Companies often seek the assistance of forensic accountants in the areas of fraud prevention, detection, investigation and deterrence, as well as providing accounting analysis suitable for use in legal proceedings. Forensic accountants help to discover the facts. They can unravel complex financial transactions, identify discrepancies in financial statements that require further clarification, uncover hidden assets, detect potential fraud schemes, prepare business valuations, and quantify economic losses and damages. Regardless of the capacity in which they are engaged, some steps can be taken when working with forensic accountants to maximize the benefits of their work.
There is often a misconception that hiring a forensic accountant early may incur more costs. That is not necessarily the case. The early involvement of forensic accountants can help to save time and expense by identifying and narrowing down the appropriate areas and documents for discovery and review at an early stage; considering the most efficient ways of gathering, securing and organizing the necessary documents and evidence; formulating an appropriate work plan to ensure the necessary work is carried out effectively; carrying out the required analysis so that the clearest possible understanding of the true financial position is achieved; and allowing for optimum resource planning so that the work can be carried out in a cost-efficient manner.
The early involvement of forensic accountants also allows for a preliminary investigation or review to be carried out. This can help the client better understand the facts and circumstances around the matter, the possible financial exposures, and consider what the opposing side may do so that the client can better prepare its strategies for dealing with the matter at an earlier stage.
The additional time also allows the forensic accountants to sift through and assess the materials provided more carefully, which can lead to further information being revealed or hidden assets being uncovered.
It is common for forensic accountants to be engaged via a client’s legal advisors. The advantage of this is that it allows the work carried out to be subject to legal privilege. In any event, whether the forensic accountants will be engaged by the client directly or through its legal advisors, it is important that complete and detailed instructions are provided to the forensic accountants and that they are adequately briefed in respect to the background of the matter, the issues which require their analysis or investigation and the requirements around their work, including the timeframe, and format of their deliverables. This allows for better planning, case management and cost control by the forensic accountants.
Maintain communication channels
No two frauds or disputes are the same. It is therefore important to work closely with the forensic accountants from the very beginning so that a tailored work plan that is best suited to the client’s situation can be formulated. A line of communication should be arranged between the forensic accountants and the relevant accounting or finance staff so that they can familiarize themselves with and gain access to the required accounting information in a timely manner. Regular ongoing communication with the forensic accountants is also necessary as the matter proceeds. This allows the work plan to evolve as the work progresses and new information or findings are uncovered.
Providing as much relevant information and documentation as possible assists the forensic accountants in conducting their work effectively and efficiently, allows analyses to be conducted more accurately and may reveal weaknesses or vulnerabilities in the case.
The relevant information to be provided to forensic accountants includes not only that related to financial matters such as financial statements, management accounts, general ledgers, contracts/agreements and correspondence, but also relevant legal documents such as copies of pleadings, affidavits and witness statements. Not only will these provide a more in-depth understanding of the matter to the forensic accountants, but also by understanding how the case is to be presented, the forensic accountants can present their work in a way that can best integrate into the case.
Having the information in a suitable format (for example, management accounts in native format) can help reduce the time required by the forensic accountants to locate relevant facts.
Importance of independence
Even the best investigation work or expert analysis will be tainted if there is any issue relating to the independence of the forensic accountants. The forensic accountants should be independent – i.e. no financial or personal relationships and any indirect association with the parties involved should be carefully considered. It is therefore important for the client to provide as much information as it can around the parties involved and other individuals or entities relevant to the matter to the forensic accountants so that any potential conflict issues can be addressed as early as possible.
The timely involvement of forensic accountants and facilitating their work through open communication and access to information help to uncover the facts and achieve the best results.