As seen in NJ Law Journal
Excerpted from G. Jack Bologna's Fraud Auditing and Forensic Accounting, the term forensic in the accounting profession indicates the relation and application of financial facts to legal problems. Forensic accounting evidence is oriented to a court of law, whether that court is criminal or civil. Furthermore, with its orientation to courts of law, the work performed by forensic accountants is subject to public scrutiny if the matter at issue goes to trial. The involvement of the forensic accountant is almost always reactive; this distinguishes forensic accountants from fraud auditors, who tend to be actively involved in prevention and detection in a corporate or regulatory environment. Forensic matters include statements of claim arising in civil litigation, and rumors and inquiries arising in corporate investigations. The investigative findings of the forensic accountant will impact an individual and/or company in terms of their freedom or in terms of a financial award or loss. The forensic accountant draws on various resources to obtain relevant financial evidence and interprets and presents this evidence in a manner that will assist both parties. Ideally, forensic accounting allows two parties to more quickly and efficiently resolve a complaint, statement of claim, rumor, or inquiry, or at least to reduce the financial element as an area of ongoing debate.
When are the services of a forensic accountant required?
- Fraud, theft or other defalcation
- Disputes (shareholder, partner, oppression or dissent from an action of the entity, alleged breach of contract, alleged fraudulent inducement, etc.)
- Financial statement misrepresentations
- Economic damages
- Bankruptcy, insolvency and reorganization
- Family law (divorce)
- Corporate investigations
- Tax Fraud
- Insurance claims
- Violation of the Foreign Corrupt Practices Act of 1977, 15 USC §§78dd-1, et seq., the Bank Secrecy Act, 31 USC §§5311, et seq., and Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism ("U.S. Patriot") Act, PL 107-56 (Oct. 26, 2001)
- Money laundering
- Violation of the Racketeer Influenced and Corrupt Organizations Act, USC Ch. 96
What capabilities must a forensic accountant possess?
The forensic accountant must possess knowledge of, or be able to-
- Identify financial issues
- Understand and be capable of applying the appropriate investigative techniques in the circumstances of the matter at hand
- Rules of evidence (which can differ by venue)
- Interpret financial statements, tax returns, banking documents business organization documents, estate, trust and other fiduciary-like documents
- Knowledge of applicable law
- Clearly communicate in writing (reports of findings and conclusions) and orally (deposition and/or trial testimony)
What credentials should you look for in a forensic accountant?
You should look for professionals that have a Certified in Financial Forensics ("CFF") designation. The American Institute of Certified Public Accountants accredits Certified Public Accountants with a CFF that have fulfilled certain requirements and passed a written examination.
You may also encounter individuals with a Certified Fraud Examiner ("CFE") designation, which is a designation of the Association of Certified Fraud Examiners ("ACFE"). Typically, CFEs have more of an anti-fraud focus than do CFFs. That said, in order to obtain the CFE designation, one has to pass a written examination and provide proof of education and experience, among other things. However, there is one significant difference between a CFF and a CFE: the former requires that you first be a CPA. The CPA exam is considered to be one of the most difficult professional examinations to pass, which results in a relatively low passage rate from year to year. The combination of a CPA and a CFF designation means that you can be assured you are hiring an extensively trained financial forensic professional.