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What Are the Three Procedures of Forensic Accounting?

Do you doubt the fidelity of one or more of your employees? Are you worried someone might be stealing company money? Forensic accounting services give you peace of mind or definitive evidence of theft. Forensic accounting procedures have been employed for over 70 years to keep employees accountable and support businesses in theft identification and recovery. 

What do forensic accountants do?

Forensic accountants detect fraud for businesses and organizations. Forensic accountants investigate the work performed by your CFO, controller, or bookkeeping staff to identify theft, document definitive proof, and advise you on routes for recovery. 

Perhaps you saw the 2016 film, The Accountant, which portrays a brilliant corporate forensic accountant? In truth, since large corporations have more robust controls and oversight, forensic accounting for small businesses is more common.

What are the procedures of forensic accounting?

Forensic accounting procedures prove or disprove theft by examining detailed transactions, unlike higher-level financial audits, which merely address statement accuracy. As a result, forensic accounting is more granular and targeted than audits. If you hire forensic accounting services, you should expect the following three steps:

Step 1: Investigation

Your forensic accountant will investigate alleged theft or fraud by examining the company’s financial records and interviewing staff. With enough effort and research, even the most complex fraud can be detected by unwinding transactions and paper trails. 

Step 2: Reporting

Forensic accountants will prepare a report with definitive evidence of fraud identified, cataloged, and explained. This report is provided to the appropriate manager or business owner along with a consultation to explain the situation.

Step 3: Recover and testimony

The final forensic accounting procedure is to support you in cash recovery, including confronting the employee, negotiating a repayment arrangement, or pressing criminal charges. In the event of a criminal indictment, the forensic accountant will be an expert witness to provide testimony on your behalf. 

How to hire a forensic accountant.

Shopping for a forensic accounting RFP may feel overwhelming to someone who has never dealt with fraud before. Here are some simple tips to help:

  • Look for an agency, not an individual. Agencies must maintain positive reputations to stay in business, thus providing more consistent service quality than individuals.  
  • Have a phone call with the forensic accountant and explain your suspicions. A good forensic accountant can advise you on the probability of fraud based on the evidence you provide.
  • Ask for the forensic accountant’s qualifications. They should be experienced in accounting procedures for organizations like yours (i.e., not-for-profit, manufacturing)
  • Ask about the timeline and scope before proceeding. Although forensic accounting investigations can blow up into large projects, the investigation’s initial scope should be clearly defined.

Learn about forensic accounting for your small business.

Contact us to talk to our team about forensic accounting procedures and options for your business.

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