You might have heard of auditing before. An audit is when your financial accounts and statements are examined. Auditing is a part of the finance and accounting field (Investopedia), which is also related to forensic accounting. Forensic accounting is the use of accounting and investigative skills to discover fraud and examine financial information for legal purposes. Crimes that forensic accountants investigate can vary, including embezzlement and tax fraud. In general, there are seven techniques used in financial forensics.
Background Checking and Examining Public Documents
First, it is ideal to background check everyone who is involved, including companies and other parties, and to check documents that are made readily available to the public (Forensic Procedure Task Force). Background checks can include past and current information with other relevant records that may pertain to the case. Public documents and records can reveal motives to commit financial crimes based on historical behaviors and/or current interactions.
Like other areas of criminal justice, interviews are just as important in financial crimes (Forensic Procedure Task Force). Detailed interviews can help gain pertinent information about an investigation, such as the target, as well as learn more about witnesses if there are any. Financial investigators can use the interviews to better understand and resolve a case.
Just like cops and other law enforcement officers, financial accountants can also have confidential informants or sources (Forensic Procedure Task Force). They are usually people willing to give information anonymously. This is important because sometimes the information informants give can be invaluable. However, financial investigators also double-check to make sure that the confidential information is factual.
Analyzing Evidence Found
After gathering enough evidence, forensic specialists can use laboratory tools for analysis (Forensic Procedure Task Force). For example, computer software can discover altered or fake financial documents and retrieve deleted electronic files with possibly incriminating information. Moreover, computer technology can format data, analyze transactions, and collect statistical samples while also looking for misappropriation or misleading financial statement balances.
Surveilling People and Electronics
Forensic investigators may surveil people or places and objects to catch criminals in committing a crime (Forensic Procedure Task Force). Surveillance can be done electronically, like tracking electronic communications, or physically. This technique is not just useful for tracking criminal people, but can also be used as a safety measure for vulnerable areas like a cashier’s counter.
Undercover operations are useful to gather important information on a suspect or crime (Forensic Procedure Task Force). While most financial investigators do not go undercover, the law enforcement agencies they work for do. Some agencies like the FBI also hire Certified Public Accountants (CPAs) as both forensic accountants and Special Agents for a variety of duties.
Analyzing Financial Statements
The analysis of financial statements is one of the most crucial tools for discovering fraud (Forensic Procedure Task Force). Since financial statements often include necessary information, a forensic accountant can discover a fraud scheme through careful examination. Some examples of analysis include checking financial transactions for abnormalities, inspecting journal entries, and assessing the performance of a business to an industry’s trends. Another benefit of analysis includes the possibility of being able to identify fabricated employees or vendors to discover irregular payments.
Significance of Forensic Accounting
Forensic accounting is not a well-known field and is still unfamiliar to the general public (Long Island University). But in recent years, there have been many mega scandals relating to finance (ex. Bernie Madoff), and as a result, this field is gaining attention and support. Forensic accountants discover and investigate financial fraud, playing an integral role in protecting financial assets.