Fraud perpetrated by employees, management, vendors or customers can happen to any business. And if it does, it can take years to recover from the financial losses and reputational damage. In some cases — especially those involving small companies that lack the cash reserves to cushion the blow — a fraud incident can shut down a business.
If your business suspects fraud, engaging a forensic accountant to investigate, zero in on a perpetrator and gather evidence that can be used in court, is generally money well spent. In fact, the faster fraud is found, the less your company is likely to lose. The Association of Certified Fraud Examiners reports that fraud schemes have a median velocity (or rate at which financial losses pile up) of $8,300 a month.
In addition to leading investigations, forensic accountants can provide litigation support if a case winds up in court. And they’re the best source for recommending internal controls to prevent fraud from occurring in the first (or second) place.
Investigating an incident
When you engage a forensic accountant — whether it’s to investigate a suspicion or rumor or confirm a verified issue — the expert will start by gathering relevant data. You can help by quickly finding and handing over requested documents, whether they’re vendor invoices, financial statements or payroll records.
These days, digital evidence is a critical component of almost every fraud investigation. So most forensic accountants work with technology experts to gather and analyze data stored on mobile devices, laptops and servers. Although they employ many traditional tools and techniques to parse financial data, forensic experts also may use advanced technology, including artificial intelligence (AI). AI can help analyze vast datasets for trends and anomalies and trace and identify assets for recovery.
Your expert may also want to interview suspects and witnesses. Generally, forensic accountants use nonconfrontational methods and open-ended questions to elicit the most useful information. Depending on your company and the situation, legal counsel or an HR representative may want — or be required — to participate in interviews.
After forensic accountants have gathered and analyzed fraud evidence, they usually summarize their conclusions in a formal report. It’s generally up to the company and legal counsel to decide how they want to proceed from there. But a fraud expert can help with efforts to recover stolen assets and pursue litigation.
Working with legal counsel
Each step of a fraud investigation takes time to complete and can present legal risks. Experienced forensic accountants know how to navigate these phases without, for example, violating employee rights, inadvertently disclosing confidential information or breaking the chain of custody.
Many third-party law firms hire forensic accountants to conduct fraud investigations. If an attorney, instead of a defrauded business, engages a fraud expert, the investigation generally is afforded certain legal protections. Also, the forensic accountant usually has greater access to counsel throughout the investigation. Most fraud experts have experience requesting and managing data and documents during the discovery process.
If a business decides to pursue legal action against a fraud perpetrator, a forensic accountant can serve as an expert witness during legal proceedings and explain complex financial matters to a judge or jury. Forensic accountants can also help present the case to law enforcement.
Role of internal controls
If your business is victimized by fraud and you do nothing to shore up protections, fraud is likely to strike again. A forensic accountant can help you strengthen internal controls with such tools as audits, confidential tip lines, employee training programs and procedures that prevent managers from overriding rules. Even if you haven’t encountered fraud, contact us to conduct an in-depth analysis of your company’s current controls.