Forensic accounting is a specialized field of accounting that combines accounting, auditing, and investigative skills to examine financial records and detect fraud, embezzlement, money laundering, and other financial crimes.
Forensic accountants are often hired by businesses, government agencies, law enforcement, courts, or individuals to provide expert evidence, analysis, and advice on financial matters.
Also read: Forensic Audit in UAE
To perform forensic accounting, various techniques and methods are used, depending on the nature and scope of the investigation. Some of the common forensic accounting techniques are:
Using specialized software and tools to collect, process, and analyze large amounts of financial data, such as transactions, invoices, bank statements, ledgers, etc. Data analysis can help identify anomalies, patterns, trends, or relationships that indicate fraud or irregularity.
Reviewing and verifying the authenticity, accuracy, and completeness of financial documents, such as contracts, receipts, invoices, vouchers, etc. Document examination can help detect forgery, alteration, falsification, or concealment of financial information.
Conducting interviews with relevant parties, such as employees, managers, customers, suppliers, auditors, etc. Interviewing can help obtain information, evidence, or testimonies that support or refute the allegations or suspicions of fraud or misconduct.
Performing background checks on individuals or entities involved in the investigation, such as employees, managers, customers, suppliers, auditors, etc. Background checks can help reveal their personal or professional history, reputation, qualifications, affiliations, or criminal records that may be relevant to the investigation.
Tracing the source, movement, and destination of funds or assets that have been misappropriated or stolen. Asset tracing can help locate, recover, or freeze the assets or funds that are subject to investigation or litigation.
Monitoring the activities, behavior, or communication of individuals or entities involved in the investigation, such as employees, managers, customers, suppliers, auditors, etc. Surveillance can help observe, record, or collect evidence of fraud or misconduct.
Infiltrating the organization or entity under investigation, such as a business, department, or team, by posing as an employee, customer, supplier, auditor, etc. Undercover operations can help gain access to confidential information, evidence, or witnesses that may not be available otherwise.
Some of the forensic accounting methods in the UAE are:
These are some of the forensic accounting methods that are used in the UAE to detect and prevent fraud in the banking sector. Forensic accounting is a valuable and specialized service that can help businesses and individuals protect their financial interests and integrity.
Also read: Benefits of forensic audit
This area of forensic accounting deals with investigating canceled cheques, invoices, breaches of contracts, and agreements, investigations into public records, conducting interviews with company employees, creating a cash flow statement over a given period, notices by an accountant, and more.
This method of forensic accounting can be broken down into three main categories, namely the Cash T Method (also called the Source and Application of Funds Method, the Net Worth Method, and the Bank Deposit Method.
We will now give a brief overview of each:
It is the aspect of measuring incoming vs expenditures that makes these two methods often comparable.
Under this method, the total net worth of a person is calculated at the beginning and the end of a stipulated period. The net worth is increased by nondeductible living expenses, which increases the net worth. If there is a difference between what they have reported against the net worth calculated, a forensic accountant can begin an investigation to try and ascertain the reason for this discrepancy.
Bank deposits are checked against total expenses during a given year. They calculate the net deposits utilizing a specific formula, and the difference between accounts, transfers, and redeposited cheques is subtracted from the total deposits.
To calculate the total receipts, the total cash expenditures are added to the net deposits.
To determine the total funds from ‘unknown sources’, the number of receipts is compared to the funds from known sources.
If these figures end up having a significant discrepancy, a forensic accountant may then delve into the origins of the unknown sources and may call anyone relevant to the investigation to be interviewed.
They will also trace and track information to help find out what the exact “unknown” amounts are.
Forensic accounting can be beneficial to a business in many ways, such as:
You should implement forensic accounting in your business because it can help you:
Forensic accounting is a valuable tool for fraud detection and prevention, as it can help uncover, prove, and prevent financial crimes that may harm the business or its stakeholders.
Forensic accounting can also help the business improve its financial performance, compliance, and governance, as well as its reputation and trustworthiness.
Therefore, businesses should consider hiring forensic accountants or engaging forensic accounting services when they face or suspect any financial issues or challenges.
Also read: How Forensic Accounting in Fraud Examination is Helping Corporate Governance?
Farahat & Co. can provide you with high-quality, timely, and cost-effective forensic accounting solutions that meet your specific needs and objectives.
If you are interested in consulting with Farahat & Co. for your forensic accounting needs, please contact us today for a consultation.
We will be happy to discuss your requirements and offer you the best possible solution.
Don’t let fraud or financial crimes ruin your business.