Imagine this scenario:
Your company is growing quickly. But recently you’ve noticed some inconsistencies in the financials. Your trusted bookkeeper of 15 years has taken multiple steps to determine the source – including reconciling bank statements, reviewing accounts payable, and searching for unusual activity in accruals.
Still, the inconsistencies persist. You know your bookkeeper is under some financial pressure at home. You begin to wonder…
Could it be Time to Bring in a Forensic Accountant?
Simply put, forensic accountants use specialized knowledge and investigative skills to collect, analyze and assess financial evidence and then to interpret and communicate those findings, whether in the boardroom or a courtroom. They are part investigator, auditor, attorney and CPA.
Typically, forensic accountants are hired when an alleged act of fraud has taken place such as: antitrust fraud, bankruptcy fraud, bribery, computer fraud, credit card fraud, counterfeiting, embezzlement, identity fraud, insider trading, insurance fraud, kickbacks, money laundering, obstruction of justice, perjury and price fixing.
When these crimes happen, it’s often a trusted individual who has been working at the organization for many years who is the culprit. While there are many motivating factors involved depending on each unique situation, employee fraud can typically be explained by the “fraud triangle”:
When an employee commits fraud, they are oftentimes suffering from some kind of financial hardship or pressure at home. Their spouse may be sick or laid off and the medical bills are piling up. Or perhaps there’s a gambling addiction involved and the employee in question believes they will replace the funds in the future.
Another reason employees commit fraud has to do with rationalization. They feel their employer has wronged them in the past in some way. Think of the employee who was certain they were next in line for the big promotion, only to be passed over in favor of a less senior employee. They believe they can justify their theft because their employer owes them in some capacity.
The opportunity for fraud is there so the employee takes advantage of it. For employers, one way to diminish the opportunity for theft is to have impeccable internal controls in place, such as properly segregating duties, and effectively monitoring those controls on a regular basis.
What to Know About Retaining a Forensic Accountant
Clearly, employee fraud can happen at any organization. In fact, white-collar crimes of all types are steadily increasing thanks to our technologically advanced society – which relies on cell phones and computer access to personal and financial information – coupled with challenging economic conditions. According to FBI estimates, the overall cost of white-collar crime in the United States today is approximately $300 billion dollars annually (source: Cornell Law School website).
To protect your organization, or if you have suspicions of employee fraud, it’s critical that you act now. Time is of the essence when it comes to forensic accounting to ensure that losses don’t continue. When selecting an accountant for your company, consider the following:
It’s important to ask about the accountant’s experience and ensure they have performed a number of engagements in the past. Should the case go to court, you’ll also want an accountant with experience serving as an expert witness.
The forensic accountant should hold the certification of Certified in Financial Forensics (CFF) and/or Certified Fraud Examiner (CFE), meaning they have provided proof of their educational and professional background and passed a rigorous forensic accounting
exam. Another certification to look for is that of Certified Public Accountant (CPA). When a forensic accountant holds this along with a financial forensic designation, they have the in-depth, dual knowledge and experience that can help them better detect fraud.
Cost is always a consideration; however, you should base your decision on value. Engage a forensic accountant who has a record of proven, tangible results.
How Lakelet Advisory Group (LAG) Can Help You
Lakelet Financial Forensics Group, an affiliate of Lakelet Advisory Group works with attorneys, boards of directors, auditors, and legal authorities to ensure that a professional an impeccably documented set of processes and findings are made available to the appropriate party in an expedited manner. We can help you with:
• E-forensics, our specialty, which consists of applying investigative and analytical techniques to gather and preserve evidence from a computing device in a way appropriate for presentation in a court of law
• Economic damages calculations, whether suffered through tort or breach of contract
• Post-acquisition disputes, such as earn outs or breaches of warranties
• Bankruptcy, insolvency and reorganization
• Securities fraud
• Business valuation