Forensic accountancy 101: Why your business could benefit from a review

Financial security represents an ever-growing challenge for businesses of all types, but this can be a complex landscape with issues that range from fraud detection to regulatory compliance. And when it comes to fraud specifically, organisations may lose around 5% of their annual turnover to this issue, according to the Association of Certified Fraud Examiners.

More worryingly, around 83% of organisations reported at least one employee cyber-attack during the last year, which hhighlights the growing threat of insider fraud as well. 

Forensic accountancy represents a great way to mitigate some of these risks, while it can also uncover some opportunities for growth. If you've never considered this accounting solution for your business, why is it time to do so?

What is forensic accounting?

You may think that forensic accounting is only applicable in certain industries or might only manifest in a very specific set of circumstances. However, there's a lot more to it than that, as it represents a branch of accounting that focuses on the reason behind financial discrepancies.

This means that forensic accounting can help you detect fraud related to illegal proceedings, but may also provide some actionable insights, so you can not only protect but improve your business operation. 

More companies than ever are coming to realise that forensic accounting should be a cornerstone of their corporate governance, so they can maintain transparency and accountability. Consequently, forensic accounting skills are in high demand.

While the segment had a market value of $5.13 billion in 2021 it's likely to more than double in size by 2031. At this time, the market size should reach $11.68 billion, which represents a compound annual growth rate of 8.8%. Are your peers taking advantage of it?

How can forensic accounting help your company?

Proactivity is crucial, as forensic accounting should not just be about responding to crises. Here are some ways that you can use forensic accounting practises in your business.

Use case #1: Identify your inefficiencies

A forensic accountant could uncover a variety of inefficiencies and show how you are needlessly wasting resources. As an example, a regular forensic review could help you to reduce operational waste, driving additional cash to the bottom line.

Use case #2: Catch up with bad debtors

Outstanding debts can really drag a business down, significantly impacting its cash flow and especially if these debts have gone unnoticed for a long period of time. If you implement regular forensic accounting reviews, you'll easily spot late payment patterns and can focus on customers who may consistently default. You can then recover any previously unnoticed bad debts, which can lead to substantial improvements in your liquidity.

Use case #3:  Detect fraud

Fraud detection is definitely one of the most important roles for a forensic accountant, as it can manifest in several ways, from embezzlement, to asset misappropriation, or even invoice manipulation. However, a forensic accountant can use specialised software and advanced techniques so they can quickly spotlight fraudulent activities. This will help decision-makers take swift action to mitigate any further losses and get things back on an even keel. 

Use case #4: Support a court case

In serious financial dispute cases, companies may have no choice but to initiate legal proceedings. And if you find yourself in that situation, you'll want as much evidence to back up your case as possible. This is where a forensic accountant can come into the picture, providing the necessary evidence that you’ll need for legal proceedings. They'll compile detailed reports and bring in experts to testify as needed, so you can chase a fair outcome for a contractual breach, shareholder disagreement, or other issue. 

Judges and juries may be happy to see that you have a forensic accountant to help you validate any complex financial claim and potentially cut down the costs of the case.

Use case #5: Perform due diligence

Mergers and acquisitions represent a great way to grow any business, but parties should always proceed with caution. If you're looking at a potential acquisition, you should consider a forensic review to make sure that the financial statements they give you are both accurate and trustworthy. It'll be another proactive step and can help you avoid any costly mistakes. 

Meanwhile, the other party will also see that you are serious, and you could save both money and time from this approach. and don't forget that failed mergers or investments could be down to a lack of forensic due diligence.

Use case #6: Strengthen your financial planning

Once you've identified all the issues and threats, you can use forensic accounting to create new solutions and plans for the future. You can analyse historical data which could inform your strategic financial planning, and may be able to optimise your budgets or allocate cash resources more efficiently as a consequence.

How should you conduct a forensic review?

Remember that forensic accounting should be a strategic tool in your arsenal and not simply a safety net that you roll out in the case of crisis. This type of tool can give you long term value as you bolster your fraud prevention, such as uncovering inefficiencies you may not be aware of.

In short, the benefits of forensic accounting are immense and the team at HLB Global would like to help you conduct a review. After all, we've got a wealth of expertise and a proven track record when it comes to delivering forensic accountancy services for companies of all sizes. 

When you choose HLB, you’ll talk with a team of experienced professionals who have worked with complex financial challenges. We realise that no two companies are the same, tailoring our services to address your unique business needs. Our network has an international presence, which means that we can provide comprehensive solutions that also take into account any cross-border intricacies.

Contact us today to begin your forensic review and get actionable results.