Business development is very demanding in a globalized world where the competition is huge. Bad plans, execution, but also unwanted problems like financial fraud can stand in the way of success. It is a shocking statistic that thefts committed by company employees cost organizations more than 50 billion dollars a year. Enemies can be inside or outside the company, but once the damage is done, it’s a cascading problem that can significantly slow down growth and business.
Fraud detection is one of the key activities for forensic accounting, and in this article we will go through a few typical cases investigated by this multidisciplinary branch.
What is forensic accounting?
Forensic accounting and financial forensics bring together two seemingly unrelated worlds. On the one hand, we have a high level of financial and accounting expertise, and on the other, the ability to provide investigations. The idea of forensics is to reveal illegal actions by a detailed investigation of financial transactions, documents and business activities.
Advanced accounting, auditing, investigative and analytical skills are used in the financial investigation and fraud detection process.
Fraud detection with forensic accounting
There is a whole range of illicit, illegal and code-violating actions that can be uncovered by a forensic assessment. Classic theft is the most obvious example and it is about cases when an employee or some other person steals money from the company. Fraud detection takes place through forensic analysis of events, searching for and reviewing evidence in documentation and reports.
Money laundering is another activity that can be detected through financial forensics. By detailed analysis of transactions and business activities, illegal money can be detected in the financial flows of the organization.
Forensic accounting is a valuable tool in case of fraud related to the value of companies, shares and securities. It is a great help in the case when investors are presented with incorrect information, given intentionally wrong advice about investments and similar circumstances. Financial forensics can detect potential risks or help detect fraud through in-depth analysis and using the latest methods.
Tax avoidance is one of the common methods that some companies resort to in order to maximize profits. The use of fancy accounting and bookkeeping fraud can be detected when forensic accounting is brought into the story. By studying tax documentation, financial statements and transactions, forensic analysis will detect tax fraud.
Precautionary counseling and analysis
Forensic accounting is not only about fraud detection, but forensic assessment can be used for advisory purposes. If your company needs to assess business risks in relations with investors, creditors or potential partners, forensic experts can perform due diligence through a thorough due diligence process.
Financial forensics firms also provide advisory services to help clients manage financial risks and ensure regulatory compliance. Another possible application of detailed analysis and forensic reports is in cases of court and other disputes or disagreements between companies.