What to Look for in a Forensic Accountant

By Thomas Levanti

Forensic Accountant - Detective, Accountant, Auditor or Attorney?

A Forensic Accountant is indeed part investigator, part auditor, part attorney and part accountant. A Forensic Accountant reviews evidence, conducts analyses, interviews involved parties and draws conclusions. A Forensic Accountant prepares each case as if it will result in litigation in the future. Forensic Accountants are usually retained after an alleged fraud has taken place to assess the extent of a fraud and to bring those responsible to justice. Forensic Accounts are frequently called upon to provide expert testimony on fraud and accounting-related matters. Forensic Accountants can also be used to set up proactive fraud prevention programs.

Forensic Accountants can trace their roots back to America’s Prohibition days. Al Capone, one of the most famous gangsters of the 20th century was prosecuted for tax evasion with the use of a Forensic Accountant by the Internal Revenue Service. Today, Forensic Accountants in their expanded role can be relied on to work on all types of cases where having knowledge of accounting principles and investigations has been applied to some of the biggest cases ever, including terrorism and corporate fraud cases, especially in light of 9/11 and Enron. A Forensic Accountant possesses the knowledge and expertise to interpret financial statements or to work under circumstances where financial information has been destroyed or tampered with, necessitating the recreation of information to determine if inappropriate actions have taken place.

Where can one find a Forensic Accountant? Many accounting firms, both large and small, have developed Forensic Accounting practices that serve a wide variety of litigation and investigative needs. Many private investigation firms have Forensic Accountants on staff. Governmental entities, such as the IRS, Federal Bureau of Investigation and state and local police departments, employ Forensic Accountants to address law-enforcement needs. Likewise, many large corporations employ Forensic Accountants to address legal and fraud-related issues internally.

Making the choice of what type and what size of firm to hire requires many considerations. The cost of each alternative must be considered carefully, relative to the loss. The duration of the engagement must be factored into the equation as well, to address the cost-benefit considerations.

The field of Forensic Accounting has been around for a while, using other names such as “Financial Investigations;” however, only a few professional certifications address Forensic Accounting specifically. Many professional organizations commingle Forensic Accounting along with other titles and specialties involving fraud, auditing and general accounting. When one chooses a Forensic Accountant, many considerations must go into selecting the right person for the job. In many cases, experience makes the difference between a good and bad outcome.

Forensic Accounting currently lacks the standardized methodologies and standardized practices found in many other professions. Several of the key considerations required to choose wisely the appropriate professional have been explored below.

Experience requirements of Forensic Accountants

Unlike many other professional fields, there are no experience requirements necessary to call oneself a Forensic Accountant. When looking for an experienced professional, the length of time someone has spent conducting actual accounting and auditing engagements should be strongly considered. However, accounting and auditing experience is not necessarily enough to qualify one as a Forensic Accountant; one must look at the professional experience of conducting investigations as well. Experience conducting investigations can be gained in many ways, including working in a forensic practice at an accounting firm or working in a law-enforcement capacity. Academia can also provide professionals who have conducted research into fraud-related fields.

Education credentials of Forensic Accountants

Although there are no educational standards for Forensic Accountants, there are standards for other professionals, such as CPAs. When choosing a professional Forensic Accountant, one should be guided by the same professional standards used for other services be it accountant, doctor, or attorney. Lack of education, however, should not be considered solely as a disqualifying factor for a candidate. A candidate may not have an advanced degree, but instead may have many years of experience in auditing, accounting or investigations that makes up for the lack of advanced educational credentials. When hiring a professional from a large, well-known firm, it is highly likely that the person’s educational credentials have been verified and that he or she comes with the backing of the firm. When looking at a candidate without backing of a large firm, a request to an educational institution to verify educational credentials may provide needed clarity to make and informed decision. Beware of diploma mills issuing mail-order degrees when inquiring about educational credentials.

Professional credentials of a Forensic Accountant

One of the most effective ways to verify the credentials of a Forensic Accountant is by checking the references that are provided The Internet is another good source of information, as well as Google, Ask.com and other search engines that offer thousands of sources of information on all types of professionals. Individuals belonging to established professional organizations may be confirmed as active members in good standing.

Regarding professional organizations themselves, there are several organizations that provide accreditations to Forensic Accountants. Some of these organizations have little or no education or experience requirements for their members or established professional standards for their members to follow. When inquiring about professional affiliations, one should seek out the requirements to become a member and/or receive a professional certification. For those organizations that lack satisfactory requirements, it is important to remember that deceptive organizations and certifications exist in every profession, including accounting and fraud investigations.

What do you do when you find a Forensic Accountant?

When a likely candidate has been identified, credentials have been satisfactorily reviewed and the nature of the engagement has been described and agreed-upon, a confidentiality agreement should be one of the first orders of business, as well as determining the fees and anticipated duration associated with the job. Investigations utilizing Forensic Accountants can last for substantial periods of time, depending on the depth and breadth of the case. Additionally, it is important that the Forensic Accountant have not personal or economic ties to the subject of the investigation. Forensic Accountants must be objective, if he or she is to determine the facts in a fair and equitable manner and to describe the results of the investigation in an impartial manner.

Of course, examining the experience, education, and professional affiliations/certifications of a potential candidate to conduct a Forensic Accounting engagement does not guarantee success in picking the right person or firm. However, doing so increases the probability that the right person or firm will be matched to the job at hand. Standardizing industry credentials has been the topic of much discussion. Until such time that this is done, an educated consumer is a wise consumer.

Thomas Levanti, CFE is a member of the Litigation Services Committee of the NYSSCPA.