The most important skills that a forensic accountant needs to possess.
Forensic accountants assist individuals and organizations by the provision of management support in the form of reviews of fraud, detection, and litigation. Their prime involvement follows a discovery or suspected fraud that requires investigations. Additionally, they consider issues such as the effects that fraud investigations might have on relationships between employees, management, and corporate image (Singleton and Singleton, 2010).
Consequently, it is crucial that a forensic accountant possess more that the fundamental skills and knowledge of auditing and accounting. Indeed, auditing forms a platform for a forensic accountant by its ability to the provision of an understanding of internal controls and materiality issues, and sharpens analytical skills, and awareness of fraud. This implies that a forensic accountant requires skills that exceed those of a ‘traditional auditor’ and provides services that go beyond the scope of financial audits (Nigrini, 2011).
A forensic accountant needs to develop a case theory while investigating a fraud. This requires incorporation of scientific methodology skills. Such an approach requires skills in problem identification, hypothesis formulations, data and evidence collection, data analysis, and drawing of findings, conclusions and recommendations. A forensic accountant who possesses these skills provides invaluable support to businesses seeking to combat frauds. In conducting a successful investigation, therefore, a forensic accountant must possess the following skills:
Analytical, critical, and investigative skills; a forensic accountant needs not only to be a ‘watchdog’ but also a ‘bloodhound’. The accountant must possess high levels of skepticism and detective skills. This allows a thorough examination of situations that suggest fraud. Such skills allow detection of fraud, analyzing such frauds, and provision of a recommendation that may improve on the operations of business by protecting system loopholes that may be contributing to such frauds.
A forensic accountant should understand the laws and rules of evidence. The accountant should be in familiarity to civil and criminal laws. The accountant should also be skillful on legal, courtroom procedures and expectations (Singleton and Singleton, 2010). Understanding such laws and rules ensures that the accountant’s findings and documentations are admissible in court. This also ensures the protection of business corporate image, which remains at stake during court proceedings (Buckhoff and Pagano, 2005). Understanding such procedures ensures that the image of the business remains untarnished and also protects the customers from any losses that they may undergo as a result of a committed fraud.
A forensic investigator requires an understanding of methods, patterns of fraud, and theories. The accountant needs to possess creativity skills in considering and understanding tactics of fraud that perpetrators may use in committing and concealing fraudulent acts (Nigrini, 2011). Forensic accountants need to think like that individual; who would like to manipulate systems and accounting records with an intention to misrepresent facts of the company. To accomplish such a mission, the accountant requires an understanding of opportunities to commit fraud and situational pressures that might lead to fraudulent actions.
A forensic accountant requires communication and interpersonal skills. This allows concise communications on findings to various business parties. For instance, a forensic accountant may be asked to provide a presentation of investigative methods applied in a study and methods used in coming up with conclusions. Such a presentation may be inclusive of accounting departments, boards of directors, courtroom juries, and government authorities, who possess different accounting skills and knowledge. The implication is that a forensic accountant should have effective communication and interpersonal skills in explaining the procedures and analyses used, and in distinguishing between opinions and facts (Silverstone, 2012). Effective oral communication reflects the need to effectively represent a case or the position of a business in a courtroom.
A forensic accountant also needs a possession of strong organizational skills. This is the ability to organize, analyze and present significant amounts of financial data and documents. They must organize information whilst establishing premises that guide in splitting complex data to opinions. Managing such tasks requires profound organizational skills in developing professional conclusions, and expert reports.
Roles of a forensic accountant within a courtroom environment
Once the forensic accountant completes an investigation, the reports are submitted to judges, and opposing counsels and experts. The culmination of a forensic accountant’s role lies in the provision of a testimony in a trial. The forensic accountant must provide and state facts of the investigation in a precise and understandable manner to the judge, jury and the opposing counsel. In a courtroom, the role of a forensic accountant revolves around providing testimony and applying for understanding to the jurors (Buckhoff and Pagano, 2005). The forensic accountant provides the assistance needed by the juries in obtaining the documentation that is relevant in support or refute of the claim in question. He or she reviews and translates the documentation to provide an understanding of the issue, and form an initial assessment of the case.
As part of this, the forensic accountant quantifies the value of loss that an organization or individual experiences after a malpractice. Any lost finances are traced from bank accounts or to bank accounts in identifying asset acquisition with a legal aim of freezing and recovering the assets or funds. The forensic accountant also assists the legal counsel with all depositions including formulating questions regarding financial evidence. The accountant is also obliged to review the reports and exhibits from the opposing panel and assists the counsel in understanding the issues in such reports.
The aim of the litigation process is to repossess what is lost through fraudulent practices as well as providing alternatives to seal system loopholes that aid fraudulent practices (Silverstone, 2012). In this case, therefore, a forensic accountant provides assistance in making sure that the negotiations and settlements are done in a legal and binding manner. The forensic accountant provides business valuations to the juries, income analysis, asset searches, contract dispute resolutions, structured settlements, personal injury calculations, and termination charges (Nigrini, 2011). This guides the juries in the determination of the case and on the amounts that need to be compensated.
Legal responsibilities a forensic accountant.
A forensic accountant is a person hired by law professionals, firms and corporate and regulatory authorities, among others with an aim of providing assistance in disentangling crimes through investigations and litigation support. While providing their services, forensic accountants ensure economic security in two ways; first, they detect any losses and fraud in a business setting. By doing this, stock investors feel secure in investing in a firm, and the image of the firm is protected in the public limelight. Secondly, forensic accounting offers job security. As long as there are businesses and firms being developed, and money is being handles, the popularity of forensic accounting will continue to grow. This ensures security of an economy as the field creates thousands of jobs annually.
A forensic accountant is legally obliged to apply specialized investigative skills and knowledge possessed by any other CPA (Singleton and Singleton, 2010). His/her responsibility revolves around collection analyzing and evaluating evidential matter relating to a business or accounting matter. The forensic accountant also has a responsibility to communicate and interpret findings from courtrooms, boardrooms or any other administrative venue.
Forensic accountants deal with evidence and financial records used for legal purposes. It is the responsibility of a forensic accountant to detect and investigate any suspicious fraudulent activity such as money laundering, tax evasion, insurance frauds, and embezzlement, among others. It is also the role of a forensic accountant to understand all accounting records, and show the nature of transactions being recorded. This assists in interpretation of the records if needed in a courtroom or to directors and shareholders.
A forensic accountant is legally obliged to use investigative skills in gathering and analyzing financial data and information that may uncover fraud. The findings provided by the accountant detect any suspicious happenings within the business and reveal individuals who might be involved in such activities (Nigrini, 2011). The accountant as a role of providing such evidence to a court of law and prosecute the offenders. Forensic accountants are used as expert witnesses in legal procedures and proceedings. They assist juries and courts in making just and legal decisions against criminal and fraudulent offenders. To effective carry out these functions, the forensic accountant must be familiar with legal procedures and concepts, including the ability to differentiate between forms and substance when dealing with an issue (Weil, Lentz, and Hoffman, 2012). Notwithstanding the array of experts at a forensic accountant’s disposal, he/she would be doing disservice to a client if he/she fails to know at which point his/her service should end. He/she should know when to stop interviewing and investigations, and present a report which should be sufficient in assisting the parties involves in forming their own opinions (Singleton and Singleton, 2010). The forensic accountant should not be a partisan in opinion making.
The Enron case
The case involved two defendants, Kenneth Lay and Jeff Skilling. The two were accused of fraudulent operations, which rendered the business bankrupt. Lay was accused of lying to investors, analysts and employees about the future financial position of the company while Skilling was pointed out by the guilt of his former colleagues. Enron started as a natural gas company, which was put together by Kenneth Lay. For duration of time, the enterprise did things right and gained a considerable credit on Wall Street. The issues of bankruptcy that faced the company after some successes lay on the financial failures that some of its traders started experiencing. Most of its market traders turned out to be market gamblers who instead of being company sources of income turned to be significant sources of loss to the company. Most of the company losses and deficits could be covered in a number of ways that included massive borrowings from Wall Street. Among the cover-ups also included the Mark-to-the-Market accounting strategy. Silverstone (2012) feels that Mark-to-the-Market accounting strategy is among the legitimate forms of accounting in a company involved in buying and selling of securities. Before Jeff Skilling took over the company, in 1996, it was operated upon cash flow performance by Rich Kinder.
The role of forensic accounting in Enron case.
In this case, the forensic accountant’s role was to find out and uncover the hidden assets, cash flows, business borrowings, and review the accounts of the business. On investigations, the forensic accountant found out that just after Skilling resigned and sold all his shares, the company was running on borrowings. The speculation was that Skilling knew that the company was about to collapse. The forensic accountant found out that the Mark-to-the-Market, the company had booked a $5.9 million profit at a $1 million annual profit, which was not realized. This led to the increased borrowings to cover up on the financial deficits off the business books. To hide the failed investment, the forensic accountant found out that the management had resulted to an off-balance sheet financing project duped Whitewing, which was to purchase all Enron’s underperforming assets. The accountant also revealed extravagant management expenditures and luxuries, which were paid from the businesses’ borrowings as it had no real profits. According to Weil, Lentz, and Hoffman (2012), such facts guide the jury in providing their verdict to Skilling and Lay.
The OJ Simpkins civil trial.
OJ Simpsons had been tried for the murders of his ex wife Nicole Brown Simpsons and her friend Ron Goldman, but in this case, the families of the victims sought financial damages to compensate for the loss of their loved ones. The jury in this case required at least 50.1% evidence and prove ‘beyond reasonable doubt’ that Simpson was responsible for the murders before issuing their verdict.
Role of a forensic accountant in Simpson’s case.
After the 12 bench jury issued their verdict that Simpson must pay $25 million punitive awards to the plaintiffs, it was found that Simpson was almost bankrupt, and could not in any way pay the fine. The role of the forensic accountant was to review his accounts and provide evidence to the jury that the defendant could not raise this amount. The accountant revealed that after the same jury awarded the Goldman’s family $8.5 million for the compensatory damages inflicted to Simpson’s wife, on matters relating to wife battering, Mr. Simpsons did not have the sum of $33.5 million required.
Buckhoff, T. A., & Pagano, W. J. (2005). Expert witnessing in forensic accounting. Philadelphia, Pa: R.T. Edwards, Inc.
Nigrini, M. J. (2011). Forensic analytics: Methods and techniques for forensic accounting investigations. Hoboken, N.J: Wiley.
Silverstone, H. (2012). Forensic accounting and fraud investigation for non-experts. Hoboken, N.J: Wiley.
Singleton, T., & Singleton, A. J. (2010). Fraud auditing and forensic accounting. Hoboken, N.J: Wiley.
Weil, R. L., Lentz, D. G., & Hoffman, D. P. (2012). Litigation services handbook: The role of the financial expert. Hoboken, N.J: Wiley.