Centuries later, an accountant was used as a witness in a Canadian court case; this occurred in the early 1800s; this was the first time it had happened in North America. When the Federal Bureau of Investigation was created, over one-third of the agents had ties to accounting. The FBI now has many forensic accountants who work for them in both agent and non-agent capacities.
A forensic accountant combines the knowledge of accounting, which includes the necessary accounting and auditing procedures; with detective skills worthy of the great Sherlock Holmes. Once an issue is discovered, they must prove it in a manner that will hold up in a courtroom. As one might guess, these accountants are incredibly organized, very knowledgeable, and not afraid to dig deep for the truth. They must be aware of all accounting rules and laws and be able to use technology efficiently. A forensic accountant should also be an excellent communicator, they have to conduct interviews and pry information from those involved in the company or situation that they are investigating. They are naturally curious people and use creativity to get the information that they need.
A forensic accountant should also be able to testify in court. Just like a police officer, this type of accountant should be scrupulously ethical, yet be able to think like a criminal. They must be skeptical and not take everything they find at face value. They must also be intuitive and have solid research skills.
Credentials and Education
Depending upon what country they live in, a forensic accountant may have different credentials or be credentialed under different titles. In the United States, before there was a forensic accountant designation, these types of accountants were usually certified public accountants or CPAs. Degrees in forensic accounting are relatively new; accountants who went to school before these programs were in place can return to receive a forensic accounting education and credential. Many colleges now offer graduate degrees that focus on forensic accounting.
Often fraud is not a huge scandal, such as the accounting nightmares that initiated the Sarbanes-Oxley Act of 2002. Minor fraud is often committed and can go undetected for years, as it often involves small amounts of money. Employers should ensure that they have built-in checks and balances, such as segregation of duties. Employees who commit fraud would not be as tempted to do so if the opportunity did not exist. Even an employee who has been loyal for years can find himself or herself under personal financial pressure that justifies the fraud in their minds. An employee who discovers that no one checks purchase orders against the products received may find it easy to order a few extra things to take home. A cashier at a fast-food restaurant who has prices memorized can easily make a few extra dollars a shift by not ringing up sales. The manager of the business must be vigilant when tracking inventory, invoices, purchases, and returns. All of these areas can easily fall victim to a knowledgeable employee with unrestricted access. In addition, some employees become bolder and steal more money or products because they have realized how easy it is to do so.
Accounting has changed since ancient days and is much more complex; so are the systems used to track information. While accounting used to be done on paper, with journals and ledgers, it is now largely done via computer using accounting software. This software can vary according to the industry, so the forensic accountant must be very familiar with the program being used. Data mining and computer forensics are now used to find information that the perpetrator wanted to remain hidden. This requires a skill set beyond familiarity with accounting procedures. The forensic accountant must be able to find data that had previous been deleted; they might even need to be familiar with query languages. They may also need some computer science education, along with statistics and finance.
Computer-based accounting requires importing of documents, usually by scanner. The forensic accountant must be sure that they verify this information against the original documents. Many people felt that computers would replace paper, however, these hard copies are some of the evidence that can prove that fraud has occurred. The accountant will also need to verify records with outside parties, such as banks and vendors. Technology has made the process of accounting easier, but it has also made fraud easier to hide. The forensic accountant must have the proper training to be able to spot potentially falsified documents, such as invoices and even financial statements. The overall process of data entry that used to take so much time in the past has largely been eliminated, but it has been replaced by the need for technological wizardry. Today’s forensic accountant is, in many ways, a multi-tasking miracle worker.