Can forensic accounting techniques be applied proactively as opposed to retroactively?
Forensic accounting techniques can also be used on a proactive basis in many instances, including the deterrence of fraud. More specifically, forensic accountants can proactively analyze an organization’s internal control process to determine areas of weakness and help the organization swiftly remediate these issues.
You mentioned fraud deterrence as an area of expertise for forensic accountants. How can organizations use that expertise to help deter fraud?
Fraud deterrence focuses on removing one or more of the three causal factors of fraud: motive, opportunity and rationalization. Only when each of these factors is present can a fraud occur.
The opportunity for fraud is frequently the prime target of fraud deterrence engagements, as this causal factor is generally under direct control of the organization itself. Conversely, motive and rationalization are generally dependent upon personal situations over which the organization may have little control or effect. If someone has made up their mind to commit a fraud, it will be hard to stop this activity without removal of the opportunity.
How can forensic accounting techniques be used in cases of business valuations?
Valuation professionals who are trained in forensic accounting possess many beneficial skills. They may have significant experience in data mining and analysis, affording them the ability to supplement typical valuation techniques with information uncovered as a result of forensic accounting activities.
This additional information could result in a markedly different valuation from that which might have been calculated without the use of forensic accounting techniques, as valuations are extremely sensitive to underlying assumptions.
James P. Martin, CMA, CIA, CFE, is a managing director for Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or [email protected], or visit www.cca-advisors.com for more information.
