What Is Forensic Accounting?

If you’re handy with numbers and love investigations, but don’t have the stomach for police work, forensic accounting might be the field for you. This type of accounting combines accounting, investigative and auditing skills to find instances of fraud or embezzlement.

Forensic accounting is often used in litigation, as a means to prove that one party was hiding assets, embezzling money or inflating their financial worth. It’s frequently used in insurance litigation, but can be helpful in anything from divorce proceedings to white collar crime. Read on to find out more about forensic accounting and when you might need it.

What forensic accountants do

Here’s a closer look at some of the typical duties of a forensic accountant:

  • Criminal investigation: The police or government may hire forensic accountants to help prove that white collar crimes have occurred, such as securities fraud, embezzlement, fraud, identity theft, insurance fraud and more. The accountant not only tries to discover evidence of a crime, but evidence that proves (or disproves) intent.
  • Litigation support: When pursuing criminal or civil litigation, lawyers need someone who can absorb a lot of complex financial information, then distill it down to easily digestible facts. This is often used to help explain highly complicated financial crimes in a way the average layperson can understand. In other cases, the forensic accountant may be used to find hidden assets in divorce claims, to settle disputes about company valuation and even value the cost of a breach of a non-compete or nondisclosure agreement. Since attorneys need to know how much a tort or criminal offense costs—so the responsible party can give appropriate restitution—forensic accountants can be an invaluable resource.
  • Insurance claims: Insurance claims are another area where forensic accountants can quantify damages. For example, many cases—like catastrophic injuries, medical malpractice and car accidents—need someone to find out exactly how much the injury has already cost, and project how much it may cost in the future. That’s an excellent way to quantify noneconomic damages, such as loss of enjoyment of life or loss of companionship.

When to hire a forensic accountant

Not every case requires a forensic accountant. However, if your case involves complex financial calculations, they can provide a great deal of help. For example, if you’re involved in a divorce in which one or both spouses own a business, you’ll want to hire a forensic accountant to determine the value of each business.

Any time you’re involved in an employment or business dispute, such as in cases of employee theft, embezzlement, fraud or shareholder disputes, a forensic accountant can provide much-needed insight.

Finally, forensic accountants are excellent for issues like business valuation before selling a company, general fraud risk assessments and preparing for tax audits. They’ll go through an organization’s finances with a fine-toothed comb, looking for inconsistencies as well as evidence of ill intent.

If you’re not sure whether you need a forensic accountant, ask for a consultation. Medina & Company Consulting, Inc. is happy to answer your questions about forensic accounting. Call us today to learn what we can do for you.