Are Certified Forensic Accountants in Demand?
Are certified forensic accountants in demand? What exactly do they do? These are questions I got routinely when I started my own Virtual CFO and Forensic Accounting firm.
The Virtual CFO services made sense, but the demand for forensic accountants seemed strange. I quoted a few statistics from the Association of Certified Fraud Examiners Report to the Nations. Per the most recent report, there were approximately 2,700 fraud cases worldwide in 2018 amounting to $7 Billion in losses.
That’s billion, with a ‘B’. And of those losses, the majority were due to lack of internal controls. The amount of work hours completed by forensic accountants to reach that conclusion is huge.
Initial Investigation by a Certified Forensic Accountant
One of the most misleading aspects of the reported fraud cases is that the $7 Billion doesn’t include cases where the forensic accountants did not find any issues. While it is noteworthy when a certified forensic accountant discovers and reports on fraud, it is also noteworthy when they exonerate someone who has been falsely accused.
Our laws indicate that an individual is innocent until proven guilty. However, in the fraud world the moniker of ‘embezzler’ is one of accused guilt even if not intended. The forensic accountant wades through all the hearsay of an investigation and focuses solely on the facts.
Services Performed by Forensic Accountants
Everyone knows about fraud, and more specifically about embezzlement. However, some services that are primarily performed by a forensic accountant are:
- Lost profits. Lost profits represent profits that a business was unable to realize due to the actions of another party. Traditionally, in a lost profit engagement, the client’s attorney will hire the forensic accountant to first determine the amount of loss, if any. And, most importantly, determine when the affected party has been made whole. The forensic accountant is only engaged to perform calculations on lost profits and should never comment on legal matters.
- Lost wages. Like lost profits, lost wages are where the forensic accountant has been engaged to determine the amount of wages a former employee has missed out on due to the alleged actions of the employer. Usually the case revolves around a wrongful termination claim.
- Rebuttal of opposing side. When an expert report is filed with the court, the opposing attorneys want to know which aspects of the report are objective and which are subjective. A certified forensic accountant can evaluate the opposing expert’s report and issue a rebuttal on any deficiencies. The rebuttal expert witness only rebuts the opposing experts report, they do not re-examine the entire case unless specifically requested by legal counsel.
Calculation of Total Losses, Including Interest
Not only does the certified forensic accountant calculate the total amount of embezzlement or loss, but they also calculate the present value dollars of the action. It is important to remember, had the funds not been taken, the victim they could have been able to invest the monies and earn interest or dividends.
So the certified forensic accountant will calculate an interest component in their report. If the respective fraud had been going on for many years, then sometimes the interest component is equal to or higher than the principal initially taken. The forensic accountant needs to make sure they understand the state where the fraud took place, as some states allow for a compounding component to the calculations.
Testifying in Court
Once the certified forensic accountant has determined the total amount of the embezzlement or loss, they need to meet with the attorney to fully explain the report. Because of the highly technical nature of the report, the attorney needs this assistance to fully understand the impact that the report may have on their case.
If the case isn’t settled, then the forensic accountant will need to explain the case to the judge or jury. The ability to explain, in real world terms, is one of hardest skills for the forensic accountant to master. Because of the technical nature, it is best to utilize graphs and charts to present the concepts.
While most jurors will not be able to understand accounting terminology, then can track when you bring up visual explanation. Regardless of whether you use text or charts, always make sure you have proper spelling. Nothing can ruin a presentation like a simple spelling error.
Additionally, the forensic accountant may be called into a criminal case for the defense to act as a blind witness. In a criminal case there will be a jury and usually the case was investigated by local law enforcement, who may or may not have training in accounting.
With the blind witness engagement, the forensic accountant will explain general concept ideas that revolve around investigation and what should or should not be considered in an investigation.
So back to the initial question, ‘Are forensic accountants in demand’? Based on fact that they are important to litigation support and fraud has no sign of going away any time soon, I would unequivocally say YES!
Steven D Hovland is a Certified Public Accountant and a Certified Forensic Accountant. (#theForensicCFO) He has 20+ years experience in auditing, accounting, and forensic investigations. He is the founder of Hovland Forensic and Financial, a virtual CFO service company as well as forensic litigation services.