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The importance of forensic accounting for society

Why forensic accountants are our modern day superheroes

The importance of forensic accounting for society
by Updated 17/03/17
We find out more about forensic accounting and how the work accountants do have an impact on society - just like superheroes.

Think about your favourite superhero. What do you think of when you visualise them?

Strength? Superpowers? Or the way you proudly collect your order when the barista calls out 'Batman?'

Our perception of superheroes spans far and wide but more than anything they act as an escapism and a representation of ourselves and the type of qualities we want to reflect. What if we told you it was possible to channel your all time favourite superhero through your job?

What is forensic accounting?

Growing up I loved that good would always prevail over evil and that sometimes superheroes were born from the most unlikely of places. Their fearlessness, sense of duty and tact were three things that I admired the most about them. I was completely sold on the idea of flying around and using my superpowers for the greater good. So, you can imagine my disappointment when it dawned on me that I wasn’t going to make a living from fighting crime around London.

Anyone who loves the superhero genre will feel my pain.

But what if I told you that I’ve realised that accountants are essentially the same as superheroes? My guess is you’d think I’ve completely lost the plot, but I can assure you I haven’t and that they actually are. I asked a few of the Hotcourses team what their perception of accountants were and the general consensus was that accountants were straight-laced and corporate, probably lived in a suit and are good with numbers. As for the profession? Not that exciting.

I was kind of hoping this was the response they would come back with so that I could turn around and say, this isn’t entirely true.  Not where forensic accounting is concerned.

It’s a lesser known branch of the profession with many people focusing on public accounting, taxes and auditing, but forensic accounting is actually an incredibly important aspect of the industry. It’s where financial analysis and the law meet in the middle when it comes to fighting fraud and other monetary disputes.

It’s not the same as donning a cape and fighting unforeseen enemies, but forensic accountants play a vital role when it comes to fighting the type of crime that can have an impact on society. Accountancy as a whole requires analytical individuals, however the type of perpetrators that forensic accountants have to deal with are probably just as sophisticated as those you come across in comics.

What fraud means and its impact

Fraud ranges from incorrectly claiming a certain benefit to avoiding paying your share in taxes. According to the City of London police, Action Fraud received a total of 919,987 reports in 2014/15. This includes crime reports and information reports.

That same year it is estimated that Action Fraud prevented £476.4 million worth of fraud. Background information provided by the City of London Police talks about the Economic Directorate ‘possessing four specialist fraud teams a money laundering unit and an asset recovery team. Together they take on many of the UK’s most complex, significant and high profile investigations.’

When we look at this in terms of wider impact, the University of Portsmouth estimated the cost of fraud to the UK economy to stand at £195 billion. When working with figures like this, it becomes more apparent how important forensic accountants are to help prosecute those who take part in fraudulent activity.

The digital era has also given way to cyber-attacks. According to Adweek, social media is a hacker’s favourite target with approximately 600,000 Facebook accounts compromised every single day. Small businesses are also at risk with a Federation of Small Businesses paper detailing that cyber-crime actually poses a barrier for small business to grow ‘particularly considering the enormous growth potential in the future from e-commerce.’

In a separate study carried out this year by The Association of Certified Fraud Examiners, it’s estimated that a typical organization loses 5% of revenues in a given year as a result of fraud. Other key points from this report stated that ‘the longer a fraud lasted, the greater the financial damage it caused. While the median duration of the frauds in our study was 18 months, the losses rose as the duration increased. At the extreme end, those schemes that lasted more than five years caused a median loss of $850,000,’ whilst the median loss from a single case of occupational fraud was $150,000.

Though the statistics and numbers involved are US based, it’s clear to see that fraud can have serious implications on businesses and the wider society, no matter what part of the world, which makes forensic accountants all the more valuable to assist in preventing these kinds of losses.

What do forensic accountants do?

‘The word forensic means to do with court. In a narrow sense, what forensic accountants do is they prepare financial analysis for court activities. But nowadays it's taken much broadly and we basically do two different types of things; We do investigation work, which may have nothing to do with court and we help solicitors in court activities,’ explained Jeffrey Davidson, a forensic accountant at Honeycomb Forensic accounting.

Davidson has had over 20 years’ experience, first starting out in auditing and after getting a taste for this branch of accountancy, made the move over and has never looked back.

A key element of being a forensic accountant is serving as an expert witness in court, which can be as Davidson describes, a lonely experience.

The idea of standing in a witness box in court, relaying information that you’ve put together and answering questions around your investigation reminds me of a very slick episode of Suits. The preparation, the hard work all coming to a head in a show down within a court room where tensions rise and despite tough lines of questioning, the protagonist prevails.

Okay, it may not quite be like that but that doesn’t mean there aren’t certain highs to the job.

‘A high point is winning a new piece of work. A high point is winning an argument with another accountant in a case where I’m right and he or she is wrong. A low point is finding out that somebody got a piece of work that I wanted but in the day to day activity of forensic accounting work it's all about good analysis, it's all about standing back and saying here's a problem, people are arguing about something.

‘Every case is quite different and that's the really attractive thing about forensic accountancy. Some people like to know year in year out what they're doing. That's not what forensic accounting does for you. Every case that starts and stops will be different. That's another high point about it. Forensic accounting works in teams. Very seldom is there a case that is suited for one person to do by themselves. It requires different skills and requires different levels of seniority. The team work is another high point of working in forensic accountancy and going to talk to lawyers and other stake holders is also quite engaging. On the whole, there tend to be lots of high points and relatively few low points,’ Davidson explains. 

Fighting sophistication with the sophisticated

Fraud for the most part is a very elaborate thing. It takes meticulous planning and execution and we imagine, the people who are generally behind this pay attention to finer details, have a lot tact and are incredibly good with numbers. So naturally you need someone with these qualities if you’re going to uncover their wrongdoings.

The task of investigating these cases may seem daunting, but let me put this into perspective for you – with a superhero reference of course.

Think back to Spiderman for a minute. Peter Parker was not born with the ability to shoot webs from his hand and swing building to building. He learnt, practiced and eventually mastered his powers. The same can be applied to practically any kind of challenge – even understanding what makes a good forensic accountant in order to be an effective one.

So, what are these qualities?

According to Davidson, there are two types of qualities that are needed to succeed in this role; natural and taught qualities, both incredibly important, which he speaks about below.

As for the qualities that are taught to people, Davidson sheds more light on that –

What’s surprising is how qualities that are negatively viewed are actually seen as a positive in this line of work.

Someone who is naturally inquisitive can sometimes be seen as nosey – I know I’ve been told this – but the truth is there’s a lot of positives to being a curious person.

A Lifehacker article explains that being curious makes your mind active rather than passive. They state that ‘curious people always ask questions and search for answers in their minds. Their minds are always active. Since the mind is like a muscle which becomes stronger through continual exercise, the mental exercise caused by curiosity makes your mind stronger and stronger.’

They also have a duty of confidentiality according to Dr Mary Bishop, Director of Learning at the ACCA.

‘The forensic accountant has a duty of confidentiality, unless it is in the public interest to do so, they must not disclose the fraud to any third party including the police, without client permission. Other key attributes include integrity, an analytical mind and strong IT skills. Inquisitiveness plays an important part as things are often not what they seem and finally tenaciousness is crucial to being able to see things through to the end,’ she explained.

Becoming a forensic accountant

I’m hoping you’re starting to see how forensic accountants are like our modern-day superheroes. Okay, so you’re not flying around fighting evil villains and protecting the city from pending alien invasions, but that doesn’t mean you won’t be faced with other challenges.

So, you see, it’s not the profession you thought it was. It takes more than just being good with numbers. Breaking in to the industry use to be a very rigid process, however there is some flexibility and forensic accounting has defined itself as a niche that has its own pathway now. However, Davidson advises a less direct route into the industry.

‘My advice is for people to do some auditing before they come into forensic accounting. Either join big firms in audit departments - I know it's not the greatest of fun but it is essential before moving on to forensic accounting. Or ensure that if they are going into forensic accounting with a big firm that there's a chance for a secondment into the audit department because auditing is the place where you learn exactly how numbers move around sets of accounts and therefore know how to look out for and track people who are misusing accounts.’

Davidson himself went to university, then did classic training with one of the then big firms followed up with some audit work. In the course of that, a case came up that involved some investigation and this riled up his interest. After completing that case, he looked around for more work like that, thus beginning his career in forensic accounting.

I can’t help but think about that famous line, ‘it’s not who I am underneath but what I do that defines me’ and this rings true not only for the role of a forensic accountant, but for an assortment of jobs.

Those that love superheroes love them for specific reasons, but as real life takes over, we grow out of our fascination for them. It’s important to remember why we were intrigued by them in the first place though - what they represent and how their personal attributes could be a true reflection of what we want to exude ourselves and how we choose to live life.

In most cases, we can find comfort in doing this through our jobs. Our line of work will always determine what we give back and what we gain, making us look at ourselves as upstanding individuals as we begin to set examples and inspire others.

That's not to say that the novelty of being called Batman when collecting your order will wear off easily though. 

 

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