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Costs Dictate Work Done: An Insight Into Forensic Accounting Processes

A couple of years into running my own forensic accountancy practice and business is brisk.  There was always the worry that as sole practitioner expert, the lack of peer support would mean difficulties arising when case deadlines clashed.  However, such are the vagaries of the court system that even when reporting deadlines are tight, I am invariably finished working months before that matter eventually comes to court.

I have found it easy to balance half a dozen or more current cases and when two, three or, on one occasion, five potential hearing dates clashed during the same week, I learned not to become unduly worried.  In the last example all five cases were put forward.

Investigating fraud is not confined to running after the likes of multi billion International Ponzi thieves like Bernard Madhoff and Allen Stanford.  As a forensic accountant focusing on fraud (including all financial aspects of crime), I could be examining the records of an insolvent company for misplaced assets, following up directors’ allegations of stolen money or analyzing bank statements and accounting records in a criminal fraud prosecution.

Hidden Matrimonial Assets & Extradition Proceedings

Currently I am tracing potential hidden assets in acrimonious divorce proceedings as well as assisting with the defence in an extradition case against a businessman alleged to have committed wide-ranging fraud.  These are two very high profile cases and illustrate the diversity of the different types of fraud investigation that I am asked to carry out, and illustrates why the forensic accountant must have an extremely flexible approach to the work that he does.  He, or she, must continually draw on a combination of legal, financial and interpersonal skills in order to provide the highest quality of a service that can have a material influence on a person’s livelihood, worldly goods and indeed their freedom.

A fraud expert must first and foremost be a financial expert, understanding the interaction between vast quantities of bank statements, accounting records and financial instruments.  This will involve some form of accountancy training at the very least.  But interview techniques, evidence gathering and handling, data interrogation and understanding the interaction of different legal arguments, case law and business regulations as well as an ability to conduct efficient and effective technical research is also needed.

According to the Association of Fraud Examiners, observing the responses of the defendant in interview enhances the quality of any investigation.  The advice is that this insight should be used along with a thorough understanding of the business and financial framework surrounding the particular case to support the more detailed aspects of the financial investigation.

This is fine in principle.  However, I fund the luxury of having unrestricted access to the various witnesses, suspects or defendants, and the time to fully examine the surrounding business environment, including the appropriate regulatory framework, to be seldom available.  Those paying the bill often do not see such peripheral work to be necessary.  In practice, I often find myself at the edge of a case, with specific instructions to undertake inquiries into discrete areas.  In fact, I often propose this myself, as a way to sell cost effective services to the vast majority of my clients who do not have unrestricted budgets.

The Forensic Accountant’s Role

When this happens, does this mean that I feel less attached to the work that I do and does it mean that the quality of my service is reduced in any way?

A lot of my work results in a report or giving evidence as an expert witness. In this case there is a strong argument for being detached from the work that is carried out.  This is particularly important if the task is to reduce an over zealous criminal benefit figure on behalf of a convicted drug smuggler. On the other hand, I may be asked to defend somebody who is being wrongly targeted by an insolvency practitioner to repay monies a bankrupt estate might not be entitled to. There is a chance that feeling anger towards a drug dealer or being sorry for an unfortunate businessman might influence an otherwise impartial report.

A criticism against the fraud regulators such as the police investigators is that they are very partisan in their approach.  They will judge the outcome at the outset and form opinions that are swayed by their inquiries.

The Expert Accountant Must Be Impartial

I must not judge what is right or wrong – nor must I determine what is the correct level of penalty to pay.  To be of any use, my work must remain objective and therefore, in most cases it does not matter that I become a little detached from the case that I am dealing with.

As for the quality of the service provided, I accept that I would prefer to interview all the parties involved and consider all aspects of the case as well as, for example, the basic instructions to quantify the losses that have occurred.  However, where it is necessary to have this additional insight in order to properly approach any matter I will include the need and its associated cost up front when quoting for the job.  Essentially there are occasions where simply analyzing the accounting records in a fraud investigation is not enough, and responses and nuances from interviewing suspects in conjunction with perhaps a knowledge of their working habits will provide a more robust understanding of the way events occurred.

There is no doubt, when the opportunity to conduct a full investigation, including determining which avenues to follow and following a trail of evidence to an unknown conclusion, that the adrenaline flows and the full spectrum of a forensic accountant’s skills are tested as they will all be essential for ensuring the quality of the work provides the outcome that is required.