Exploring Forensic Accounting and Fraud Investigation

Unfortunately, the sad truth of the world is that crime will always exist, especially when large sums of cash and other financial incentives provide ample temptation. You do your best to hire the right people to look over your finances, but criminals are opportunistic and seek those positions or maybe good people just can’t resist the urge, thinking it doesn’t hurt anyone.

Either way, your business suffers as a result. However, finding signs of fraudulent activity can be difficult — and proving the crime was committed can be even harder. That’s where forensic accounting comes into play. We are highly-trained and committed to fraud investigation so that white-collar crimes can be sniffed out, and ensure those responsible face justice.

Forensic CPA Group wants every Jacksonville business to have it’s financial interests protected and we’re dedicated to making sure that happens. As accountants, we believe that information is king, so this post will look into white-collar crime and how forensic accounting applies to fraud investigation!

We’ll start with the very basics. Essentially, the term “white-collar crime” refers to any crime that involves fraud committed by businesses, government professionals or individuals and use concealment, deceit (but not physical force or violence) toward financial gain. So let’s take a look at some common types of white-collar crime:

These are crimes that involve the misuse and mistrust related to investments in the U.S. securities and commodities markets. Basically, any money that a person or business invests into the stock exchange such as college savings plans, retirement accounts, etc. People invest their hard-earned money for a brighter financial future and those handling their money misuse or straight steal it for their benefit instead.

Common forms of securities fraud include ponzi schemes, pyramid schemes, commodities fraud, broker embezzlement and market manipulation. Any and all of these crimes carry serious punishment and are not victimless crimes and require fraud investigation to uncover. People and companies can suffer unrecoverable financial damages.

KEY TAKEAWAYS:

• Involve misuse and mistrust related to investments of money
• Can be committed by individuals, businesses or government professionals
• Broker embezzlement, ponzi schemes and pyramid schemes are common forms of securities fraud

Basically a fancy word for stealing, embezzlement is a huge white-collar crime and certainly requires fraud investigation to discover. Embezzlement occurs when those people or entities in charge of money withhold assets for personal use or purposes. Because people or business entrust their money with these people, it can be easy to hide and usually happens for years before being suspected.

KEY TAKEAWAYS:

• Embezzlement is a fancy way of saying stealing
• People or entities entrusted with money withhold assets for personal uses and purposes
• Can go on for several years before any suspicion of a crime

This is the process by which criminals conceal or disguise proceeds by making them appear to come from legitimate sources. They do this in order to hide and accumulate wealth, often times to avoid taxes, and increase profit by reinvesting the laundered money. Think “dirty” money.

KEY TAKEAWAYS:

• Money is concealed or disguised as legitimate by an individual or organization
• Often used to hide and accumulate wealth, evade taxes and increase profits through reinvestment
• Commonly referred to as “dirty” money

These are just some types of fraud, and all should involve serious fraud investigation to uncover. However, doing so can be extremely difficult, especially when you don’t know what you’re looking for. That’s when you turn to forensic accounting!

Contrary to what you might be thinking, estate planning does not have to cost you a ton of money. Sure, there are complex plans and circumstances that may require advanced solutions, which could cost you more money, but that’s a bridge to cross when and if you need to. Start with a simple plan and one you can afford because again, it will allow you to control things, not the government or courts. That could mean a will for a single person or young family, powers of attorney or term life insurance. Expand and change your estate planning over the years and as you can afford as most people’s financial situation improves over time. However, you should never go at this by yourself. Always hire somebody who knows what they’re doing and let them guide you through the process. You’ll still have control of what happens.

Fraud investigation, even by a professionally trained forensic accountant, is rarely an easy process. Criminals often have complex understandings of finances, which helps them commit the crimes and cover their tracks. But it’s not impossible and here’s what forensic accounting does to make sure it isn’t:

The first step is establishing if the crimes were committed intentionally with the purpose of stealing or misplacing money or if there were simply errors in a process leading to unusual results. This gives a forensic accountant an idea of what to look for.

KEY TAKEAWAYS:

• Establishing if crimes were intentional or process errors
• Will be important to prove during eventual litigation
• Gives a baseline of what to look for upon further investigation

By far the biggest chunk of what forensic accounting does when conducting a fraud investigation, data analysis is the foundation of the entire process. This can be extremely complex and involves data and documents of all kinds to sift through. Most data these days is electronically stored, which can make things easier than the past. You need to find a pattern and illegal actions within the data and keep pulling strings to see what shakes out to build the whole picture and expose the crime and criminal.

KEY TAKEAWAYS:

• The meat of any fraud investigation
• Sifting through data to find illegal actions and build scope of the crime
• Follow leads and trails to expose both the crime and the criminal

Fraud investigations begin usually after an allegation of wrongdoing. But people are innocent until proven guilty by criminal law, so there needs to be a strong case proving a crime was committed and who committed it. Forensic accounting uses the data analysis to either confirm the allegations, find the actual culprit or sometimes find no crime was committed at all.

KEY TAKEAWAYS:

• Fraud investigations usually begin with an allegation of wrongdoing
• Data analysis helps build a picture of what, if any, crime was committed
• Evidence needs to be build to corroborate a crime was committed and by whom in order for any legal proceedings to take their course

If a crime was committed and found during a fraud investigation, then that money ended up somewhere and those it was stolen from want it back. This can be extremely difficult and weedy as the money is often dispersed and hidden, sometimes making it gone forever. But forensic accounting will follow the trail to help the victim(s) recover as much as is possible.

KEY TAKEAWAYS:

• Once fraud has been found, it’s important to trace the stolen money
• Can be extremely difficult as the money is hidden, dispersed or gone completely
• Forensic accounting follows the criminal trail left behind in an effort to aid recovery of money to the victim(s)

The final step in forensic accounting, and fraud investigations overall, is litigation. This is bringing the accused criminal to trial where they can face justice for what they did. Forensic accountants can act as expert witnesses and work with attorneys to interpret and communicate the data uncovered during the investigation process. Hopefully, the end result is a conviction, justice and restitution for damages for civil trials.

KEY TAKEAWAYS:

• When the fraud investigation is complete, and a crime is confirmed through data, it needs to be presented in legal proceedings for criminals to face justice
• Forensic accountant help attorneys interpret, understand and present the data analysis for trial
• Successful litigation results in conviction, justice and restitution for victims (for civil proceedings)