No Austin business is completely safe from financial crime. Regardless of their size or industry, companies fall prey to fraud and embezzlement every day.
This type of illegal activity can potentially cripple an enterprise from the inside out, causing damage in the form of financial losses (both direct and as the result of legal actions) as well as a loss of trust from customers, shareholders, and investors.
Day-to-day operations are often disrupted, and a business whose reputation has been marred by financial misconduct may not recover and be able to grow.
If and when a financial crime is suspected, working with a forensic accountant right from the start can help you identify the scope and severity of the activity to effectively mitigate damage and prevent further corruption.
Fraud vs. embezzlement
Though closely related, fraud and embezzlement are not the same thing.
Corporate fraud may comprise a number of illegal or deliberately deceptive activities. Examples of fraud include falsifying financial statements to conceal losses, withholding tax information, and misappropriating assets.
Embezzlement occurs when an individual or corporation knowingly steals money or assets intended for a specific purpose and uses them for their own personal gain. Manipulating employee payroll, submitting false invoices, and taking cash payments without recording them are all forms of embezzlement.
While it may seem like an easily identifiable crime, embezzlement often happens in small increments over time, and it can be years before a crime is detected—if it is detected at all.
When should you call a forensic accountant?
People often make the mistake of waiting until they have concrete evidence of wrongdoing before enlisting the help of a forensic accounting firm. However, the best approach is to trust your gut instinct and seek help as soon as you have a feeling that something is wrong.
If criminal activity is occurring in your business, waiting too long to seek professional help can lead to potentially bigger losses and even bankruptcy. This is especially true for smaller businesses and startup companies who may be struggling already to generate revenue and stay in the black.
At the very least, meeting with an expert can provide peace of mind for concerned business owners. Forensic accountants know exactly what to look for and will meticulously review your financial records to identify any evidence of misconduct.
What can you expect when working with a forensic accounting firm?
In most cases, the firm will work directly with your attorney. Unless they are asked to testify as an expert witness, they remain neutral and advocate solely for the evidence (i.e., the numbers) as opposed to the business entity.
Initially, the forensic accountant or team of accountants with whom you are working will conduct a preliminary investigation into the financial records of your company to look for red flags and determine whether or not there is evidence of illegal behavior.
One of the most effective ways to avoid fraud and embezzlement is to prepare a monthly bank reconciliation statement to ensure your accounting records match the balance in your actual bank account. However, because individuals and businesses rarely take the time to do this anymore, it is one of the first things a forensic accountant will do.
From there, they will compile all of your financial records as well as any pertinent notes or correspondence that may help to complete the picture of your current financial standing. This will help them spot any concerning trends or vulnerabilities within your accounting practices as well as provide critical guidance on how to improve your internal controls to prevent criminal activity.
The entire process generally takes around two months, depending on the scope and complexity of the information involved.
How can businesses avoid the need for forensic accounting?
According to a 2024 report released by the Association of Certified Fraud Examiners (ACFE), companies lose an estimated 5% of their annual revenue to fraud—and 32% of cases occur because of a lack of internal controls.
Further, a quarter of all embezzlement perpetrators are involved in operations or accounting for the business, and more than half of embezzlers are employed with the company for at least 6 years.
These statistics spotlight the need for companies to utilize smart accounting practices and apply oversight wherever possible. In addition to implementing proper accounting controls to safeguard their financial health, businesses should also:
- Perform regular bank reconciliations
- Monitor your bank accounts (especially online)
- Use strong passwords and change passwords frequently
- Practice segregation of duties to reduce the risk of misconduct
- Be aware of your financial holdings (mainly owners, CEOs, heads of practice) so that not everything is left up to the bookkeeper
- Avoid using signature stamps (which are often used for fraudulent activity)
Preserve your peace of mind
In some cases, forensic accountants will review all of the information available and conclude that no criminal activity is taking place. Instead, it may be that something was misclassified or overlooked due to inconsistent processes or poor bookkeeping.
Still, if there is even the smallest suspicion of fraud or embezzlement within your company, consulting with a forensic accounting firm is often the first step toward preserving your peace of mind—and protecting your financial integrity.
Contact Mangold Anker Phillips today for a no-charge 30-minute consultation to see if we can help with your case. Our team of CFF and CFE certified professionals has decades of financial investigative experience to help businesses manage risks effectively.
Leave A Comment