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What is Forensic Accounting?

What is Forensic Accounting?

Some comments I here when I tell people that I specialize in Forensic Accounting are:

  1. “Cool, like CSI Miami?”,
  2. Just what does a Forensic Accountant do and how can you help me?, and
  3. You “guys” make it too complicated.

A forensic accountant can assist in the areas of Bankruptcy, Economic Damages, Family Law, Valuation and Fraud Prevention/Detection.  A specialized skillset and knowledge is needed for the practitioner to be effective. Because of what is required of a forensic accountant in these areas it is also important for them to be effective communicators to assist the attorney to accomplish their objective.

In the AICPA report “Characteristics and Skills of the Forensic Accountant”[1] the authors discuss and report on the reasons why forensic accountants are ineffective, from an attorney’s perspective.  “More than 80% of attorney respondents identified inability to simplify the information and ineffective oral communications skills as the top-two reasons why forensic accountants are ineffective, which is consistent with their Top 5 ranking of core skills for forensic accountants.”  Attorneys required that forensic accountants not only be analytical and detail-oriented, but also have the following core skills:

  1. Effective Oral Communicator,
  2. Simplify the Information,
  3. Critical/Strategic Thinker,
  4. Identify Key Issues, and
  5. Audit and Investigative Ability.

These traits and skills should be evident when interviewing a prospective forensic accountant.  In order to solve a problem you need to know what that problem is.  The reasons for correctly understanding this is to ensure that the engagement’s scope and objective are clearly understood so no time or money is lost and second to decipher what “tools” and/or documents the accountant may need.  This is the point when the forensic accountant should be putting together the various scenarios they are going to go through and what they need to accomplish their objective.  A detailed accountant can lose you in their madness to acquire information whereas a skilled forensic accountant should communicate the purpose and need ahead of time to ensure that objectives meet overall strategy.

The forensic accountant is dissecting the problem in their head and plotting their game plan to prove or disprove the fraud or finding the $500,000 of savings that mysteriously disappeared.  If you are handed a sheet of paper with a list of documents and no explanation be cautious.  Unfortunately, you may have a person who has not set an objective nor has a plan to execute.  One of the best ways to separate the novice from the professional is to review the practitioner’s certifications.  In addition, to having a CPA most credible forensic accountants will carry the Certified Fraud Examiner (“CFE”)[2], Certified in Financial Forensics (“CFF”), and/or the Accreditation in Business Valuation (“ABV”).

[1] Charles Davis, Ramona Farrell and Suzanne Ogilby.

[2] Overseen by the Association of Certified Fraud Examiners (“ACFE”)

 

Written by Josh Shilts of Villela & Shilts, LLC