Detective Accountants
By Emmanuel C. Dumayas
DURING my formative years in grade school and high school, I was always captivated by detective stories. From reading the adventures of "The Hardy Boys" and legal thrillers authored by John Grisham, such as "The Firm," to cinematic masterpieces like "The Usual Suspects" and "The Departed," my fascination with solving mysteries and crimes deepened. Even anime series like "Detective Conan" and "Death Note" captured my childhood imagination with their intricate plots and how minute details, which first seem unrelated, are usually the key (or keys) in solving the issues.
Little did I know that years later, my entry into the accountancy profession began my own detective saga. My early years as an auditor in a firm, or the so-called associate years to many, saw my analytical skills, critical thinking, focus, attention to detail and courage under fire constantly hammered into my skillset. These skills were subsequently the cornerstones in developing my problem-solving skills, which is very essential in my path to becoming a forensic accountant.
Forensic Accounting, as defined by the Institute of Certified Forensic Accountants (ICrFA), is the action of identifying, settling, extracting, sorting, reporting, and verifying past financial date or other accounting activities for settling current or prospective legal disputes or using such past financial data for projecting future financial data to settle legal disputes. Forensic accounting is frequently likened to fraud audit, yet they differ significantly. While a fraud auditor focuses primarily on discovering, documenting, and preventing fraud, a forensic accountant who may, in fact, be a fraud auditor, further utilizes a wider array of accounting, consulting, and legal skills in more expansive engagements, such as business valuation and due diligence services.
Indeed, forensic accounting is a tool in both providing factual financial information and in uncovering financial misconduct or fraud to aid in a better management decision-making process and to act as support in legal proceedings, if needed, especially to recover damages. Forensic accountants are akin to financial detectives who scrutinize financial records, review related workflows and processes to check perceived or actual opportunities for fraud or error, conduct interviews, perform background investigations to check the existence of pressure in committing fraud, and relate all data gathered to come up with an objective factual finding.
If you have watched the movie "The Accountant" starring Ben Affleck, you'll easily visualize a forensic accountant's job, albeit it is usually done by a team instead of just one person. Sounds exciting, right? You bet.
Forensic accounting expands an accountant's horizon beyond a regular internal or external audit. A forensic accountant perceives the verification process, for example, as a sequence of "cues" that can unveil a chain of events, extending beyond the mere collection and analysis of samples, ultimately exposing fraudulent activities.
As accountants, we are well acquainted with secondary measures used when the original set of audit procedures are ineffective or what we commonly refer to as alternative procedures. However, in the realm of forensic accounting, many of these alternative procedures take center stage as primary investigative methods.
Case in point — when faced with the challenge of verifying inventory receipt under the presumption of potential collusion, aside from inventory counts and comparing them with records, one strategy would involve validating the authenticity of vehicle plate numbers entering the warehouse. This procedure deviates from the conventional financial audit approach, yet it is indispensable in forensic auditing to substantiate the legitimacy of the deliveries.
Forensic accountants need to thresh out information from reliable sources. Sometimes, forensic accountants need to become "chismosos" and "chismosas" to acquire invaluable information. Many of these informal conversations with the perpetrator's co-workers, friends, and neighbors frequently uncover crucial "missing links" regarding the motives and actions of the individual in question. They sometimes provide the "Aha!" moment during the forensic audit.
Forensic accounting, though, is not for the faint of heart. I've encountered numerous situations where emotions run high, resulting in tears, outbursts, or even threats, particularly when the individuals under scrutiny feel cornered. Fortunately, I remain unscathed to this day from these encounters. It is necessary that a forensic accountant has to develop a poker face and a steady emotional demeanor to remain as objective as possible during engagements. Fortunately, I remain unscathed to this day from these emotional encounters.
Truly, forensic accounting has become an indispensable tool in today's complex financial and legal environment. This field will never get you bored, and the more you do forensic accounting, the more you'll discover that you're evolving the way you think. Gosho Aoyama, the author of "Detective Conan" perfectly described this feeling when he said, "Detectives are only human; we're not God that knows everything. When detectives tell their theory, in reality, most are rather anxious. Thinking that there's always a possibility that they could have missed something somewhere... But in return, the excitement you experience when your theory's smack bang correct is twice as great!"
Atty. Emmanuel C. Dumayas, CPA, CrFA, is the managing partner of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines) and the 2024 chairman of the Media Affairs Committee of the Association of CPAs in Public Practice (ACPAPP). His opinion does not reflect in any way those of these institutions.
Source: Detective Accountants