Forensic accounting is a rapidly growing field of specialization that enables
business owners to get firm control over possible financial fraud and mismanagement within their companies — and to
deter it before it occurs. In fact, Parade
magazine reported recently that forensic
accounting is the No. 1 growth area in the
United States, and an increasingly necessary area of specialization.
Smart Business spoke with Jeff
Matthews, forensic accounting and investigative services director with Grant
Thornton LLP, to learn more about forensic
accounting and how it can benefit business
owners and managers.
What is a forensic accountant?
A forensic accountant is someone who
can combine and apply the better parts of
accounting, auditing, and investigative
skills in an effort to solve a complex financial dilemma. Some accountants may not
possess the advanced levels of skills in all
three of those areas.
But more accountants are developing
them in response to increased regulatory
demands created by Sarbanes-Oxley and
other legislation. That doesn’t mean there
is more fraud and misconduct today. It just
means that more of it is coming to light.
Why would a company retain a forensic
accountant?
There are generally two reasons: 1) A
company knows they have problems with
fraud and/or misconduct; or 2) They don’t
know and are at risk of an ambush. A company could decide to be proactive and
audit for fraud, stemming from concerns
such as watching their copmpetitors suffer
public humiliation stemming from incidents. Or, as often is the case, a company
may have experienced their own allegations and must develope an action plan.
That plan may not necessarily result in
legal action.
A company may decide to handle the
matter internally by terminating an
employee who is found to have committed
the indescretion. Further, there may not be an adversarial situation, such as a company that needs assistance calculating a business interruption loss suffered from an act
of nature. The latter example suggests that
companys of all sizes can benefit from the
services of forensic accountants.
How do companies benefit from retaining
forensic accountants?
Simply put, forensic accountants save
companies time, money and effort based
on their services. They are trained to investigate fraud and misconduct in a manner
that produces a solid, defensible work
product. They are proficient at designing
effective anti-fraud controls, which can
mitigate the risks of future lawsuits and
deter fraud and misconduct. Forensic
accountants can help CEOs and CFOs
decide how comfortable they are that
fraud and misconduct are minimal in their
organizations, and help them to proactively deal with them. They can give managers
ideas on problematic areas based on their
own experience and discuss emerging
trends in companies’ particular industries.
Also, they can help companies develop systematic procedures to deter financial misconduct problems, and develop, implement and publicize ethics policies that theoretically make their enforcement a companywide effort. Finally, they can testify on
companies’ behalves in trials.
Are there steps forensic accountants might
recommend that companies can do on their
own to prevent fraud and mismanagement?
One is to ‘Own the Tone.’ The tone at the
top of the organization plays a crucial role
in creating a preventative culture. If top
managers uphold ethics and integrity, so
will the employees. A second step is for top
managers to become involved in the development of anti-fraud controls. Part of this
responsibility is to recognize risks attributed to the human element. The controls
often rely on individuals, as they are frequently manual. That recognition requires
a carefully trained eye for oversight, and
explains why top management should be
active in the design and development of
controls.
Forensic accountants can be valuable in
this process. They will share schemes that
have previously circumventable controls,
which in turn can help companies design
better controls to protect themselves
against fraud and misconduct.
A third suggestion is that CEOs ask tough
questions when discussing fraud and mismanagement with staff and management.
For example, a CEO might ask staff members, ‘If you were going to commit fraud or
mismanagement against this company,
how would you do it?’ The answers to such
questions help a company begin to bullet-proof itself against fraud or mismanagement.
Yet another step is to implement a written
and accessible policy that specifically
addresses fraud and misconduct, and communicate it often to all employees.
Management has to make sure that every
employee knows the company does not
tolerate fraud and misconduct and
enforces stiff penalties for those chosing to
lie, cheat and steal. That public announcement is one of the best deterents.
JEFF MATTHEWS is forensic accounting and investigative
services director for Grant Thornton LLP. Reach him at (214) 561-2420 or [email protected].
