What is Forensic Accounting

Forensic accounting can be defined as a thorough analysis, investigation, inquiry, or examination that is collected as a result of reviewing organizational records with the main focus being to expose organizational corruption and fraud. The field combines both litigation and investigative accounting practices. Litigation support is crucial to this field given the emphasis placed on the forensic accountants having the ability to effectively present evidence in a legal system. Forensic accountants are often required to resolve disputes and present evidence in legal disputes. One goal is to resolve the dispute prior to the case reaching the court system. However, there have been occasions where a dispute could not be resolved and the forensic accountant was expected to act as an expert witness in trials. Investigation is the act of determining whether criminal activity has occurred. Some of the duties of a forensic accountant may include
–   investigating and analyzing financial data,
–   using technology in the interpretation and presentation of financial information,
–   communicating findings through documented hard data, and
–   testifying in court as an expert witness.
Forensic accountants are required to work with more than numbers. They have to paint the big picture after data has been collected. There are many situations that can affect the future of a business. These situations can be positive or negative. Situations with negative impact may be viewed as risks, whereas situations with a positive impact can be seen as opportunities. The overall objective of most businesses is to minimize risk and seize opportunities.
Forensic accountants may be called upon to evaluate an organizations exposure to risk. Enterprise risk management addresses the risks and opportunities facing an organization by classifying objectives into four categories:
–   Strategic “big picture” goals focused on supporting an organization’s mission
–   Operations effective and efficient use of the organization’s resources
–   Reporting reliability of reporting
–   Compliance compliance with laws and regulations
Some of the flags that will catch a forensic accountant’s attention include the following:
–   Lack of an employee handbook
–   Disorganized company records
–   Missing documents
–   Unrecorded transactions
–   No bank reconciliations
–   Subsidiary ledgers out of balance
–   No physical inventory counts
–   Checks written to cash
–   Large related party loans
–   Excessive other revenue
–   Negative operating cash flow
–   Extensive fund transfers
–   Unusual transactions (inconsistent)
–   Deficient hiring policies and procedures
–   Employees’ lifestyles inconsistent with salaries
–   Employees who do not take vacations
–   Special purpose entities
–   Excessive insider sales of stock
–   Unexplained upper management resignations
–   Excessive debt/equity ratio
–   CPA switching
–   Strange account titles
A forensic accountant is usually asked to investigate an organization by auditing its financial and business related records. Most forensic accountants are required to have a broad skill set in areas such as accounting, auditing, and investigation. These skills will assist the individual in preparing an extensive, objective financial report that can be explained in environments such as a court of law. Many in this field have a bachelor’s degree in accounting and the CPA designation. Other popular designations include Certified Fraud Examiner (CFE) and Certified Forensic Accountants (Cr.FA). When a person in this field graduates from college, the individual may have a starting salary between $30,000 and $60,000. However, seasoned forensic accountants have been projected to earn six figures.