Fraud investigations Featured

7:00pm EDT January 31, 2007

Many good articles have been written on how to defend your company from fraud. Unfortunately, many companies find themselves in a position where fraud may have already occurred. This is the time to consult the expertise of a forensic accountant.

“Do your homework before hiring a forensic accountant,” says Timothy D. Gunn, CPA, CFE, and audit manager at Doeren Mayhew. “This will increase your chances of a favorable result when the investigation is complete, and may save you a lot of money.”

Smart Business talked to Gunn about the importance of hiring the right forensic accountant if you suspect fraud may have occurred within your company.

What is a forensic accountant?

In an all too simplistic description, forensic accountants are experienced auditors, accountants, and investigators of legal and financial documents. They are professionals who use a unique blend of education and experience to apply accounting, auditing, and investigative skills to uncover truth and assist in investigations.

Who needs a forensic accountant?

Forensic accounting services are needed by individuals, privately held companies, and large corporations for a broad range of reasons. Services performed may include fraudulent activity investigation, damage calculations for litigation purposes, and financial activity investigation for divorce proceedings, to name a few.

Any fraud investigation should be conducted with the assumption that it will be turned over to the authorities; therefore, it is important to enlist the expertise of a forensic accountant. If the investigation is performed incorrectly, it may jeopardize the end result. When the investigation is performed properly, it will increase your chances of recovering as much of the damages as possible.

If the company’s goal is not to prosecute the fraud but to instead just terminate the relationship with the employee, it is equally important to conduct a professional investigation. This will help you defend yourself if the employee decides to claim wrongful dismissal or other types of litigation against the company.

What should be considered when hiring a forensic accountant?

Although most forensic accountants are CPAs, certification is not required. An additional credential in a forensic accountant is Certified Fraud Examiner (CFE), which is issued by the Association of Certified Fraud Examiners (ACFE). Applicants must pass a rigorous examination process and must also complete continuing education yearly. CFEs, as defined by the ACFE, are ‘anti-fraud experts who have demonstrated knowledge in four critical areas: fraudulent financial transactions, forensic investigations, legal elements of fraud, and criminology and ethics.’

When interviewing a forensic accountant, it is important to consider the individual’s experience in accounting and auditing engagements. Since it is assumed that the investigation will end up in court and you have only one chance to present your case, it is also important to consider whether that individual will make a good witness in court. In short, set the same standards you use for other professional services such as a doctor or an attorney.

What should be included in binding agreements?

Once you have identified the right person, including verifying their credentials and checking their references, two agreements should be signed before any further work is performed.

The first is a confidentiality agreement. This agreement will assure that all information your company makes available to the forensic accountant remains private.

The second agreement is an engagement letter. By having a formal agreement in writing, there will be no questions as to what services will be performed, what report will be given at the conclusion of the engagement (whether oral or written), and what the fee is expected to be. Keep in mind that the engagement letter can be amended as the engagement progresses, depending on the findings of the forensic accountant during the engagement.

Whether the investigation is meant to collect information to substantiate the termination and/or prosecution of a company employee or to determine damages for a lawsuit, you only have one opportunity to present your case. Make sure you take the time to find the right forensic accountant.

TIMOTHY D. GUNN is a CPA, CFE, and audit manager at Doeren Mayhew, a regional accounting firm in Troy, Michigan. Doeren Mayhew provides a wide range of professional services to middle-market companies. Contact Gunn at tgunn@doeren.com or (248) 244-3257.