Forensic Accounting

Forensic Accounting

Forensic accounting involves the investigation of accounting and financial transactions that are or will become subject to legal proceedings.  It is an early step in a potential war, and many times it is the first shot.

The process involves identifying, gathering, analyzing and investigating transactions in a manner where the results can be clearly explained and documented.  Guess work and assumptions are not part of the process, but inquisitiveness is essential in charting the path of what needs to be done.  Opinions are presented as an end product or result of the work.  The engagement process should be free of bias, supposed conclusions or leanings. The result is a factual and expert presentation of financial and economic issues and possible quantifications of claims or damages that flow from the investigator’s procedures.

The genesis of the process is adversity but some of the conclusions can provide tangible benefits by recommendations of corrective measures that can be implemented to reduce risks of future losses or a tightening of controls.  In fact, some engagements are not litigation based, but rather are for the purpose of risk containment by reviewing a company’s processes and procedures to make sure they are being followed, and to provide an oversight that they are appropriate for the company and its personnel.

Retaining forensic accountants at a beginning stage in contemplated litigation can result in substantial overall cost and time savings by early identification of issues, scope of discovery, additional areas susceptible to damages and preliminary ball park quantification of damages.  It is not unusual for early estimations of potential recoveries to be less than the costs of the litigation, thus curtailing any further actions.

The forensic accountant needs to bring to the process analytical ability, auditing discipline, persistence, creativity, discretion, organization capability, experience and professional judgment.

Some areas where forensic accountants are engaged are marital disputes, business partnership disagreements, commercial litigation, loss damages such as from a fire or flood, breach of contracts, royalty and license payments, bankruptcy and pre filing issues, suspected employee theft, falsification of financial reports, insurance fraud, merger and acquisition due diligence and preliminary top side reviews.

If you think you will have a forensic issue, the earlier you start, the better.