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Forensic accounting combines accounting and investigative skills, knowledge, education, experience, and training which is perfect for firms offering litigation support and investigative accounting. This expertise is obtained by individuals with specialized training, including trained criminal investigators retired from the Internal Revenue Service. These folks were forensic accountants before the term was even formed.
Most of them are accountants trained in investigative techniques and interviewing. Some are Certified Public Accountants while others are Certified Fraud Examiners. They gain experience through investigations, interviews, gathering evidence, communicating through reports and preparing exhibits of evidence, and presenting the case in a court proceeding with an Assistant US Attorney. They are trained in the law and are comparable to paralegals.
Forensic accountants outside the government are hired to assist individuals and attorneys for individuals or companies that need a situation investigated. It may be an investigation to compute a loss resulting when an absentee partner realizes that the operating partner has stolen from the company. This can be direct theft or theft by personal expenditures paid by credit card and recorded as fraudulent business expenditures. This can be very damaging to the business, the business relationship, and the secondary effect brought on by the Internal Revenue Service. The only good thing for an owner is that IRS audits of business are not really prominent at this time. If a partner, shareholder or operations manager is stealing from your company, it is in danger of going out of business.
The first thought that comes to most business owners is to contact the police department or the FBI. Most police departments will take the complaint and may pass it on to a detective. However, police departments in most cities are ill-equipped to bring justice to the thief. The reason for the lack for follow through by the police is because financial investigations are very time consuming and cost money. The FBI will take the information but because they have one or two white-collar investigators, it takes a while for the agent to make contact with the owner.
The mission of the FBI has changed since 911 to anti-terrorism and counter-intelligence. In addition, the monetary threshold set by the US Attorney’s office is very high. The US Secret Service or the IRS Criminal Division may accept a complaint on a matter. However, it really is up to the business owner to protect himself. Every business should implement strong internal controls and policies and procedures along with strong oversight.
Here’s an example:
It is easy for a business manager in a restaurant to steal cash from the till. This is especially true if the manager is closing for the night and the owner is not present. Remember the statement of Ronald Reagan about the Russians, “trust but verify.” The restaurant owner should make unexpected visits and check the cash drawer.
So, here’s my advice to you. Do not be an owner who does not “trusts banks,” because not depositing cash sends the wrong signals to employees. Do not hoard cash and reduce daily bank deposits because Point of Sales registers retain enormous data. If the IRS were to audit or execute a search warrant because an employee became a whistleblower, there could be big trouble. The owner hoarding the cash may intend on accumulating funds for improvements to the restaurant or possibly for personal expenditures, like vacations, expensive toys, gambling or drug abuse. Business owners must realize that they set the tone for their employees in their business operation and the employees are watching.
A forensic accountant can be helpful with suspected theft from your business or your client’s business. They can determine the nature of the theft, the amount loss, or help to improve internal controls, establish policies and procedures and improve business operations. A Forensic Accountant is often involved in the following:
- Investigating and analyzing financial evidence to provide information;
- Developing computerized applications to assist in the analysis and presentation of financial evidence, or downloading a Point of Sale Database for investigation and organization (DIO).
- Communicating their findings in the form of reports and If necessary, a Forensic Accountant can assist in resulting legal proceedings, including testifying in court as an Expert Witness and preparing Demonstrative Evidence that will help support trial evidence.
If you are in business and experience difficulties with cash flow from suspected direct theft of sales or from expenditures by cash or credit cards, consider the forensic accountants of Sage Investigation to assist you with verifying your “gut feelings.” If you are an attorney and your client is experiencing cash flow problems because of suspected theft call Edmond J. Martin, Chief Investigator at Sage Investigations, LLC at 512-659-3179 or email edmartin@sageinvestigations.com. Let our 26 years as an IRS Special Agent and 17 years as a private investigator and forensic accountant benefit you and your clients. Click to read about our team and their CVs.
DIO is a proprietary financial investigative program that analyzes data from financial sources, including bank and credit card records, and Point of Sale registers to provide organized information to clients of Sage Investigations.
