- Virtual CFO Services
- Forensic Accounting
Forensic Audit Cost
The cost of a forensic audit can vary based on several variables.
- Are multiple years involved in the embezzlement?
- Are multiple companies or bank accounts involved?
- Have any or all source documents been destroyed?
- How was the fraud concealed?
These variables impact the amount of time needed to investigate fraud and embezzlement.
Forensic auditing, or forensic accounting, is the process of examining the details surrounding possible fraud. The accountant focuses on tracing and uncovering all funds stolen. Because of the highly focused nature of a forensic investigation, the steps in the process differ from a traditional financial audit. The basic steps a forensic accountant will go through in an investigation are:
- Background research
- Data collection
- Analysis of transactions
- Report drafting
- Testimony (if necessary)
These steps may require minimal time or significant amount of time, depending on the scope of the fraud.
How to Gauge Cost
The duration of the embezzlement and quality of source documents greatly affect the time necessary to investigate the event. Because of these unknowns, most forensic auditors will not quote a set fee at the start. However, most will quote the average billing rate. Utilizing an average billing rate, a client can approximate the costs by calculating the hours.
The first step in estimating the hours is to determine the duration of the fraud. For example, assume an embezzlement affects only one set of books and only one year. On average, the hours from the start of the investigation to the final issuance will usually be around 50 – 70 hours. If there is more than one year involved, then the additional years will run about 30 – 40 hours per each additional year. So, for an embezzlement that spanned two years on one set of books, the estimated hours will be approximately 80 – 110 hours. Using this information as the base amount, a client can multiply out against the number of years the fraud was believed to have occurred.
Additional costs come into play if there is the need for testimony. Many firms will charge a premium rate for testimony. This is due to the level of expertise needed to sit in a court setting. Most testimonies will run for 8 – 12 hours. This includes prep time, deposition, and the actual testimony. Again, a larger fraud may require additional preparation time.
The hours will be based on:
- Duration of the fraud
- Number of financial books affected
- Testimony time
This calculation allows a client to get a feel for the cost of the investigation. While this method isn’t always full proof, it does provide some insight as the total cost necessary for an investigation.
Forensic Audit Costs at Hovland Forensic & Financial
Steven D Hovland, CPA, Certified Forensic Accountant, is the founder of Hovland Forensic & Financial. He has extensive expertise in forensic investigations and providing expert testimony. Steve has uncovered embezzlements from such industries as homeowners’ associations (HOAs), manufacturing, and personal estates. He believes the investigation should always be handled by a higher-level accountant, not outsourced to lower level staff accountants. Our firm’s current billing rates for forensic accounting investigations are as follows: