What is Forensic Accounting and How Does it Concern My Business?

What is Forensic Accounting? And When and Why You Might Need it

When most people think of bookkeeping, they imagine balancing checkbooks, reconciling bank statements, and preparing tax-ready financials.

Or the boring but necessary tasks of plugging the company’s financial transactions into the accounting software package…which by the way, seems to be getting more expensive every minute.

But why should you even care about what forensic accounting is or why you would need to have forensics done on your company’s or personal books?

Let’s just say for now, in answer to this question, that hopefully you will never have to experience a forensic accounting experience. Because it usually involves, first courts of law, which then means lawyers and the potential for a lot of unexpected expense. Or worse.

Realizations of Forensic Accounting Today

Forensic accounting is a specialized area of accounting that involves investigating financial records to uncover fraud, embezzlement, or other financial misconduct. It combines traditional accounting with auditing and investigative skills to analyze financial data that may be used in legal proceedings.

We have Al Capone, the infamous Chicago gangster during the early 20^th century to thank for the modern uses of forensic accounting. You may know that Mr. Capone was finally brought to justice not for being a ruthless gangster of the roaring 20’s but for tax evasion.

A CPA named Frank Wilson, working for the IRS, investigated Mr. Capone’s financial record trails which the government used to convict him for tax evasion.

At C and M Bookkeeping, we understand that sometimes your financial questions go beyond routine bookkeeping. Whether you’re facing a legal dispute, suspect internal fraud, or need to trace hidden assets, forensic accounting can provide the clarity and evidence you need.

When is Forensic Accounting Necessary?

Today, forensic accounting goes far beyond the image of pencil pushers in cubicles reviewing reams of printed spreadsheets. In our modern digital age, data analytics are a big part of the powerful tools CPAs use to dig deep into the movement and locations of money.

Here are two examples of when forensic accounting would be required by litigation.

1. Suspected Embezzlement in a Small Business

I bet as the owner of a small business in Northern Nevada, you review your monthly financial statements. Your company’s three reports, the Balance Sheet, The Income Statement, and the Statement of Cash Flows should be closely monitored for many reasons. But the top two are to make sure your business efforts are profitable and to look for problems.

Let’s say that your sales are strong. What would you do if you noticed unexplained monetary losses or financial irregularities when you review your accounting reports. Unfortunately, fraud can hit too close to home.

So, a CPA (Certified Public Accountant) who specializes in Forensic Accounting might have to take a look at your books to help you determine what, if anything, is wrong. They can

• Trace the flow of funds in and out of your company
• Ask you a lot of questions to check for unauthorized transactions
• Quantify how much financial damage happened
• Provide legal evidence for a court proceeding

We hope that you never have to hire a forensic accountant but in the event that you do, their investigation can provide valuable support for possible recovery.

2. Divorce Proceedings Involving Hidden Assets

Been married for a long time and things went bad between you and your spouse? And have you built up a substantial collection of assets that are part of the joint venture that is marriage? You might be subjected to a forensic accountant during the divorce proceedings to ensure there are not off-shore hidden assets. I bet most of us do not have this problem. A forensic accountant can:

• Analyze bank records and tax returns
• Uncover hidden accounts or shell companies
• Provide expert testimony in court.

All to ensure a fair and transparent division of marital assets. Keep in mind, at this level it will cost someone some major money to pay for the forensics.

What is C & M Bookkeeping’s Role in Your Company?

Being based in Reno, Nevada, we are more than just bookkeepers. We offer specialized support to Northern Nevada small business owners providing contracting, home services, and many other service enterprises wishing to optimize their operations with timely administrative support. Our team is experienced in:

• Small Business Bookkeeping – Financial record-keeping
• Contractor accounting
• QuickBooks Online support
• Reports for financial reviews

Want to learn more about how we can help you run your efficient operations better. Click to Call Charley or Manny and schedule a free 1/2 hour consultation.