Can Fraud Be Solved By Using Forensic Accounting Techniques?

The same job is often done by somebody called a forensic accountant or a fraud investigator. Whatever the job title, the same techniques are employed when servicing the assignment. Issues involving financial dispute such as fraud will require expert accounting input. However, in court some financial investigators when faced with questions concerning complex financial issues do not have the accountancy expertise to answer fully.

Forensic accounting techniques are methods used by litigation support professionals, expert accounting witnesses, investigative auditors and fraud investigators to get to the bottom of financial situations that involve financial loss or dispute over the value of something. This can include corporate loss due to fraud, loss of profits owing to a breach of contract or business interruption or arguments over which spouse retains the lion's share of a family business during a divorce settlement.

Financial situations are described by financial statements and the accounting records used to produce these accounts. The starting point in any such situation is normally the bank account, as any losses simply involving cash would be treated as common theft or at most a scam. Bank accounts are the backbone of any moderately complex organisation and are the best place to start employing forensic accounting techniques. A company will typically have one current bank account that it uses for its day to day business transactions. It may also have a savings account to keep any surplus cash it earns in order to receive more interest or to keep money earmarked for capital expenditure or tax repayments separate from its working capital. Where more than one or two bank accounts are used, the added complexity provides additional scope for the fraudster to cover up his criminal activities.

The first step is to analyse the bank statements to discover any anomalies that are present. These could include payments to unauthorised suppliers, duplicate salary payments to certain members of staff or unusually high expense payments to a director. The bank statement analysis, sometimes involving many bank accounts, are sometimes better understood if they are transferred to a spreadsheet where the transactions can be sorted and additional information understood. Filling a spreadsheet with bank transaction data can be done by hand or using specialised software and a scanner. Another method is to obtain computer files of data from the bank itself.

The collating of bank statement data and other transaction information obtained from accounting software, accounts ledgers and often vast numbers of supporting vouchers does require accounting expertise. This sort of skill ensures that the right data is included and superfluous numbers excluded so that the matters in hand can be better understood. It would be difficult to do this without accounting skills. It would also be difficult to support any findings when questioned in court. This is why the forensic accountant and fraud investigator both must have accounting skills.

Other techniques used in the investigation of financial anomalies will include evidence gathering and data analysis. Evidence gathering includes interviewing suspects and other parties to obtain reliable information that will either be used in court or as intelligence during an investigation. Intelligence is information that allows an investigator to direct his or her queries along an appropriate route that will eventually lead to the answers being sought.

Other than the standard accountancy skills, other forensic and fraud skills are best learned while working. This is why it is recommended that all economic crime officers, fraud squad members, government inspectors and tax investigators receive accountancy training in order to enhance their investigation skills.


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Mark Jenner is a Fellow of the Institute of Chartered Accountants in England and Wales, a Certified Fraud Examiner and has a Masters Degree in Fraud Management. He runs his own business as a forensic accountancy firm specialising in fraud, forensic accounting techniques and expert witness matters.