The Briefcase #53: What Is Forensic Accounting?

The term “forensic accounting” can evoke some weird imagery. It’s easy enough to imagine white coats and test tubes, safety specs and bunsen burners. Unfortunately, forensic accounting rarely involves a microscope or a petri dish.

But the focus on the detail is the lynchpin. Maybe you’re not protecting yourself from caustic acid, but you are still muttering incomprehensible jargon – just to yourself, instead of to a diligent young lab assistant.

So, even if you aren’t a forensic accountant yourself, there is plenty to learn from it – and plenty to watch out for – in any accounting role.

What does a forensic accountant do?

Forensic accountants work mostly in the world of fraud. They may be asked to investigate suspicious transactions, trace missing assets, identify how a fraud was carried out, and calculate how much money has been lost. They’re sort of a money detective.

Unlike an auditor, who is primarily concerned with whether financial statements present a true and fair view, a forensic accountant is usually trying to answer, “what actually happened?” That can involve reviewing financial records, analysing digital evidence, interviewing people and following transactions through labyrinthine systems. Actually, they’re entirely and exactly a money detective.

Their findings might be used to support a criminal prosecution or help an organisation recover its losses. If the case reaches court, the forensic accountant may also be called as an expert witness, explaining complex financial evidence without telling any jokes, no matter how funny they might be.

But fraud is only one part of the job. Forensic accountants also work on business valuations, matrimonial disputes, insurance claims, professional negligence cases, shareholder disagreements, and consequential loss claims. They may be asked to value a privately owned company, trace assets during a divorce or estimate the profits a business would have earned if a contract had not been broken.

That’s a lot of work! It’s beginning to sound exhausting to be a forensic accountant.

Know what normal looks like

The first lesson every accountant can borrow from a forensic investigator is to understand the business. Fraud and error are much easier to spot when you know what “normal” looks like. Unexpected growth, unusually consistent profits, unexplained changes in margins or rapidly increasing revenue without a corresponding improvement in cash should all prompt questions. If your first reaction is to go “huh!” when you come across stuff like this, you’ve taken your first step on a magical, forensic journey.

Because, while none of these things prove that a fraud has occurred, and a big profit is not automatically suspicious, staring at the same figure for several minutes while your eyebrows do a crazy dance is a perfectly normal reaction, and should prompt further investigation.

The point is to recognise results that do not fit the business. If an organisation is growing rapidly while the rest of its sector is struggling, there may be a perfectly sensible explanation, but you might be a bit curious as to what exactly it is.

Look beyond the process

Every organisation has policies, procedures and controls. Unfortunately, they also have people, and these often conflict.

A policy may require two approvals, but perhaps one person routinely signs off on behalf of someone else. Duties may appear to be segregated, but the people involved could be close colleagues with overlapping access. A remote branch might submit all the right reports while operating with very little meaningful oversight.

Forensic accountants don’t just look at transactions, they look at the people and processes behind them. Who has access? Who can override a control? Has someone crept into a bit too much responsibility over the years? How much annual leave has Clive taken, and how much can be excused away by him being excruciatingly boring?

Of course, none of this means someone is guilty – being a control freak is not punishable by law. Stay professionally sceptical, rather than professionally paranoid.

Follow the evidence

Forensic accountants don’t start with a theory and then hunt for proof – they start with the evidence.

That means understanding where information came from, whether it’s complete and whether it can be relied upon. Was that figure taken from the accounting system, a draft management report, or a spreadsheet someone updated five minutes before the meeting? The answer could be the difference between life or death. Well, maybe not, but it could be important!

If you come across something that genuinely looks suspicious, you’ll need to resist the temptation to kneejerk into your own investigation. Well-meaning accountants can accidentally overwrite files or, worse, alert the very people they’re trying to investigate.

The better approach is usually to preserve what you’ve found, make a clear record of why it concerns you, and escalate it through the appropriate channels. If a forensic accountant is later brought in, having reliable evidence and a clear audit trail is far more valuable than a collection of screenshots and some deranged scrawls in a Moleskine.

Sometimes the most helpful thing you can do is not to solve the mystery yourself, but to make sure the right people have the information they need to solve it properly. Not everyone needs to be a hero, no matter how eager you are to earn a bit of respect around this dump.

Could you end up as an expert witness?

A surprising amount of the work of the forensic accountant involves helping courts understand complex financial issues.

A forensic accountant might be asked to value a business during a divorce, calculate losses after a contractual dispute, or explain financial evidence in a fraud case. They are generally called in to explain the situation impartially – so, you can’t just start saying that the ex-wife deserves the house for putting up with this dull bulb for so long.

That means staying objective, explaining complex financial information in plain English and, perhaps most importantly, sticking to areas where you genuinely have expertise. If you don’t know the answer to a question, you’re expected to say so, rather than going “ChatGPT mode” and confidently asserting obvious untruths.

That’s a useful lesson for every accountant! Credibility is about knowing where your expertise ends and making sure every conclusion is supported by evidence.

🧠 Final thoughts

Forensic accounting is a bit of a niche, but it’s bursting at the seams with possibilities. If you’ve ever wished for a rapt audience while you explain the minutiae of an accounting process, you might consider going forensic.

If you’ve got a smidgen of curiosity, maybe a dash of professional scepticism, and a sprinkle of healthy respect for evidence, you’re on the way there. And you do! Because you’re an accountant, and you need all of these things to do your dayjob.

You don’t need to investigate financial crime for a living to think like a forensic accountant, you just need to be the sort of person who notices when something doesn’t quite add up, and not be too worried about being called stupid for asking “why?”