Forensic accounting has arisen from the vast amount of scandals wreaking havoc in the business world the last few years. Enron and WorldCom caused severe loss for many owners and employees. The accounting profession heard the call and has made several mid-course adjustments to help assure these crimes won't happen as easily ever again.
Forensic accounting is a specialized form of auditing. Regular audits are required by the SEC or the company itself to assure compliance with accounting standards or company policy and procedures.
Forensic audits, on the other hand, are done because something happened that needs further investigation. It is not a matter of routine. Here are some examples of projects that may rely on forensic audit procedures:
Agent fraud – A descriptive and frequent example is with insurance agents. An insurance agent has a lot of access to personal information of his customers. A common fraud scheme is for an insurance agent to fake the application for his customer to take out a loan on the insurance policy. The agent keeps the proceeds from the loan and the customer can remain unaware of it for months or even years.
Insurance and personal injury claims – Many people falsify claims they make to insurance companies. This is another big area needing forensic accounting techniques.
Construction audits – Here, forensic accounting is used to make sure construction is done using the quality of components that was called for.
Royalty audits – In any situation where a worker, usually a performer, is owed royalties for the showing or airing of his work, a forensic accountant is often brought in to make sure he is being paid everything that is owed.
SEC inspections – Wall Street scandals abound these days and forensic accountants assist in following the financial information to find the wrongdoers.
Matrimonial disputes – Divorces settlements often use the skills of a forensic accountant to assure both parties get a fair settlement.
To be good in Forensic Accounting, more than just an accounting degree is required. The forensic accountant uses more than just his spreadsheet and accounting skills. He or she must be willing and able to deal with the totality of the particular business situation under investigation. This includes analyzing the financial evidence, reporting it in various traditional and technical ways and perhaps even testifying in court. All delivered documents must be in such a format as to be used as court evidence. Therefore, the forensic accountant must be familiar with legal terms and procedures.
The Forensic Accountant must also be a good public speaker and an excellent writer, as well. He / she must be confident and articulate in convincing the court of the evidence he has uncovered.