Forensic Accounting

Litigation Support

Forensic accounting is the primary tool used to determine economic costs in lawsuits or criminal investigations. Some examples include:

• Lost wages due to the death or disability of an earner
• Economic impact of pollution and the clean-up costs
• Long-term costs of medical care after an injury
• Determining the impact of theft of intellectual property, such as trade secrets or abuse of trademarks
• Locating assets in divorce, bankruptcy, or other legal procedures.

Forensic accounting in fact probably first came to public awareness during the O.J. Simpson civic trial when the plaintiffs used forensic accountants to search for undeclared assets.

Forensics can play a major role in the disposition of a case, particularly in lawsuits. If, for example, both sides' accountants come up with similar damages amounts for a case where a ruling is likely to be in favor of the plaintiff, that can be a strong incentive to settle.

Investigative Accounting

Investigative accounting can:

• Determine whether or not fraud or theft have taken place
• Determine the value of a business before another company acquires it or before a stock offering
• Determine whether financial documents or reports have been falsified
• Track down criminals through following financial transactions (This is one of the fastest-growing specialties after 9-11.)

Preemptive Tactics

Just as forensic accounting can be used to detect fraud after it has occurred, the same methods can be used to prevent it by investigating business systems for weaknesses. Accountants review basic financial practices such as:

• Segregation of duties, assuring that no one person is in charge of a financial transaction from beginning to end
• Examining loss or damage patterns to see if they are above the normal expected
• Adding checks and balances to business procedures, such as regularly checking that all names on payroll are confirmed employees
• Establishing surprise audits of any areas that are vulnerable to fraud, such as petty cash

Forensic Accounting Techniques

Forensic accountants use the same methods that financial accountants use as well as specialty mathematical techniques like statistical analysis to detect fraud patterns or projections and modeling to determine long-term economic impacts; investigative techniques like interviewing potential witnesses; computer code or log analysis to find indications of unlawful activity; and simply looking for unusual items such as discrepancies between cash flow and income patterns or write-offs that don't seem to be connected to the business' operations.

Careers and Career Planning

Particularly since the passage of the Sarbanes-Oxley Act of 2002 and various high-profile examples of corporate fraud, forensic accounting has become one of the fastest-growing financial careers. Experienced forensic analysts, particularly ones with a track record of success, regularly earn six-figure salaries.

Naturally, accounting is the standard background, but because there are so many possible specialties, some forensic accountants began in the legal, business management, statistics, loss prevention, or criminal studies fields. Many business schools offer courses and an increasing number offer bachelor or masters degrees in the field, and many forensic accountants have either the Certified Public Accountant or Certified Fraud Examiner designations.