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Unveiling the Importance of Forensic Accounting for Rebuilding the Books and Mitigating Business Fraud and Irregularities

Forensic Accounting is one of those jobs that is not very well understood, but can be an important part of a business. From restatement to fraud, a Forensic Accountant has the accounting investigative skills to rebuild the accounting books or unwind the financial statements to find where the irregularities are that unbury the fraud.

In Forensic Accounting, the skill level has to be high in terms of accounting in general, and the ability to dig into data and understand what is happening on a granular level. Therefore, if you are searching for an Forensic Accountant, make sure to do your due diligence on that person to ensure that they have the necessary skills to get the job done. Not all accountants can do this work.

What is Forensic Accounting

Forensic Accounting has two main areas; restatement and fraud detection, and uses a combination of accounting knowledge and investigative abilities to solve the issue.

The first important aspect of a Forensic Accountant's work is restatement. This work involves the building or rebuilding of a company's accounting over a period of time to create a set of books that are accurate and useable. Usually this occurs when the company did not focus on its accounting when it started or it has some type of tax problem. This is a clean up job!

I'll give you a good example of a restatement that I was involved in from 2005 to 2007. Qwest Communications, a large telecom company at the time, had not filed financial statements nor tax returns for any of its international operations since the start of their penetration into international markets. Some of these subsidiaries had been around since the early 1990's so Qwest's Controller was on the hook to go to jail in several of these countries because the Company had not filed anything.

At first, Qwest had hired Deloitte & Touche in 2004 and paid them over $1M to complete the project, but for whatever reason, they couldn't get the work done. In 2005 they hired me as the consultant to take a swing at it. I had a ton of international experience under my belt so I became the lead on the international accounting project.

The starting point was literally one box of accounting records located on the 23rd floor that had some invoices and bank statements in it.

From there, I had to build the banking transactions in the local currency, in to Excel (Qwest did not have accounting software that could translate the currencies) and translate over to USD manually.

The investigative techniques that I used such as interviewing, data mining, and working all accounts simultaneously, were able to bring the financial information into a central point to then be put in the overall financial statements.

This accounting project took two years to complete and, at the end of it, I was able to file 120 sets of financial statements and tax returns to 15 different countries.

This was the beginning of my Forensic Accounting career and there has never been anything that has come close to the complexity of that project and probably never will.

If you are a business owner whose business's accounting is jacked up due to a variety of reasons, I suggest hiring a Forensic Accountant to take the restatement project and run with it. You'll save yourself a lot of heartache knowing that the job will be done correctly and you will finally have accounting in place that is going to help grow the success of the business.

Fraud is on the other side of Forensic Accounting. Instead of rebuilding, we are tearing down the current accounting to find the irregularities in the numbers and accounting processes.

By definition, fraud is wrongful or criminal deception intended to result in financial or personal gain. Simply put, someone is or is trying to steal from the business.

Fraudsters are smart and know how to create elaborate schemes to take the money. They develop processes that cover up what they are doing and the job of the Forensic Accountant is to retrace these processes backwards to uncover the crime.

I have been involved in several fraud investigations and have found over $5M in fraud during my career so far. Some of them being very complex schemes, but an easy and quick example is that of a criminal down in Boca Grande, FL after Hurricane Ian decimated the place.

Hurricane Ian was a massive Category 5 hurricane that directly hit our little town of Englewood, FL. As you can imagine, this devastation created a lot of financial difficulties for pretty much everyone. This was food laying on the ground so the vultures came from all areas of the country to design ways to rip people off.

I was hired by a prominent hotel to investigate a potential fraud investigation on a company that was brought on to fix the buildings and outside landscape due Ian. In a nutshell, what this company was doing was billing the hotel for assets that were not being used and they hid it in invoices that were up to a 100 pages long. Secondly, they made the PDF files in a way that would not download to Excel correctly so the work became very tedious and detailed.

After the analysis was done, I had found $400K in fraudulent charges and was able to take down the scoundrel.

Forensic Accounting is a very interesting and valuable type of work. It allows you, as a business owner, direct site into what is truly brewing in your business.

Importance of Forensic Accounting

If there are ANY indications that there is loss of financial assets going on with your company or you are holding a set of accounting books that are absolutely incorrect, I strongly suggest that you find a Forensic Accountant to help you have clarity and trust in your finances.

I have seen companies lose millions of dollars from having to restate their accounting and/or before the fraud was detected. Any suspicions, take action!

Blue Collar CFO

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