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Financial Investigations and Forensic Accounting

Financial investigations and forensic accounting are generally used in fraud and embezzlement cases to explain the nature of financial crime in the court.

Package inclusions:
  • Anti-Corruption Investigations
  • Asset tracing
  • Cash Flow Analysis
  • Court-Appointed Accounting Assignments
  • Damages Quantification
  • Economic Analysis
  • Expert and Fact Witness Testimony
  • Financial Reporting and Disclosures Assessment
  • Financial Investigations
  • Forensic Due Diligence
  • Insurance Claims
  • Internal Controls Assessment and Remediation
  • Internal Investigations
  • Lost Profits
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Financial Investigations and Forensic Accounting

Forensic accountants analyze, summarize, and interpret complex financial and business matters. They can be hired by insurance companies, police forces, banks, public accounting firms, or government agencies. Forensic accountants compile financial evidence, develop the computer applications for managing the information collected, and communicate their findings in presentations or reports.

Forensic accounting utilizes the accounting, auditing as well as the investigative skills to conduct an examination into the finances of an individual or a business. Forensic accounting gives an analysis of accounting that is suitable to be used in legal proceedings. Forensic accountants have been trained to look beyond the numbers and deal with the business situation's reality. Financial investigations and forensic accounting are generally used in fraud and embezzlement cases to explain the nature of the court's financial crime.

Financial fraud is disastrous for any business, in case if not acted quickly to prevent fraud and to recover the assets. There is suspicion regarding the occurrence of fraud, contact Enterslice who possesses the expertise and experience to assist you in planning and conducting financial investigations and forensic accounting.

What are the Types of Financial Investigations and Forensic Accounting?

There are various types of financial investigations and forensic auditing that can take place. It is typically organized by the standards of legal proceeding that they fall under. Below are some of the most common examples of financial investigations and forensic accounting:

  • Financial theft (customers, employees, or outsiders)
  • Securities fraud
  • Bankruptcy
  • Defaulting on debt
  • Economic damages (various types of lawsuits to recover costs)
  • Mergers &Acquisition related lawsuits
  • Tax evasion or fraud
  • Corporate valuation disputes
  • Professional negligence claims
  • Money Laundering
  • Privacy Information
  • Divorce Proceedings

What is the Process of Financial Investigation and Forensic Accounting in Enterslice?

Our primary purpose is to provide the clients with the highly efficient and quality accounting services, and this is made possible by making use of a streamlined and systematic process. The key steps involved in our financial investigation and forensic accounting process are as follows:

forensic accounting process

 

  • Requirement Analysis

In the first step, we fix a meeting with our clients, and gather the requirements, understand the involved parties and the facts.

  • Perform Dispute Check

This step is performed to understand the dispute and the reason for conflict between different parties.

  • Perform a Basic Investigation

This step helps create a plan that must be carried out by an accountant and create a master plan keeping the final goal in mind.

  • Accumulating Evidence

In this step, the data is gathered as per the dispute between the parties and understanding detailed conflict.

  • Analyzing the Evidence

As per this step, the assets are traced, calculating the damage, calculating the value of assets, sensitivity analysis, summarizing transactions, etc.

  • Final Report Creation

The final report is submitted to the client who has sufficient evidence and data analysis to support the claim in question.

What Happens During Financial Investigations and Forensic Accounting?

Financial investigations and forensic accounting, in many cases, revolve around the collection and analysis. The collection aspect includes searching through a variety of financial documents. This can involve bank account records, real estate files, bank account information, motor vehicle records, and computer files. The investigators, after obtaining permission, can use computer forensics to find the relevant information.

After obtaining permission, the computer forensics will analyze the data that they have found, checking where the money is and how it got there. Since the financial investigators are a legal unbiased source, they can find evidence that can be used in court if necessary.

What are the Types of Financial Investigations and Forensic Accounting?

The forensic accountant appointed for financial investigations and accounting can be asked to investigate various types of fraud. It is important to categorize these types into three basic categories to provide an overview of the full range of investigations that can be carried out. The three categories of frauds are as follows, requiring financial investigations and forensic accounting are:

Types of Financial Investigations

Corruption

There are three different types of corruption fraud. They are Conflicts of Interest, Bribery, Extortion. As per research, corruption is involved in around one-third of all the frauds.

  • Conflict of Interest

In a conflict of interest fraud, the fraudster uses its influence to achieve personal gain that will negatively affect the company. The fraudster does not benefit financially but instead receives an undisclosed own benefit as a result of the circumstances. For example, a manager may approve an employee's expenses who has a close relationship with the manager, even if the amount of money charged is inappropriate.

  • Bribery

Bribery, on the other hand, is when money (or something else of value) is offered to influence the situation.

  • Extortion

The opposite of bribery is extortion and happens when money is demanded in order to secure a particular result.

Asset misappropriation

The most common of all the frauds are those consisting of asset misappropriation. There are many different categories of fraud that fall into this category. Some of the common instances for asset misappropriation are cash theft, fraudulent disbursements, inventory fraud, and assets misuse.

  • Cash Theft

The stealing of cash from the premises of the company.

  • Fraudulent Disbursements

The funds of the company that is used to make fraudulent payments. Some of the common examples include the billing schemes, where the payments are made to some fictitious supplier and the payroll schemes. The payments are made to some imaginative employees, generally known as ghost employees.

  • Inventory Frauds

Stealing the inventory from the company comes under inventory fraud.

  • Misuse of Assets

The employees using their company assets for their own personal interest.

Financial statement fraud

It is also referred to as fraudulent financial reporting. It is a category of fraud that causes material misstatement in the financial statements. It also includes deliberate falsification of accounting records, balances or disclosures, the omission of transactions, or the misapplication of financial reporting standards. This is often carried out with the intention of presenting financial statements with a particular bias, for example, concealing all the liabilities to improve any analysis of liquidity.

How to Conduct Financial Investigations and Forensic Accounting?

The procedure of conducting financial investigations and forensic accounting is in many ways similar to the process of conducting an audit, but with some additional points. The different stages are described below:

Accepting the Investigation

The forensic accountant shall initially consider whether their organization has the necessary skills and experience to accept the work. Financial investigations and forensic accounting are unique in nature, and the work requires detailed knowledge of fraud investigation techniques and how to maintain the safe custody of the gathered evidence.

An additional consideration consists of whether or not the investigation is requested by an audit client. There are some extra ethical questions asked in this condition, as the investigating firm will be exposed to advocacy, self-review, and managing threats to the objects. Unless some strong safeguards are put in place, the organization shall not provide audit and financial investigations and forensic accounting to the same customer. The considerations made in the due process of business are also very important, and a high fee must be negotiated to compensate for the specialist nature of the work. Involving the senior members of the firm can bring beneficial results.
Planning the Investigation

The team investigating the matter must be carefully considered what has been asked from them to achieve and plan their work accordingly. The objectives of the investigation include:

  • Identifying the type of fraud that is operating, how long it has been operating for, and how the fraud has been concealed.
  • Identifying the involved fraudster.
  • Quantifying the financial loss that has been suffered by the client.
  • Gathering the financial loss information suffered by the client.
  • Offering advice to prevent the reoccurrence of the fraud.

The investigators shall also consider the best way to gather evidence by using the computer-assisted audit techniques, for instance, fraud investigations.

Gathering evidence

To gather detailed evidence, the investigator should understand the different types of fraud that has been carried out and the method of committing the fraud. The evidence will be sufficient to eventually prove the identity of the fraudster, the procedure of the fraud scheme, and the total amount of financial loss suffered. The investigating team must be skilled in collecting evidence that can be used in a court case. It will also help in keeping the chain of custody until the evidence is presented in the court. In case any evidence is inconclusive, or there are gaps in the chain, then the evidence can be challenged in the court, or it can even become inadmissible. The investigators must be alerted with regard to documents being falsified, destroyed, or damaged.

The evidence can be gathered using the following techniques:

  • Testing controls to gather the evidence that identifies the weaknesses that allow the fraud to get perpetrated.
  • Using analytical procedures to compare the trends over time or to provide comparatives between the different segments.
  • Applying the computerized audit techniques, for instance, identifying the timing and location of relevant details that are altered in the computer system.
  • Discussions and interviews with the employees.
  • Substantive techniques such as reconciliations, cash counts, and documentation reviews.
  • The financial investigations and forensic accounting team's main aim is to get a confession by the fraudster if the fraud had actually occurred.

Reporting

The client expects a report that will consist of the findings of the investigation, including the summary of evidence and a conclusion as to the amount of suffered loss as a result of fraud. The report also discusses how the fraudster had set up a fraud scheme. The investigative team will recommend improvements to controls within the organization to prevent any similar types of fraud from occurring in the future.

Court Proceedings

The investigations likely turn towards the legal proceedings against the suspect and the members of the investigative team. The investigative team will likely be involved in any resultant court case. The evidence that is gathered during the investigation will be presented at the court, and the team members may be called to the court to describe the evidence that has been gathered and to explain how they had identified the suspect. It is vital that the members of the investigative team called to court can present their evidence clearly and professionally as they simply need to check the complex accounting issues.

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Frequently Asked Questions

A financial investigation is like any other investigation related to a person's financial matters. A financial investigation helps in determining the sources from where the money comes, how it has moved, and used.

Forensic accountants examine the data to determine where the missing money has moved and the ways to recover it. They also present reports of the financial findings as evidence during the hearings, where they are often testified as expert witnesses.

The techniques that are available to a forensic accountant are as follows:

• Conducting Interviews.

• Gathering of information from trustworthy sources.

• Analyzing evidence.

• Surveillance.

• Going Undercover.

• Analyzing the Financial Statements.

A forensic audit is designed to focus on reconstructing the past financial transactions for a specific purpose, such as fraud-related concerns. In contrast, internal audit is typically focused more on the compliance as well as the performance of the organization.

A forensic audit is an investigation and evaluation done on a firm’s or individual’s financial records to get evidence that can be used in a court of law or legal proceeding. Forensic audits require the expertise of accounting and auditing procedures and expert knowledge about the complete legal framework of such an audit.

A forensic accountant's role is to help the court by conducting the investigation. A forensic accountant helps in obtaining necessary documents and reviews it to support or refute the claim. They also assist with the court examination, including formulation of questions to be asked regarding the financial evidence.

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