When Should Forensic Accounting Techniques Be Introduced Into A Fraud Investigation?

The terms forensic accounting and fraud investigation are often interlinked

. Both activities employ similar techniques. An expert accounting witness must be an experienced accountant and is sometimes called a forensic accountant. However, sometimes fraud investigations are carried out by persons lacking much in the way of accountancy skills.

Forensic accounting techniques are methods used by litigation support professionals, expert accounting witnesses, investigative auditors and fraud investigators to get to the bottom of financial situations that involve financial loss or dispute over the value of something. This can include corporate loss due to fraud, loss of profits owing to a breach of contract or business interruption or arguments over which spouse retains the lion's share of a family business during a divorce settlement.

Financial situations are described by financial statements and the accounting records used to produce these accounts. The first place to look is normally the bank records. Bank accounts are the backbone of any moderately complex organisation and are the best place to start employing forensic accounting techniques. A company will typically have one current bank account that it uses for its day to day business transactions. It may also have a savings account to keep any surplus cash it earns in order to receive more interest or to keep money earmarked for capital expenditure or tax repayments separate from its working capital. Where more than one or two bank accounts are used, the added complexity provides additional scope for the fraudster to cover up his criminal activities.

The first step is to analyse the bank statements to discover any anomalies that are present. Included here would be extra wage payments, inflated expense claims and payments to spurious accounts set up by the fraudster. The bank statement analysis, sometimes involving many bank accounts, are sometimes better understood if they are transferred to a spreadsheet where the transactions can be sorted and additional information understood. Filling a spreadsheet with bank transaction data can be done by hand or using specialised software and a scanner. Another method is to obtain computer files of data from the bank itself.

The collating of bank statement data and other transaction information obtained from accounting software, accounts ledgers and often vast numbers of supporting vouchers does require accounting expertise. This sort of skill ensures that the right data is included and superfluous numbers excluded so that the matters in hand can be better understood. It would be difficult to do this without accounting skills. It would also be difficult to support any findings when questioned in court. This is why the forensic accountant and fraud investigator both must have accounting skills.

Other techniques used in the investigation of financial anomalies will include evidence gathering and data analysis. Evidence gathering includes interviewing suspects and other parties to obtain reliable information that will either be used in court or as intelligence during an investigation. Intelligence is information that allows an investigator to direct his or her queries along an appropriate route that will eventually lead to the answers being sought.

Other than the standard accountancy skills, other forensic and fraud skills are best learned while working. There is a strong case that all persons involved in the investigation of financial issues should be formally trained in the art of accountancy to improve their investigation techniques.

by: Mark Jenner

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