| Forensic accounting is intended for use in a court | | | | the auditor to discover inconsistencies in the |
| of law or other legal processes and should be of | | | | accounts of different witnesses and parties. The |
| the highest standard possible. | | | | forensic accountant may compel people to give |
| The term “forensic” should not be | | | | interviews with subpoenas or obtain evidence |
| confused with the laboratory work on DNA, | | | | using search warrants. |
| toxicology and related sciences used in solving | | | | With all the information at hand, the forensic |
| other types of crimes. In the case of forensic | | | | accountant will have to trace the assets and |
| accounting, the word applies to a scientific method | | | | identify when and how the suspected crimes, if |
| of accounting to solve legal problems. | | | | any, occurred. After reaching a conclusion, the |
| A forensic accountant will normally work with | | | | auditor will make a report of all findings to submit |
| cases involving what is called “crimes against | | | | to the court, and in some cases they may testify |
| property.” Such types of crime would include | | | | in person. |
| fraud, insurance cases, audits, personal injury | | | | An example of a forensic accounting case would |
| cases, civil disputes and construction cases. | | | | be a crime involving a Ponzi scheme. A Ponzi |
| Forensic accountants investigate these crimes and | | | | scheme is a type of investment fraud in which |
| offer their expert testimony during legal | | | | investors are fooled into believing they are making |
| proceedings. They are sometimes also known as | | | | actual successful financial investments. In reality, |
| forensic auditors, fraud investigators, investigative | | | | the profits the investors appear to earn consist |
| accountants, investigative auditors and fraud | | | | of money invested by new investors. None of the |
| auditors. | | | | money is actually used for investments, but the |
| In forensic accounting, the investigators search | | | | flow of new cash creates that perception. At |
| for signs of fraud in suspected cases. They use | | | | some point in a Ponzi scheme, the perpetrators |
| certain methodologies and often apply computer | | | | usually intend on disappearing taking the remaining |
| software in their investigations. One of the first | | | | investment money. |
| steps of the auditor, after the evidence has been | | | | A forensic accountant in such cases will follow the |
| secured, is to thoroughly review all records – | | | | money trails and discover that the Ponzi scheme |
| bank records, audit records, emails, etc. -- of the | | | | promoters have no evidence to prove the money |
| subject under investigation searching for | | | | received was involved in any financial transactions. |
| irregularities and clues. The auditor will look for | | | | They may be able to trace assets that were |
| falsifications and other misuse of accounts, for | | | | used instead to illicitly purchase cars or expensive |
| example. | | | | vacations. |
| After the forensic accountant has obtained | | | | Forensic accounting uses all the normal techniques |
| adequate knowledge of the financial situation, they | | | | of accounting and auditing but with the express |
| will interview the parties involved to elaborate on | | | | purpose of discovering criminal actions in a timely |
| any leads they may have uncovered during the | | | | matter. Scientific methods allow the auditor to |
| records review. Using cross-examination will allow | | | | achieve results acceptable in a court of law. |