Why Forensic Accountants Are More Important Now Than Ever Before

A forensic accountant is an accountant with a rather unique set of skills. Aside from understanding standard financial concepts and procedures, a forensic accountant needs to be able to apply their knowledge to situations in which it is believed that some type of fraud or financial negligence has occurred.

Forensic accountants rely on a combination of accounting, auditing, and investigative skills to fully determine the validity of financial statements.

What is the role of a forensic accountant in the insolvency process?

Insolvency is a complex process. Typically, once it is deemed that a company cannot continue to operate they will either enter voluntary liquidation or be ordered by a court to cease operating (compulsory liquidation).

At this point, an insolvency practitioner will take control of the company and its assets. They will begin the long process of sorting through financial statements to return what is possible to investors.

This is often where a forensic accountant enters the picture. Unfortunately, not all business owners behave in a fair and lawful manner when faced with liquidation. Often managers will attempt to circumvent the liquidation process and in doing so, end up committing fraud. This can take the form of choosing to repay only certain loans that are personally advantageous, removing assets from a company, irregular accounting practises, or misusing funds.

It is the role of a forensic accountant to comb through financial records for traces of fraudulent activity. Depending on the size and complexity of the company, this can be a very long process. Fraud requires proof, and a forensic accountant will spend much of their time preparing material to be presented in a court of law.

However, this is not the only role of a forensic accountant. They can also be used in:

● Business, equity and goodwill valuations

● Family law (divorce proceedings)

● Due diligence reviews

● Expert witness reports

The link between Covid-19 and forensic accounting

2020 was a difficult year for businesses of all shapes and sizes. While some quickly adapted to online methods of operation, many brick and mortar stores found it impossible to continue trading without regular foot traffic. Small businesses were forced to shut, large corporations underwent significant restructuring, and thousands of people found themselves without work.

It was a very stressful time and as a result, many businesses are now unfortunately facing insolvency. It is also expected that the coming months will see a significant increase in the number of bankruptcy cases that require the assistance of a forensic investigator.

To help businesses stay afloat, governments around the world provided generous grants and support packages. These were intended to assist struggling businesses and keep as many people as possible employed. Unfortunately, some business owners took it upon themselves to either misappropriate funds or falsify financial statements to qualify for additional assistance packages.

This type of behaviour, although not common, can have significant consequences — particularly if a business is now facing insolvency.

Insolvency firms and forensic accountants can expect to face a large number of these types of cases over the coming months.

Working with a forensic accountant

Forensic accountants typically operate as part of a larger insolvency team. Before opting to work with a forensic accountant, make sure you personally meet with them to discuss your case. As a creditor, attempting to get money back from an insolvent individual or company can be a lengthy and stressful process. It is important that you feel confident in your choice of accountant and insolvency team.

There are a few key attributes that you should look for in a forensic accountant:

Experience

While each case of fraud has some unique aspects, your accountant will be looking for red flags that they have seen before, such as doctored financial statements and missing assets. Hiring a forensic accountant with experience working on cases of a similar size and nature to yours is highly recommended.

Intelligence

This may sound obvious but make sure your forensic accountant has the skills and intelligence required to do a good job. Identifying fraud requires a strong combination of problem solving skills and attention to detail.

Availability

It’s not uncommon for a forensic accountant to be working on multiple cases at the same time. This is not a cause for concern, but make sure your team has enough resources to fully dedicate themselves to your case.

Court skills

Forensic accountants are often called upon to present their findings in court. This may take the case of putting together comprehensive documentation or making a verbal statement. Ensure that your accountant has the interpersonal and communication skills to represent themselves well.

Forensic accountants are a crucial member of any comprehensive insolvency team. If you are a creditor looking to chase investment losses, give yourself the best chance possible by discussing your case with a forensic accountant today.