It is about the Forensic Accounting.

1. Forensic Accounting
By
W.Infant Emiliya
Assistant Professor, SRCAS.

2. What is Forensic Accounting
• Forensic accounting is the investigation of fraud and misrepresentation. Forensic
accountants conduct an in-depth analysis of financial data. They document the entire
investigation and report findings to a court of law. Forensic accountants often testify to the
veracity of their findings.
• It is a widely applied accounting discipline that resolves financial
conspiracies—money laundering, bankruptcy, embezzlement, insurance
claims, securities fraud, asset misappropriation, tax evasion, divorces, family
disputes, financial frauds, and debt defaults.

3. • Forensic accountants probe into financial information and other relevant details of a
company or an individual to detect fraud or crime.
• A forensic accountant is a Certified Forensic Accountant (CRFAC). They collect
evidence and study it. They discover legal violations and prove them in a court of
law.
• In the investigation of financial allegations, the stakes are high—mere speculation of
suspicion can cause massive business losses. The leaking of confidential information,
therefore, is the biggest challenge faced by forensic accountants.

4. How Does Forensic Accounting Work?

5. • Forensic accounting applies scientific techniques and accounting principles to detect
fraudulent activities. Due to technological advancement, corporate scams have increased
tremendously—the need for forensic accountants has increased.
• A single person cannot execute forensic processes—it is carried out by a structured team of
professionals—Certified Public Accountants (CPAs) and forensic accountants. The team
is responsible for the following tasks:
• The forensic team collects facts and evidence pertaining to hidden assets.
• Forensic accountants interview associated parties and employees.
• Then they verify the collected data.
• This data is analyzed thoroughly.
• The conclusions are summarized into reports.
• The evidence is bundled into exhibits—to be presented in a court of law.
• Sometimes, forensic personnel is required to testify, defending the veracity of reports.

6. Application of Forensic Accounting
The different types of felonies or misrepresentations that are investigated
under forensic accounting are as follows:

7. #1 – Business Fraud
• Business investigations comprise asset identification, asset recovery, due diligence
reviews, tracing misappropriation, forensic intelligence, and suspect interviews.
Forensic accountants strategize intelligence measures and identify offenders. These
investigations require a detailed review of the documents.
#2 – Tax Fraud
• Forensic accountants catch tax evasion. Often, businesses and individuals falsify
income and other financial information to reduce tax liabilities.
#3 – Securities Fraud
• Misrepresentation of investments, commodities, and stocks is the most
common white-collar crime. Late-day trading, pump and dump
schemes, pyramid schemes, and Ponzi schemes are felonies.

8. #4 – Asset Misappropriation or Hidden Assets
• Often, Individuals and companies hide assets from tax authorities. Forensic
accountants detect asset misappropriations—property theft, embezzlement,
and payroll fraud.
#5 – Partnership and Shareholding Dispute
• Accountants also examine conflicts pertaining to compensations and benefits
received by shareholders or partners. The investigation involves detailed scrutiny of
accounting and financial records to quantify the issues brought out in the conflict.
#6 – Insurance Claims
• Forensic accountants quantify economic damages in vehicular accidents and medical
negligence cases. They review insurance policies, coverage issues, claim settlements,
and the calculation of potential losses. On behalf of insurance companies and
policyholders, they investigate property losses, business losses, employee fidelity
claims, and similar lawsuits.

9. #7 – Economic Losses and Bankruptcy
• Business losses typically include breach of contract, construction claims, trademark
infringements, patent infringements, product liability claims, and non-compete
agreement breaches. Forensic accountants probe into the terms and conditions of
the circumstances leading up to the dispute. They quantify the losses. In addition,
accountants carry out recovery procedures in bankruptcy cases.
#8 – Money Laundering
• Forensic accountants identify illegitimate sources of money – money laundering
practices and undisclosed bank accounts.
#9 – Marital and Family Disputes
• After quantifying losses, accountants assess financial compensation for divorces,
property disputes, and family disputes. They quantify compensation for alimony and
child support. For family and property disputes, accountants execute property
distribution.

10. Issues
Forensic accountants face the following challenges:
• Forensic procedures require a lot of technical and financial expertise.
• These investigations can potentially leak confidential details—can affect a suspect’s
reputation.
• Even mere speculation of an alleged felony generates unwanted negative publicity.
• Depending on the duration of the investigation, forensic accounting can become a
very expensive process.
• Even after proving suspects not guilty, employees remain suspicious.

11. Differences Between Audit and Forensic Accounting

12. Examples
Best Forensic Accounting Firms
According to the FIRSTHAND report in 2022, some of the best forensic accounting firms in the
United States are as follows:
• PwC (PricewaterhouseCoopers) LLP
• Deloitte
• Ernst & Young LLP (EY)
• KPMG LLP
• Grant Thornton LLP
Case Study
• Jorge Alberto Garcia was recently investigated under a forensic accounting case. On November 22,
2021, Garcia was proven guilty of tax offenses and fraud. He was charged with wire fraud—he
illegally acquired property and money under a home repair scheme—he made false representations
and promises. In addition, Garcia failed to submit his income tax returns.
• The US District Court sentenced Garcia to 12 months of imprisonment. He was made to pay $
4,043,397.52 as compensation.