A Behind-the-Scenes Look at Forensic Accounting

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Every year, financial and economic crimes cost Americans billions of dollars, significantly impacting their financial well-being.

The Federal Bureau of Investigation’s (FBI) forensic accountants investigate many of these crimes, which continue to expand given the growth in technology and complex financial regulations that result in more sophisticated financial schemes – all of which create challenging and intriguing career opportunities for forensic accountants.

To learn more, check out the infographic below created by the University of North Dakota’s Online Master of Accountancy program.

Forensic accountants use financial data and discovery to support the conviction of financial criminals.

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What Is Forensic Accounting?

Forensic accounting combines accounting, auditing and investigative skills to uncover evidence supporting the conviction of financial-crime perpetrators.

There are three aspects of forensic accounting. The first aspect is litigation support, the second aspect is investigation, and the third is dispute resolution.

Laws and Regulations Governing Forensic Accounting

The two primary laws overseeing forensic accounting were launched within a year of each other. The Securities Act of 1933 was passed to ensure transparency in financial statements and establish laws against fraudulent activities in securities markets. The Securities Exchange Act of 1934, meanwhile, aims to govern securities transactions on the secondary market and ensure an environment of fairness and investor confidence. The latter’s requirements include disclosure and proxy solicitations.

How the SEC Regulates Forensic Accounting

Forensic accounting regulation via the Securities and Exchange Commission (SEC) comes from the Financial Reporting and Audit (FRAud) Group. As part of the SEC’s Enforcement Division, Fraud is involved in “strengthening the agency’s efforts to identify and prosecute securities law violations related to financial reporting and audit failures” and “identifying and exploring areas susceptible to fraudulent financial reporting.” This is achieved through an ongoing review of financial statement restatements and revisions, analysis of performance trends by industry, and use of tech-based tools.

FRAud accepts tips and complaints from corporate insiders and gatekeepers like attorneys and auditors. It also accepts working and final drafts of relevant academic research to inform its policies and processes.

Master Sleuths in Forensic Accounting

Forensic accountants could also be called financial detectives. They search for clues to financial crimes and provide evidence that will be used in a court of law. Their discoveries impact organizations and economies of all sizes.

Accounting vs. Forensic Accounting

Forensic accounting refers to accounting suitable for use in a court of law. Unlike accountants, forensic accountants must know how to collect evidence of a financial crime by interviewing third-party witnesses and testifying as an expert witness. Additionally, conducting a financial statement audit like an accountant doesn’t involve looking for fraud or analyzing every transaction. Also, unlike an accounting audit’s goals, a forensic audit’s goals include discovering who committed the fraud, how they did it, how much they stole and how to prevent it from occurring again in the future.

A forensic audit describes internal control weaknesses, alleged acts of malfeasance, the extent of the alleged loss, and provides recommendations to address weaknesses and resolve gaps in internal controls. A forensic audit report may be used by organizational management to seek restitution or strengthen internal controls, by law enforcement agencies looking to file criminal charges, or the judiciary system to prosecute fraud.

Impact on National and Global Economies

Financial crimes impact politics, businesses, sports, and religious organizations. Conversely, forensic accounting impacts international tax evasion and transnational organized crime.

There are numerous benefits of forensic accounting. For instance, they can provide detailed disclosure of crimes to build a case to prosecute. They also support anti-money laundering programs through the uses of suspicious activity reports (SARs). Additionally, they support increased accountability in organizational decision-making.

Applications & Careers in Forensic Accounting

Experienced forensic accountants’ skills are applicable across a variety of cases and settings. For instance, forensic accountants employed by the FBI can expect to work on complex cases and investigate large financial schemes.

Forensic accounting techniques have numerous applications. Some of these applications include uncovering hidden assets in divorce cases, handling numerous civil matters, and investigating expropriations and product-liability claims.

Forensic Accountant Career

The duties of forensic accountants include conducting forensic research and analysis, preparing reports summarizing findings, prepping analytical data for litigation, and testifying in court when needed. They must have strong writing, interpersonal communication, and detail-oriented skills. A bachelor’s or master’s degree in forensic accounting, finance, or a related field is required, and post-graduate licensing like a certified fraud examiner (CFE) can be pursued. Professionals with a CFE typically make more than those without a CFE.

Working for the FBI

The FBI lists forensic accountant as one of its positions. They require applicants to understand the overall big picture of the case, be able to create the financial picture and communicate it internally and externally, identify suspicious activities, and uncover potential leads significant to the investigative team. Core actions include investigation, examination, collaboration, communication, and an ability to testify. They prefer candidates to have professional experience in forensic accounting, public accounting, litigation support and dispute services, government accounting or auditing, the financial services industry, or corporate accounting.

Conclusion

As a detective is to crime, a forensic accountant is to financial crime. The clues are in the numbers, and the magnifying glass is a toolbox of advanced forensic accounting techniques. Forensic accountants are unsung heroes dedicated to supporting organizations’ health and nations’ economies.