What do you do when you think an employee is embezzling money from your company? Or how does a married couple facing divorce divvy up their money and assets? Money can be a sensitive subject at the best of times, so forensic accounting is often the quickest way to resolve a financial dispute.
What is forensic accounting?
Forensic accounting, also known as investigative accounting or consulting, is a specialized form of accounting focused on fraud and other situations where a forensic audit comes into play.
Forensic accounting firms like Culpepper CPA get hired to analyze records, look for evidence of misconduct, and report on what they found. The best forensic accounting firms also provide litigation support and forensic accountants will sometimes testify in court.
Financial disputes may be business related or personal in nature, and their complexity and duration vary widely, kind of like court cases. Here are some common examples of situations where forensic accounting comes into play:
- Securities fraud and insurance claims
- Divorce cases
- Motor vehicle accidents with personal injury claims
- Disputes among shareholders or between business partners
- Embezzlement, employee thefts, and other fraud investigations inside a company
Forensic accountants typically don’t offer advice on what action to take. They instead organize an investigation, analyze all of the available financial data, share their findings, and educate you on the available courses of action. You must decide for yourself which course of action is the best.
Case Study #1 – Using Forensic Accounting to Prove Embezzlement
Culpepper CPA has been called in to investigate a number of cases where a high-level executive or even hourly employee was “cooking the books.”
One of the challenges inherent to cases of suspected theft, fraud, or embezzlement is unearthing clues. A person stealing money tries to cover his or her tracks, and the more sophisticated the thief, the harder he is to catch.
For example, a local construction company once engaged us to investigate a CFO. The owners suspected that the CFO had embezzled a significant amount of money. The financials just weren’t adding up. The owners noticed some strange transactions, but they lacked the objectivity and training necessary to connect all the dots.
We were able to dig back through all the financial records, document the many unauthorized transactions, and deliver definitive proof to the owners. Over the last three or four years, the CFO had, in fact, manipulated payroll to give himself unapproved bonuses. He also put personal expenses on company credit cards and paid personal bills with company checks.
All told, the CFO had embezzled over $700,000!
We interviewed the CFO, who became an ex-employee soon after. We also worked with our client’s insurance company to help get a claim filed and recover the maximum amount possible for this type of embezzlement. When the company later decided to press charges against the CFO, we provided testimony as an expert witness.
Case Study #2 – Using Forensic Accounting to Prove Fraud
Another one of Culpepper CPA’s clients was a school system. Several high-level administrators suspected that a principal was misusing school funds.
The principal used school funds to pay $25,000 to $30,000 worth of tuition for his Master’s degree. He helped his wife, who was a teacher at the school, keep a retired teacher, who was their personal friend, on payroll. And he created additional pay or salaries for people working at before- and after-school programs, even when those individuals didn’t work all the days for which they were paid.
Some of them even logged Paid Time Off (PTO) on the same days for which they received after-school pay!
We were able to investigate these incidents, document the various unauthorized expenditures and fraudulent payroll, and give the local board of education the information and context they needed to terminate the principal and file a counter-suit against the ex-principal.
Unfortunately, we live in a world where forensic accounting is needed to resolve financial disputes.
Though some people certainly make honest mistakes, others know exactly what they are doing. Being in the right may not be enough to keep you out of the courtroom, so it pays to have the right financial records and documentation, along with expert testimony from a forensic accountant.
If we can get you some peace of mind, by all means give us a call at (865) 691-8509.