What is Forensic Accounting?

Whether you're planning your education in accounting or already have your Bachelor's degree and are working towards your Master's it's an excellent idea to take a hard look at specialized areas such as forensic accounting within the realm of certified public accountants (CPA). Because most states require both a Bachelor's degree and at least two years accounting experience before you can become a CPA it makes sense to focus your coursework, internships, and work experience in a specific area of accounting so you're ahead of the game by the time you qualify for certification.

According to the Association of Certified Fraud Examiners (ACFE) forensic accounting is a combination of investigative skills and accounting knowledge that gives litigation support in cases of fraud. The word "forensic" means suitable for use in a court of law, and as a forensic accountant you'll be tasked with following the money trail looking for fraudulent activity and perhaps testify in court as to the path you followed in your investigation.

The specialized area of forensic accounting is growing at a rapid rate and because the demand is high those who hold the Certified Fraud Examiner (CFE) credential earn over 30 percent more than CPAs without the certificate. Because the field of accounting is projected to grow at a healthy rate of 10 percent over the next decade those who hold the title of CFE will stand out from the crowd and will also most likely be in the top of the earnings tier for accountants.

What Does A Forensic Accountant Do?

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Because the term "forensic accounting" is defined as the application of accounting evidence in regards to criminal evidence and legal proceedings it is to that standard forensic accounting investigations are held. Since forensic accounts are often called as professional witnesses to give testimony on their findings the position is a combination of accountant, auditor, and investigator. They may assess accounts presentations and accounting systems to determine whether the numbers mesh, assist in professional negligence claims to determine whether business persons acted in an ethical and legal manner, or may be tasked with investigating assumed or actual proceeds from fraudulent gains in order to determine the amount of criminal proceeds or negligence of those involved.

A forensic accountant may be used to quantify and calculate economic damages and losses through either contract or tort, to determine a business valuation, or to investigate disagreements relating to company buyouts, breaches of warranty, or acquisitions.

There are two main areas that forensic accounting encompasses: investigations and litigation support. On the investigative area they may be called to determine whether a criminal action has taken place such as security fraud, identity theft, employee theft, or insurance fraud. They may also be called to investigate hidden assets in civil matters such as a divorce case.

In the area of litigation support a forensic accountant is used to explain the factual presentation of the economic issues of a case in either pending or existing litigation. They are charged with quantifying the specific damages in legal disputes in order to resolve cases during mediation and may be called to testify as a professional witness if the case reaches the courtroom. This is what sets a forensic accountant apart from a CPA: they must not only collect the evidence of the paper trail but must be able to present it in a concise manner that is easily understood by the jury members and judge.

Forensic accountants must be suspicious number detectives. They must know legal issues and have the ability to apply their accounting knowledge to the courtroom. They must have a wide range of knowledge and talents to cover all aspects of an investigation. They may be asked to help with depositions, write reports, testify in court, assist in criminal and civil investigations, and conduct fraud investigations. Unlike fraud auditing which tries to anticipate a fraudulent situation, forensic accounting occurs after the fact when a company suspects theft, embezzlement, or fraud has already occurred.

Possible Careers and Duties

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There are five main areas where forensic accountants are employed: accounting firms, corporate security and risk management firms, law firms, financial consulting firms, and law enforcement. Here's a look at each area and the typical duties of their forensic accountants:

1

Accounting firms

  • Uncover fraud
  • Collect evidence
  • Perform computer forensics
  • Conduct interviews
  • Quantify financial losses in cases of misconduct
  • Translate technical jargon into common language
  • Testify as a professional witness in court
2

Corporate security & risk management firms

  • Ensure organizational compliance with procedures and laws
  • Analyze changes in taxes, exchange rates, law, and cultural attitudes in relation to their influence on profits and operations
  • Protect financial assets from external and internal threats, including economic circumstances and political issues
  • Audit financial statements
3

Law firms

  • Act as an consultant for financial issues
  • Assist in locating financial experts for use as witnesses
  • Conduct investigative audits
  • Translate complex financial reports into simplified language
4

Financial consulting firms

  • Investigate fraud, corruption, and regulatory scrutiny
  • Analyze and reconstruct digital information and financial records
  • Conduct interviews
  • Assess fraud vulnerability
  • Analyze embezzlement allegations
5

Governmental departments (FBI, CIA, IRS)

  • Build financial profiles of suspects
  • Investigate financial history of spies, criminals, and terrorists
  • Track sources of illicit funding
  • Gather evidence
  • Assist in the execution of search warrants pertaining to financials
  • Take part in financial interrogations
  • Compile financial investigative reports
  • Meet with prosecutors to discuss testimony and strategy
  • Testify as expert witness

Although there is no typical workday for a forensic accountant because the responsibilities are so wide ranging it's important to point out that being a forensic accountant doesn't resemble a television investigator who finds all vital information within minutes. As with other CPA positions most days will be spent behind a desk working with numbers. The main difference is that in civilian firms instead of balancing books and tax returns you'll be investigating for signs of wrongdoing such as fraud and embezzlement.

A career in law enforcement is much different for a forensic accountant as it is one of the fastest growing law enforcement fields. A prime example is the FBI as they are actively recruiting forensic accountants. As an FBI forensic accountant you may be tasked with a wide range of ever- changing assignments investigating major crimes such as:

  • Corporate fraud
  • Healthcare fraud
  • Securities and commodities fraud
  • Financial institution fraud
  • Mortgage fraud

The FBI also uses forensic accountants in:

  • Counterterrorism
  • Organized crime
  • Counterintelligence
  • Public corruption
  • Cyber-crime
  • Violent crime

As a law enforcement forensic accountant your duties would reflect legal prosecution of the criminal focus of the investigation in respect to their financial trail:

  • Perform research to track funds and identify assets
  • Conduct forensic analysis of various financial data
  • Prepare reports from financial findings
  • Prepare analytical data
  • Testify as needed

Education and Degree Options

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For a career in forensic accounting you should plan to earn at minimum a Bachelor's degree and preferably a Master's degree in order to qualify for the widest range of positions. Because most state require a minimum number of accounting courses as part of your educational requirements to become a CPA you should plan your education accordingly with forensic accounting as your end goal. You should first determine that your school of choice is accredited then find the CPA requirements for your state. Any internship should encompass forensics if possible, and once you've earned your degree and passed the CPA exam you should try to gain your required experience in the forensic accounting field while qualifying for your CPA licensure.

Note that while most firms as well as law enforcement doesn't always require you to be a CPA in order for you to become a forensic accountant it is preferred, so you should make becoming a CPA your first educational goal. The American Institute of Certified Public Accountants (AICPA) recommends future forensic accountants complete the Fundamentals of Forensic Accounting Certificate Program which is a 12 module course; you should take as many forensic accounting courses available while earning your degree. Note that because forensic accounting is the legal and investigative aspect of the accounting field it may be a wise choice to declare criminal justice as your minor so you can take courses related to your long term goal Here are some sample courses that fall in the forensic accounting category:

  • Understanding the Basic Structure of the Legal System
  • Managing the Forensic Engagement
  • Identifying and Obtaining Evidence
  • Conducting Effective Interviews
  • Common Investigative Techniques
  • Deposition and Testimony
  • Calculating Intellectual Property Infringement Damages
  • Family Law Engagements
  • Fraud Prevention, Detection, and Response
  • Financial Statement Fraud and Asset Misappropriation
  • Valuations in Litigation Matters
  • Auditing and Forensic Accounting
  • Detection/Prevention Fraudulent Financial Statements
  • Interview Techniques/Legal Aspects Fraud
  • Investigating with Computers

Certification Credentials and Licensure

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Besides qualifying for your state CPA licensure you should also plan to earn your Certified Fraud Examiner (CFE) Certified in Financial Forensics (CFF), or both.

The CFE is determined on a point basis. Education, experience, and certifications are all taken into consideration so if you have a Bachelor's degree and CPA licensure your only requirement is two years experience in an area specific to the detection or deterrence of fraud. This is where your internship and CPA experience requirements can help you save time on your path to becoming a forensic accountant. The following areas of experience are accepted:

  • Accounting and Auditing: with certain responsibilities for the detection and deterrence of fraud in specific areas
  • Criminology and Sociology: professionals with education or research in the fraud and white-collar crime dimensions of criminology or sociology
  • Fraud Investigation: Experience in the investigation of civil or criminal fraud, or of white-collar crime for law enforcement agencies or in the private sector
  • Loss Prevention:Security directors for corporations and associations who deal with issues of loss prevention or security consultants dealing with fraud-related issues may claim this experience
  • Law: Candidates with experience in the legal field might qualify if experience deals with some consideration of fraud.

The CFF credential is granted by the AICPA to qualified CPAs. To sit for the CFF exam you must meet both educational and experience requirements as follows:

  • Education: CFF candidates must have 75 hours of forensic accounting continuing professional development (CPD) within the five year period preceding the date of the CFF application.
  • Business Experience: CFF candidates must have a minimum of 1,000 hours of forensic accounting business experience within the five year period preceding the date of the CFF application.

While neither forensic credential is required to work as a forensic accountant you should plan to earn at least one. You should also look at the specific experience preferred by your employer of choice while working on your experience requirements. For example, the FBI prefers to hire those with a Bachelor or Master's degree, hold CPA licensure, and hold certification from CFE or CFF as well as experience in the following areas:

FBI Preferred Professional Experience

  • Forensic Accounting
  • Public Accounting
  • Government Accounting/Auditing
  • Corporate Accounting/Internal Auditing
  • Litigation Support and Dispute Services
  • Financial Services Industry

Most states require Continued Professional Education (CPE) once you hold your CPA licensure so you should plan to use this requirement to your advantage to keep abreast of new developments in the world of forensic accounting.