The world of Certified Public Accountants (CPAs) can mean more than looking at numbers, doing math, and helping clients reach their financial goals.
To break it down simply, financial records come in many forms — sometimes as simple straightforward statements, and sometimes financial records can be a very complex web of comingled transactions and/or accounts that may need to be traced, sorted out, and analyzed, often due to the presence of financial crimes.
If there is a financial crime at play, or an accountant needs to apply some investigative skills when reviewing the numbers, then a forensic accountant is required.
If you haven’t heard the term before, then perhaps a forensic accountant might sound like some futuristic accountant or auditor. The reality is that as the world becomes more internet-based (from shopping to working to sending money to friends), financial record-keeping becomes much more complex, and fraud experts are getting better at hiding evidence of their wrongdoing.
One of the many services that Forensic Accountant’s provide is to catch and stop this above-mentioned fraud. That’s just a quick synopsis explaining a very small segment of what the forensic accounting field entails. But there’s more than a single reason for hiring a forensic accountant. Let’s take a look.
Different Than a CPA
While a forensic accountant is a CPA, all CPAs are not necessarily forensic accountants. In order to become a CPA, candidates must pass a gruelingly intense and certification process that concludes with four 5-hour exams, each focusing on different areas of the accounting profession, on four separate days. administered by the Board of Accountancy for each state – these exams are often considered to be even more intense and difficult than the bar exam that is required of attorneys.
Forensic accountants, after many years of experience in the accounting field, are able to take this financial knowledge even further, applying their experience and skills to legal proceedings or investigative financial processes. In short, forensic accountants are fraud examiners in the realm of financial data. They not only understand and see the numbers, but they can read the story that the numbers tell. And this difference is quite crucial.
This skill set can be helpful for various reasons, some of which are more common than others. Here is a brief list that is absolutely not all-inclusive, it’s just intended to provide some quick examples of some of the more common reasons that individuals or companies hire forensic accountants.
1. Expert Witness
A common use for these accounting skills is to provide expert witness for or testimony to legal proceedings. These proceedings might involve a criminal investigation into something like insurance fraud or embezzlement. There may also be a court proceeding in which quantification of damages is necessary to assess, this is referred to as “economic damages”.
In these instances, a CPA with forensic experience will help break down the numbers and reveal the story behind them. If an employee is committing fraud, for example, then the numbers can tell this story. And this combination of accounting and investigative skills makes this line of work extremely important for a large variety of different types of legal proceedings.
2. Divorce and Assets
While divorce is a legal proceeding, people don’t think of it this way. Instead, they tend to think of the difficulty each person is going through, the strain it must be on their families and their lifestyle — and, of course, who will get to keep posession of which assets – or cash value thereof – at the end of the day. And though it is not always ill-intended, it is common that there are disputes about what belongs to whom.
Part of what a forensic accountant does is to go through a couple’s financials with those investigative eyes. The goal is not always to call someone out, or reveal a truth about the other, but simply to level the playing field with facts instead of emotions.
Another situation where a forensic account is helpful are situations or sometimes litigations in the case of distributing assets evenly and fairly to the family members of a deceased party. While we all want to believe that the transition or splitting of family assets is cut and dry, emotions get the best of us and muddy the water. In these instances, it is best to hire a forensic accountant to keep that water clear and bring the reality of the situation, and sometimes even the hidden assets that were not known about prior, to the surface for all to see.
3. Corporate Investigations
There is no company too small for a financial investigation. This is often a misconception about employee fraud, many smaller local businesses think that employee fraud only occurs in large corporations. The fact of the matter is that any business with operational cash flow has room for fraud. This is especially true if owners/management have not implemented correct controls and proper checks and balances haven’t been put in place. Accounting work is crucial for businesses of every size to ensure the numbers align and the business moves forward in a successful and profitable manner.
However, your ordinary everyday business accountants aren’t looking for instances of fraud. They want to ensure that tax forms and refunds for indiciduals are taken care of. Additionally, for corporations, ordinary accounts are concerned with making sure operations are taken care of and running smoothly while ensuring the proper taxes are paid and/or that shareholder records are correct. But by bringing in a forensic accountant, a company will get a different view of the numbers, receive explanations for any irregularities, and weed out possible incidences of fraudulent activity.
Let’s face it, nobody wants to assume fraud is happening in their business. However, forensic investigations have become more and more commonplace because the sad reality is that fraud happens more often than people think.
Hire Joey Friedman CPA PA, to be your Forensic Accountant!
Whether going through a divorce, dealing with an insurance company, needing an expert witness, or any number of other scenarios, having a forensic accountant in your corner is the way to get the full insight and story out of the numbers while also explained in a manner that is easy for everyone involved to understand.
