Forensic Accounting Outlook: Bringing Life to Numbers While Fighting Crime

A Growing Profession

An air of mystery may surround forensic accounting, but it’s been around for decades. In fact, the IRS reportedly used a forensic accountant to catch Al Capone for tax evasion when the FBI was unable to convict him of other crimes.

Forensic accounting came into the spotlight as the corporate scandals of the early 2000s, such as Enron and Worldcom, rocked the nation. In recent years, forensic accountants have also helped track and disrupt the financial activities of terrorist organizations.

A 2016 global fraud study by the Association of Certified Fraud Examiners estimated the typical organization loses 5 percent of revenues in a given year as a result of fraud. Asset misappropriation — including skimming, check tampering, billing schemes and expense reimbursement schemes — was by far the most common form of occupational fraud. It occurred in more than 83 percent of cases but caused the smallest median loss of $125,000.

Financial statement fraud was on the opposite end of the spectrum, occurring in less than 10 percent of cases but causing a median loss of $975,000. Corruption cases fell in the middle, making up 35.4 percent of cases and causing a median loss of $200,000. Organizations that lack anti-fraud controls suffer greater median losses — twice as much, in fact.

A 2014 study by the American Institute of CPAs indicated healthy demand for forensic and valuation services and strong prospects for the future. A total of 76 percent of forensic and 54 percent of valuation respondents expected their practices to grow, with the majority expecting growth of between 10 and 50 percent over the next two to five years.

In light of this growth, Aprio is working to expand its investigation services, which is when advisors use data analytics to assist clients in determining the scope and breadth of a wrongful act, such as billing schemes and money laundering.

“Over the last 10 years especially, fraud has changed dramatically — and how people commit fraud has changed dramatically,” Ponziani said. “I’ve learned that fraud is ever-evolving, through changes in tech like online payments. People will never cease to amaze you with the ways they come up with to commit fraud.”

Going forward, the forensic accounting outlook is strong, as demand for it increases.

“You are going to see companies bring in more diverse groups to their forensic accounting practices. You are going to have interviewers and investigators, like myself,” Ponziani said. “You are going to have accountants and valuators who can handle different pieces. So, to be a successful forensic practice, you are going to have a diverse workforce to combat the ever-changing world of fraud.”

What to Know

If you’ve identified or suspect fraudulent activity, and are unclear how to recover losses, it’s critical to hire a forensic accounting team.

“Having somebody who has handled large law enforcement cases and the accounting behind them makes the process smooth, from identifying it to prosecuting it to litigation in the courtroom,” Ponziani said.

People commit fraud for various reasons and often try to rationalize their actions. For example, an employee may justify his actions by saying the employer makes so much money that a few dollars won’t be missed. Even if your CPA audits your financial statements each year, you still need a forensic accountant, since an audit is not designed to uncover fraud.

Summary

Legal disputes and insurance loss claims are a reality in today’s business environment.

Minimize the impact of a dispute on your business operations by hiring a team with the expertise and ability to use data analytics and proven interview and investigative techniques.

And ensure your organization has the proper anti-fraud controls in place. Failure to do so could cost your company.