Forensic accounting best practices you should know

Posted by John Smith on March 5th, 2018

Forensic accounting is one of the most crucial form of accounting that helps discover economic and financial information. End documents produced in this process are made mandatory by law to appear in court to supply for expert evidence.

Forensic accounting is however a broad term encapsulating various types of accounting because there are many different industries doing this. As a result, various companies have developed their own terminology for it, but they all refer to this single for of accounting.

These are legal aid assistance accounting, investigative accounting, insurance claims accounting and fraud claims audit. Various financial and non-financial corporations need these types of accounting.

However, there is a minimum standard of practice set for ensuring quality, accuracy, safety and, of course, accountability. In this article, we'd walk you through the nuts and bolts of the minimum standard set when conducting an investigative and forensic accounting engagement. These provide a proper framework for the application of judgement in such engagement matter.

Mitigation,stabilization, or preservation

While conducting forensic accounting, it is vital to investigate first whether or not any steps are essential for further loss of assets, data, or funds. This may include freezing or closing bank accounts, email accounts or any other form of asset. Physical documents may include purchase orders, delivery records et cetera. Every transaction cycle that may be involved in the matter under investigation should be checked thoroughly to search for any violation of documented and evident internal control in the scheme.

Data mining and analysisfor evidence of fraud

Data mining refers to gathering of electronically stored information and analysis refers to analyzing them for fraud detection. More often than not, accounting and financial data is what is useful to investigators, but sometimes non-financial categories of data also come into play.

Role of data analysis in forensic accounting is not to prove non-compliance or fraudulent activity, but rather to discover transactions and activities that can serve as an evidence of fraud.

Analysis of non-financial records

Nowadays, non-financial data is being increasing considered, collected, and analyzed by investigators to see the bigger picture while looking for fraud. The non-financial systems which are commonly used for investigation are security data, network data, and customer service data.

Suspicious transaction like bribery, kickback schemes in any of these available data can lead investigators closer to their goal and narrow down the forensic investigation process.

Review of additional documents

Even though electronic data is replacing paper documents as the major element in investigation, paper documents has not lost its importance and still remains a vital component in forensic accounting.

Studying the internal controls process involved in the suspected transaction cycle often results in pile of documents that are relevant to the case. Taking an example of procurement transaction, various forms such as contract form, budget authorisation form, invoice, cheques might provide useful data.

Not just collecting, but measuring the authenticity of these information and converting them to electronic format is also key.

The field of forensic accounting is ever evolving and hence investigators should be aware of and practice latest techniques while conducting a forensic accounting. At ActonyInc, a forensic accounting Boca Raton, we employ up-to-date practice in our investigations. Visit our website to learn more about us.