Forensic Accounting

© 2004 millennium strategies

Overview

The etymology of forensic is "for public debate, discussion or argument; the use of science or technology in analysis for litigation or dispute resolution." Our perspective on forensic accouting is this, except, maybe, for the litigation part. Forensic accounting is discovering fiscal information, finding discrepancies, assessing and evaluating the information as a test of validity and configuring presentation of the information using graphic or interactive models. This perspective on forensic accounting provides the means to include fiscal information in strategic planning and financial analysis.

Forensic accounting is three components:

• • Research, discovery and synthesis of financial information
• • Analysis, assessment and evaluation of that information
• • Organization and interpretation of the analysis for presentation or debate.

Forensic accounting is usually a component of other work that runs from project rescue to strategic planning. In many cases, the value of the work is to translate tangible and intangible factors into financial terms for uniform analysis. When that is not possible, we establish adjunct metrics for simultaneous evaluation of factors in a consistent and repeatable manner. This lends validity and accountability to the process.

The primary value of forensic accounting is threefold:

• • Assured discovery of relevant data
• • Accountable, reliable and repeatable analysis
• • Clarity of presentation to decision makers, constituents or stakeholders.

The work generally involves issues that can be reduced to financial terms. Project planning, life cycle analysis and strategic budgeting are often the foundation for this work but we have lent our service to operational work that includes discovering discrepancies in invoicing and payables, root cause assessment of project failures, measures of regulatory compliance and audits of federal funding programs.

Forensic accounting begins with creation of the context and foundation for revenue and expenses. At its most fundmental it is identifying three elements: the account value, the inflows to that account and the outflows from the account. And since money cannot be created or destroyed (believe it or not!), only moved around, it is possible to move backward and forward in time. The timeframe can be in the past to audit records or in the future to develop pro-forma estimates. Often the work involves projecting existing circumstances into the future based on creation of a model for how the interact with the account, their origins and destinations, and their sensitivities to external circumstances. Return-on-investment analysis has this characteristic. For example, forensic accounting supports the decision process by evaluating existing circumstances, the cost for new systems deployment and balances the cost with savings or increased capabilities that new systems deliver. The analysis is often condensed into a single diagram communicating the essence of the assessment in one image.

The value of forensic accounting is to gather accurate information, develop a realistic assessment and then translate and communicate that assessment to motivate decision or influence opinion. With a reliable source of information presented in an understandable way, evaluation of objectives and the benefits of expenditures is put on a firm foundation. In addition, it provides the means and process to discover new options or perspectives. The decision process becomes proactive, not reactive and places those decisions on a firm foundation as well.