Forensic Accounting

       Forensic accounting is the fastest growing area of accounting today. It’s nothing but gathering, investigation and analysis of accounting information for presentation as evidence in the court of law. It offers the basic evidence for discussion, debate and ultimately dispute resolution. Forensic accountants actually are trying to make sense of what is happening. They are trained to look further than the numbers and deal with the business reality of the situation. Forensic accountants may be involved in recovering proceeds of crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering. In India there is a separate breed of forensic accountants called Certified Forensic Accounting Professionals.

Main Areas of Forensic Accounting

      Forensic accounting deals with using accounting evidence to assist in various investigations involving financial matters. It includes two main areas:

Litigation support  :     Litigation support or service can be explained as any professional assistance that non-lawyers provide to lawyers in the litigation process. It represents the accurate presentation of economic litigation. Here forensic accountants quantify the damages of issues to parties involved in. They assist in resolving disputes, even before they go to the court of law. Forensic accountants can extend their assistance of litigation support in the following specified ways:

§  Reviewing relevant documents to form an initial assessment of the case and identify areas of loss.

§  Assisting in formulation of questions to be asked regarding the financial evidence.

§  Assisting in obtaining documents necessary to support or disprove a claim and,

§  Extending assistance in settlement discussions and negotiations.

Investigation and Dispute Resolution:

       Forensic accounting provides an accounting analysis suitable to the court of law which will form the basis for discussion, debate and ultimately dispute resolution. It involves looking further than the numbers and understanding the substance of situations and deal with the business reality. In short, it requires the most important quality of ability to think. Regarding investigation and dispute resolution, Forensic accountants extend their assistance in the following specified ways:

§  Reviewing the actual situation and provision of suggestions regarding possible course of action.

§  Assisting in the protection and recovery of assets.

§  Assisting in securing co-ordination of other experts such as forensic document examiners, private investigators, etc.

       Thus, forensic accounting is more than conventional accounting, more than detective work and it is a blend of all that is required to conduct the business safely.

Forensic Accounting Process

      At times financial crimes are detected accidentally, but these can also be identified systematically in a variety of ways including by audit investigation, data-mining enquiries, and internal controls and testing, or, by conducting special investigation on suspicion. However, in general, forensic accounting work includes the following steps:

Contact                             

With the Clients:

     When received request from clients, it is important to contact the clients before starting investigation. After establishing contact, the most important step is the prudence to check the information collected from legal advisers.

Performing Initial Investigation:

       The initial investigation is useful in both the understanding of issues and in preparation for subsequent explorations. It starts with initial doubts, or, assumptions. Once they understand the method of past crimes, they may visualize the same for the current issue on hand.

Developing Action Plan:

       A strategic plan provides overall direction on the long path from where things are now to where we hope they will be. Then main purpose of action plan is to develop, in detail, who will do what, when, and how to achieve a specific outcome.

Obtaining Evidence:   

        Documentation has to be made cautiously for anything that might affect or involve employees’ privacy or privileges, which includes obtaining evidence on economic information and other proofs for occurrence of the event. The best evidence must be carefully logged and should be kept in proper custody to ensure no misappropriation.

Analysis and Interpretation:

        The next step is analyzing the evidences gathered. Understanding how data is gathered, accumulated, used and reported is helpful in the evaluation process of conflicting information sources. It includes classifying and summarizing the facts collected in a systematic manner to measure the damages in economic perspective.

Preparation of Reports:

        The final report is prepared according to the nature, scope and approach of the current assignment on hand. The report will be prepared in such a way that it can explain the findings clearly and authentically.

Conclusion

          Forensic accounting is an emerging discipline in response to an increase in financial crimes such as money laundering, embezzlement, bribery, bankruptcy, securities fraud, etc. In 1996, a city manager in California's Contra Costa County became suspicious when Orinda-Moraga Disposal Services wanted to raise rates on its customers and needed the Contra Costa Sanitation District's approval. However, the company had recently stated its desire to lower rates. The wary city manager hired forensic accountant Dan Ray to uncover the truth. After examining Orinda-Moraga's records, Ray discovered that the company sent cheques to nonexistent people at several companies that had fake addresses. The disposal company's owner deposited the checks into an account. He had created these companies to illegally siphon money from Orinda-Moraga, and inflated its business costs to justify the rate increase. Ultimately, Orinda-Moraga's owner and his partner were found guilty in civil and criminal suits.

Ramalinga Raju who managed to cook the Satyam books for years and no one detected it till he admitted to the fraud; on Jan 2009.The investigating agencies have now called in the forensic accounting experts from KPMG to crack Raju's accounting scam. A specialized Forensic accounting investigation of KPMG is on the job to unravel the fraud. KPMG along with Delloite are now tasked with restating the accounts of Satyam. Forensic reports not only help a lot in criminal cases but also give clues about criminal's behavior and the government will try getting to the roots of Satyam case through forensic probe. The investigation will also help government develop a new accounting format which will not leave any scope for such forgeries in future.

Forensic accountants are also retained to assist in uncovering potentially hidden assets during divorce proceedings. In June 2008, a high-profile divorce of Sir Paul McCartney and Heather Mills included a dispute over how much McCartney was actually worth. He claimed to be worth about 400 million pounds, but Mills said that McCartney was worth about 800 million pounds. She retained a team of forensic accountants to delve into his assets. Mills hoped that if accountants proved that she was correct, the divorce ruling would be overturned and she could receive a larger settlement.

Due to the increasing incidences of deceptive activities and financial crimes, there is a significant demand for forensic accountants in detecting illegal financial activities. Today forensic accounting has ample scope in application and investigation.

                                                                                                                                                                      Source-Internet