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You own and operate a small-to-medium-sized business, and you have devoted your life to making this company profitable. You have sacrificed and dedicated yourself to seeing your business succeed. You know your business, revenue, payroll, taxation status, and expenses so well that you would notice if there was a discrepancy in your books.

What would you do if you realized the money is just is not adding up? Who do you call to identify and investigate why the numbers are not lining up anymore? Are supplies more expensive? Did your tax status change? Or is something more sinister and intentional going on?

These questions shed light on a situation where your business would greatly benefit from a forensic accountant.

What is a Forensic Accountant?

Before we begin, we need to clarify what a forensic accountant is:

Forensic accounting utilizes accounting, auditing, and investigative skills to conduct an examination into the finances of an individual or business. Forensic accounting provides an accounting analysis suitable to be used in legal proceedings. Forensic accountants are trained to look beyond the numbers and deal with the business reality of a situation. Forensic accounting is frequently used in fraud and embezzlement cases to explain the nature of a financial crime in court.”

In short, forensic accountants are Certified Public Accountants (CPAs) who are professionally trained to identify and rectify cases of fraud and financial instability within an entity. Forensic accountants are CPAs first who pursued further education, specified training, and a certification examination.

If your business has experienced financial ambiguity, potential fraud, or instability, then you may benefit from considering the services of a forensic accountant. Forensic accountants thoroughly investigate financial cases to find problems, solutions, and, if necessary, to bring justice to those who have been robbed or wronged. If you think you may be in such a position, a forensic accountant could be the answer for your business.

Who employs the forensic accountant?

Forensic accountants are like private investigators and insurance agents. The forensic accountant you hire may be employed by a bank, an accounting firm, an insurance company, your local police department, or a government agency.

The Significance of Fraud

Although fraud is not the only situation in which a forensic accountant would be beneficial, fraud is one of the more prevalent catalysts for hiring a forensic accountant. 

Sadly, fraud is a significant reality faced by many companies, regardless of the size of the entity. Many small-to-medium-sized business owners think they are not in danger of being affected by fraud because they know their staff and have smaller payrolls. However, smaller businesses and non-profits are actually more likely to become the victims of fraud because they have that higher level of trust and are less likely to incur a tax audit that would reveal instability.

On an annual basis, companies lose an estimated $600 billion to fraud in the United States alone. The large majority of fraud remains undetected, a staggering 75% is never reported or found, the percentage of revenue due to fraudulent activity can take a toll on your business.

With this being said, if you or a member of your company suspects fraudulent activity within your business, then it is time to consult the services of a professional forensic accountant immediately as a safeguard for the future of your organization.

Telling Signs That You Should Hire a Forensic Accountant

Are You Involved in a Shareholder or Partner Dispute?

One red flag that should catch your attention is discord among your decision-making team.  If your members, managers, partners, shareholders, board members, etc. are disputing over rights to compensation or benefits, you should pursue the services of a forensic accountant.

The forensic accountant evaluates and observes the situation comprehensively, takes the entire picture into consideration, and determines the proper compensation or benefits owed to each partner or shareholder without bias. Ideally, the partners or shareholders involved will accept the outcome and continue in diplomatic partnership.

Are You Suffering Commercial Damages?

Another sign that a forensic accountant should be called upon is if you or some of your staff are involved in a legal dispute already. If legal action has been filed against you, for any number of reasons, then this is the time to bring in a forensic accountant to ensure that all is well before you move forward. Your accountant explores the complexities of the case and later presents the facts in court.

Have You Identified Employee Theft?

Fraud can infiltrate an organization from every angle. Unfortunately, employee fraud is a common and complex issue. Business and employee relations can be challenging to navigate. When we think of theft, we often imagine a situation where someone comes in with a weapon and threatens to take supplies or money. Far more likely is the scenario where your employee takes a little bit of money from each cashier transition, gives their friends or family an unauthorized “discount,” issues fake refunds, or receives paychecks for unworked overtime.

These small, and seemingly insignificant transactions can amount to large imbalances over time.  No matter how small, every unjustly obtained asset should be returned to the organization, and a forensic accountant is often required.

Your forensic accountant will investigate the situation and identify the total sum of damages via forensic intelligence gathering, suspect interviews, tracing funds, and other necessary measures. A trained professional is usually required to uncover and rectify total damages in court.

Are You Suspicious of Your Business Manager?

Unfortunately, not every person is trustworthy to hold positions of power within a company. If you suspect fraudulent activity among a manager or managers running your business, hire a forensic accountant to perform a fraud risk assessment and prevent further financial theft.

Is Your Commercial Insurance Failing to Follow Through?

If commercial insurance claims are not being properly followed through, a forensic accountant is often hired to examine coverage issues and calculate total losses owed.

Do You Question the Accuracy of Your Bookkeeping Records?

Unfortunately, as in many areas of an organization, accounting malpractice commonly occurs. Once again, a forensic accountant helps examine records to uncover the exact actions of the bookkeeper under suspicion.

Are You About to Sell Your Business?

Selling a business is no small task, and forensic accounting services are integral to determining accurate company value. Even if you plan to sell in the future, knowing the value of your business at any given time allows you to stay relevant.

Is Your Organization About to Face a Tax Audit?

Organizations often fear tax audits, simply due to disorganization. Forensic accountants are a critical tool in helping businesses prepare for a tax audit. Your accountant will ensure records are organized and in order, allowing for a smooth, successful audit.

Are You Interested in a General Fraud Risk Assessment?

Businesses interested in challenging and overcoming the status quo consistently seek opportunities to grow, optimize, and improve. Performing a fraud risk assessment, or internal controls review is an area of growth.

During a fraud risk assessment, a professional forensic accountant reviews the standard procedures that govern a company’s transaction cycles, including procurement, cash disbursements, and vendor selections. After analysis, a generated report highlights any outlining gaps in the company’s internal control structure, weaknesses that could lead to fraud. Then, the forensic accountant walks the organization through practical steps to reduce fraud vulnerability in each identified area.

Why Should You Hire a Forensic Accountant?

Forensic accountants compile financial evidence, develop computer applications to manage the information collected, and communicate their findings in the form of reports or presentations. When dealing with cases of fraud, a forensic accountant will always abide by two legal principles: 

Proximate Cause: Recovery of lost profits damages is subject to the general principle that damages derive from the illegal incident. The proximate cause oversees the recovery of compensatory damages.

Reasonable Certainty: Damages for lost profits must be proven with reasonable certainty. Damages must be capable of measurement, based on reliable factors – not on unwarranted speculation.

Each governing principle is reinforced by case law, and excellent forensic accountants incorporate each principle into the case at hand, as applicable – demonstrating trustworthiness.

Ultimately, individuals who have been financially taken advantage of can benefit significantly from the professional help of a forensic accountant. Forensic accountants bring attention to detail, effective communication, and professional skepticism to every fraudulent investigation.

DHJJ: Forensic Accounting Services

At DHJJ, we care about you and your business. We understand that theft and fraud pose a serious threat to your business. When fraudulent activity occurs, piecing together what transpired requires careful reconstruction and detailed analysis. We are here to guide you through this process and to help ensure you are able to get back on your feet.

You can count on DHJJ for experienced, professional forensic accounting services. Please do not hesitate to contact our team with potential fraud suspicions at 630.420.1360.

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