When suspicions of fraud arise during an administration or liquidation, the number of professionals in the team can grow quickly. It is often thought that forensic accountants simply get thrown reams of bank statements and are asked to make sense of them. But in reality there are a variety of other ways for the forensic accountant to add value.
There are typically three stages at which forensic accountants can assist the asset tracing and recovery process:
- collection of information
- support of other professionals
- analysing financial data.
Collection of information
If forensic accountants are not involved in the collection process, important documents can be overlooked. For example, debtor information without the correspondence that reflects side agreements does not tell the whole story.
For example, we investigated a securities fraud case in which a US technology company altered the terms of its contracts with customers through side letters. This meant that sales were being recorded prematurely and gave a misleading impression of the company's financial performance. The forensic mindset can usefully point to such sources of information, but this must happen before they are lost.
John Holden, head of Forensic Technology at Smith & Williamson, estimates that 70% of information never makes the transition from electronic media to paper. This makes it all the more important to capture a forensic copy (image) of the computer systems. Even if the digital information is not used straight away, it is secured for the future and may avoid the need to store large quantities of hardware.
Support of other professionals
Despite the volumes of paper and digital data stored in a business, a lot of useful information is known by staff, but never written down. Smith & Williamson's Forensic Services team employs three former police officers with extensive interviewing experience. They are trained to elicit leads during formal interviews and informal conversations that may otherwise be missed.
Analysing financial data
One of the most useful sources of evidence can be obtained during the examination of a judgment debtor. While this process will largely be led by the legal team, solicitors have found the input of forensic work in advance of immense benefit. Forensic accountants can help minimise the scope for 'wriggle room' and interpret 'jargon-loaded' answers designed to mislead. This is particularly true when the witness is a trained accountant and can answer questions in a way that is technically correct, but which may give a misleading impression to those that are not financial experts.
Forensic accountants are regularly thrown reams of bank statements and are asked where the money went. This will often involve corroborating findings against other data sources, but this also works the other way round. By using information obtained from informal and formal interviews as well as other documentary evidence, forensic accountants can narrow down the work that needs to be done with bank statements and get on the trail of assets more quickly and cost effectively.
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