Accounting is often stereotyped as a boring and monotonous profession, but in reality, that could not be further from the truth, especially for professionals who specialize in forensic accounting. Forensic accounting is a specialized area within the accounting field that focuses primarily on the investigation of financial crimes. Individuals with strong math and analytical skills and interested in criminal justice may be well-suited to a career as a forensic accountant. This blog will cover all of that, plus answer the question of “What is a forensic accountant?” and what exactly they do on a day-to-day basis.
A Look at Forensic Accounting
So, what is forensic accounting, exactly? The Institute of Certified Forensic Accountants (ICFA) defines forensic accounting as an accounting approach that utilizes accounting techniques, auditing processes, and investigative skills to search for evidence of financial crimes. This field bridges the gap that exists between the accounting profession and the criminal justice system, allowing lawyers and law enforcement officials to have the evidence they need for their cases.
The Role and Objectives of Forensic Accounting
The purpose of forensic accounting is to identify the possibility of financial crime and to investigate evidence of those crimes. The forensic accounting field emerged due to the gap that existed between accounting and auditing. At one time, auditing was thought to be a secure way to prevent financial crime within an organization, but experts quickly realized that auditing only verified compliance and did not necessarily uncover financial crime when it was occurring. As a result, the specialized field of forensic accounting was developed to prevent and detect financial crime.
Forensic Accounting vs. Traditional Accounting: Key Differences
There are key differences to understand between forensic accounting and traditional accounting, such as:
- Forensic accounting is rooted in traditional accounting skills, but forensic accountants also must develop crucial financial investigation skills to pursue opportunities in this field.
- Forensic accountants are often required to present their findings as evidence during legal proceedings, while traditional accountants typically focus on preparing financial documents, such as audits and financial statements, which may have legal implications but are not primarily intended for use as legal evidence.
- Forensic accounting focuses specifically on identifying and preventing financial crime, whereas traditional accounting has a much broader scope.
The Path to Becoming a Forensic Accountant
Some individuals begin exploring opportunities in forensic accounting during their undergraduate degree program, while others discover this specialty area of accounting after they begin their careers. Regardless of when you decide to specialize in the field of forensic accounting, it is important to be aware of the steps that you need to take to be qualified for these niche positions in the industry.
Essential Education and Degrees
The Bureau of Labor Statistics (BLS) reports that accounting professionals need to pursue a bachelor’s degree in accounting or another related field to develop the skills and knowledge needed to pursue entry-level opportunities in the field. Those interested in forensic accounting may pursue a bachelor’s degree in accounting, forensic accounting, or business. Still, it is crucial to have a foundation in the mathematical and analytical skills required to implement the best accounting practices and strategies. While a master’s degree is not required, advanced degrees and certificate programs may help you improve your skills and become more qualified for available positions.
Certifications Needed: CPA and CFE
In addition to completing a bachelor’s degree program and earning professional experience, individuals interested in becoming forensic accountants must earn additional certifications. The two certifications commonly pursued for forensic accounting include:
- Certified Public Accountant (CPA):
The CPA certification is issued by state boards of accountancy and is widely regarded as a cornerstone credential in accounting. To become a CPA, individuals must meet rigorous standards, which typically include completing 150 college credit hours, gaining a specified amount of work experience under a licensed CPA, and passing the Uniform CPA Examination. The CPA designation demonstrates expertise in accounting, taxation, and auditing, which are critical skills for forensic accountants. - Certified Fraud Examiner (CFE):
The CFE certification is administered by the Association of Certified Fraud Examiners (ACFE). This credential focuses on fraud prevention, detection, and investigation. Candidates must meet educational and professional experience requirements, complete specialized coursework, and pass the CFE exam. The certification is particularly valued in forensic accounting for its emphasis on fraud detection methodologies and investigative techniques.
Skills Every Forensic Accountant Must Have
Naturally, anyone interested in pursuing a position as a forensic accountant will need strong foundational accounting skills. In addition, forensic accountants must build on their foundation and develop specialized skills that allow them to examine financial records, identify cases of fraud, and investigate the possibility of financial crime.
Some key skills that forensic accountants must have include:
- Attention to detail
- Data analysis skills
- Creative thinking skills
- Strong business acumen
- Technology skills
- A good sense of intuition
Analytical Skills for Financial Investigations
Forensic accountants play a central role in conducting financial investigations, requiring strong analytical skills. They are often required to sift through vast amounts of financial data and recognize the signs of financial crime. Forensic accountants rely heavily on data analysis to examine findings, interpret results, and develop presentations to provide evidence during court proceedings.
Communication Skills for Reporting Findings
While the forensic accounting field is anchored by practical and technical accounting skills, it is enhanced by soft skills. Professionals who specialize in forensic accounting must have well-developed communication skills. They rely on communication skills to:
- Provide relevant information about investigation results to involved parties in a clear, consistent, and understandable manner.
- Report findings and present evidence during legal proceedings.
- Complete investigations while adhering to all ethical and legal standards.
Areas of Specialization Within Forensic Accounting
While forensic accounting is a niche area of accounting, there are further opportunities to specialize within this field. By developing the skills required for specialty areas of forensic accounting, you can pursue positions that better align with your personal interests and strengths as well as your career goals. In addition, you may find that you are eligible for higher-level positions in forensic accounting or positions that may offer a higher earning potential.
Fraud Prevention and Detection
Fraud prevention and detection is a specialized area of forensic accounting that focuses on identifying areas of fraud within accounting documents and files, as well as preventing fraud from occurring. Forensic accountants specializing in fraud prevention and detection often work for insurance companies. These organizations often work closely with forensic accountants to verify that the claims being submitted are legitimate and that the individuals or organizations making claims are not attempting to commit insurance fraud. Fraud prevention and detection efforts can help lower the costs of services, such as insurance coverage, making forensic accountants particularly valuable in today’s global economy.
Litigation Support and Expert Witness Services
Litigation support and expert witness services are other specialized areas of forensic accounting that focus primarily on supporting those involved in legal proceedings related to financial crimes. Forensic accountants work to quantify the amount of damages incurred during legal proceedings. These forensic accountants are often required to serve as witnesses during court proceedings, particularly if a case cannot be resolved with a settlement prior to going to trial.
Forensic Accounting in Action
While forensic accounting may have emerged as the result of a gap that had long existed between the accounting and auditing fields, it has become incredibly relevant in today’s global economy. Forensic accountants collaborate with corporations, law enforcement, legal teams, and insurance companies to detect fraud, investigate financial crimes, and create strategies to prevent future offenses.
Case Studies of Forensic Accounting in the Corporate World
The most prominent examples of forensic accounting in the corporate world highlight the critical role that these professionals play in fraud detection and loss prevention. These are a few of the most significant examples of forensic accounting in the corporate environment:
- Enron—When it comes to corporate fraud in the modern world, the Enron collapse is often the first example that people think of. Enron was a Houston-based energy company that, for years, used unethical and illegal accounting practices to hide debts from investors. After the fraud within the company came to light, Enron ultimately filed for bankruptcy in 2011.
- Tyco International — Considered to be another one of the largest examples of corporate fraud in America, the Tyco International scandal revealed that many of the executives in the company’s C-Suite were taking bonuses without disclosing them to shareholders as well as offering employees faulty, low-interest loans to line their own pocketbooks.
- WorldCom Securities—Another notorious fraud scandal of the early 2000s, the WorldCom Securities scandal highlighted the importance of properly classifying and reporting all corporate expenses. In this scandal, executives hid expenses by simply marking them as capital expenditures, leading to their charges of securities fraud.
Forensic Accounting’s Role in Public Sector and Nonprofit Organizations
While forensic accounting often takes center stage when examples of corporate fraud arise, it is important to know that this type of accounting also plays a crucial role in the public sector. In fact, one of the most significant financial fraud cases of all time was attributed to an individual.
Bernie Madoff’s Ponzi scheme is considered the largest case of financial fraud committed by a single person. For decades, Bernie Madoff used his investment firm to defraud his investors, ultimately costing them billions of dollars over the course of the scheme. Eventually, he was charged with money laundering and other financial felonies, and he died while serving his prison sentence. By recognizing that even individuals, government agencies, and non-profit organizations can also commit fraud, forensic accountants can implement strategies and best practices designed to protect investors at all levels and across all sectors.
What Is a Forensic Accountant? Learn More About the Skills Required for this Field at Post University
As a niche accounting specialty, forensic accounting requires professionals to have industry-specific skills relevant to their positions. At Post University, we offer a Certificate in Forensic Accounting that features a curriculum rooted in accounting and criminal justice courses. These will allow you to develop the skills required to pursue forensic accounting positions. With both online and on-campus programs available, this certificate program provides you with an opportunity to develop the necessary skills for investigating financial crimes.
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