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Why Is Forensic Accounting Important for Business Decision-Making?

Forensic accounting is critical to helping organizations prepare for and detect financial misconduct and fraudulent activity. Therefore, organizations of any size and type should have access to professionals with forensic accounting skills so they can continually identify and defend against financial misconduct, including fraud and data breaches.

Forensic accounting is a discipline that follows a money trail to find evidence of financial misconduct or fraud, activities that are prevalent in organizations in the U.S. and around the world. Financial misconduct in business encompasses fraud, data breaches, gross negligence, misstatements, irregularities, wrongdoings, and willful conduct detrimental to an organization’s finances. Fraud in business is a deliberate act that results in material or financial damage to a company for the gain of the person or group committing the act.

Organizations that fall victim to fraud suffer severe and often long-term consequences, and many never recover. Consider these alarming statistics from the Association of Certified Fraud Examiners 2022 Report to the Nations:

  • Organizations lose 5% of revenue to fraud yearly, with a median loss per case of $117,000.
  • 86% of cases are asset misappropriate schemes with a $100,000 median loss.
  • Half of the cases are corruption schemes with a $150,000 median loss.
  • 9% of cases are financial statement fraud schemes with a $593,000 median loss.
  • A typical fraud case lasts 12 months before detection.
  • The majority of occupational frauds come from these four departments: Operations (15%), Accounting (12%), Executive/Upper Management (11%), and Sales (11%).

What Is Forensic Accounting?

The Corporate Finance Institute defines forensic accounting as “the investigation of fraud or financial manipulation by performing extremely detailed research and analysis of financial information.”

Forensic accountants investigate when suspicions or allegations of misconduct arise by using accounting, auditing, and investigative skills. Their work can be related to a long list of financial misconduct and fraud types, including embezzlement, employee theft, insurance claim misconduct, skimming, false vendors, false employees, exaggerated overtime, and improper payroll. These professionals identify the crime and perpetrator(s), as well as activities that led to the crime, losses from the crime, and assets that need to be recovered.

The role of a forensic accountant is to help clients navigate the court system, regardless of whether they are dealing with civil or criminal cases. To uncover illegal financial activity, forensic accountants utilize financial records and may also serve as witnesses in court cases. A forensic accountant conducts a forensic audit or an examination of financial records to find evidence of illicit activity. In other words, forensic audits assume that matters will be litigated or mediated.

A forensic accountant may be a certified public accountant who has passed the CPA exam or may have achieved credentials through the certified fraud examiner (CFE) certification and related exam. While neither designation is necessary to become a forensic accountant, both add training and credibility to enhance job prospects.

How Forensic Accounting Protects Organizations

Forensic accounting “follows the money” to the truth. Forensic accountants investigate financial activities and transactions in order to prevent, protect against, and fight financial crimes within an organization. This work is vital in all business sectors and non-business organizations. Financial investigations can prevent financial losses, protect a company from malicious employees, help to fix an entity’s vulnerabilities, help with compliance efforts, and reveal how to properly defend the organization going forward.

Forensic accounting is also indispensable to ensuring proper financial conduct during mergers and acquisitions. A team of forensic accountants often investigate a business’ financial statements, including documents related to a company’s value. These professionals also dig deep to find information about a company’s debts that may not have been revealed.

Prepare for a Career in Forensic Accounting

The University of Mount Saint Vincent’s Master of Science (M.S.) in Management – General program equips graduates with data and quantitative methodology skills, as well as expertise in forensic accounting best practices regarding data analytics and information technology. The core course Forensic Accounting: Use of Data Analytics & Information Technology prepares graduates with tools and techniques to review detailed transactions to identify control weaknesses and potentially fraudulent activities. This intensive course covers auditing technologies, data analytics, risk monitoring tools and opportunities available in forensic accounting.

Each year, domestic and international reports reveal an increasingly alarming risk of insider financial misconduct and fraud. If you want a career helping businesses to prevent and fight against one of the greatest threats to business, this degree program can open doors for you in forensic accounting.

Learn more about the University of Mount Saint Vincent’s online Master of Science in Management – General program.

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