No business owner wants to be confronted with the possibility of internal fraud. The thought that an employee may be stealing from the company is like a punch to the gut, and can bring on feelings of anger and betrayal. If you suspect your business is a victim of fraud, hiring a forensic accountant may help identify the culprit Tweet This and provide the evidence needed to prosecute them.

What Is a Forensic Audit?

A forensic audit is a detailed investigation that seeks to determine whether or not financial fraud took place, and who was responsible for it. The forensic accountant need not limit himself or herself to reviewing your books and invoices in order to sniff out a suspect. A good forensic accountant may utilize multiple investigatory techniques in the course of their work. Here are six tools and techniques used by forensic accountants to collect the information they need:

Public Document Reviews and Background Investigations

Fraud is sometimes perpetrated by employees in desperate need of cash. This can include people with large debts, medical bills, or financial entanglements. Auditors will conduct searches for any public documents relating to the individual suspected of fraud or theft. In addition, a full investigation into the person’s background can reveal any suspicious biographical details or legal troubles.

Interviews of Knowledgeable Persons

Forensic accountants will often conduct interviews with those who may have been in a position to see something suspicious. Interviewees can include current and former employees, vendors, and customers. These interviews can shed light on additional witnesses, and may even help the auditor narrow down the list of suspects.

Establishing Tip Lines

Email addresses and telephone hotlines may be set up by the forensic accountant to encourage assistance from anonymous parties. The information obtained via these resources needs to be reviewed with a level of skepticism, however, as employees may try to cast each other in a bad light for reasons unrelated to the suspected fraud. As a result, all information must be validated. In order to do this, 100% confidentiality should not be assured.

Laboratory Analysis of Evidence

Any evidence collected, such as fingerprints, documents, forgeries, hard drives, surveillance footage, emails, and Internet surveillance records may be reviewed by the forensic accountant’s laboratory. This hard evidence can be crucial if a fraud case goes to trial, and forensic accountants are trained in how to preserve it for the court.

Undercover Operations

In some cases, a company will hire a professional investigator under the guise of a new employee in an attempt to figure out what is going on. As a business owner, you’ll need to decide if the possible benefits of this type of operation outweigh the risks of alienating innocent employees who may feel misled when they learn of it.

Financial Transaction Analysis

Forensic accountants are most at home conducting an analysis of the company’s financial transactions. Turning a critical eye to your books may help the investigator identify improper payments or accounting practices. They will also usually check and validate all vendors and suppliers, compare employee and vendor addresses for accuracy, and analyze sales returns and allowance counts.

You can help minimize business risks, such as internal and external fraud, by keeping a close eye on your business credit report. Learn more about how business credit monitoring can help prevent fraud.

Photo Credit: Tereza, Twenty20