How do financial forensics investigators work?
In: Economics
It’s the process of critically analyzing financial information with the goal of detecting fraud or other criminal activity.
For example, if I audit the finances of a pizza restaurant, an accountant might approach it as $X spent on materials (cheese, sauce, straws, etc) and $Y spent on overhead (ovens, rent, utilities, labor, etc) and $Z income to determine profit, etc. An accountant might say at the end of the day the company earned $10,000 more than they spent, this is a profitable company.
No lets say I’m interested in buying this pizza restaurant and they send me their audited financials showing they turned a profit of $10,000 last month. Sounds great right?
I will hire a financial forensic investigator who might discover that they claimed to have sold 2,000 pizzas last month, but didn’t buy any boxes or paper plates. How are they selling those pizzas? Or that they “bought” enough cheese to make 10,000 pizzas but only claimed 2,000 sold. Or that they’re paying rent for a kitchen that is either a vacant lot or the owner’s mistress’s apartment. Suddenly I’ve discovered that the financial records of the pizza place is a lie and they committing fraud in one way or another.
As a financial forensic investigator I might be employed as a consultant for business purchases like I explained above.
Or I might be employed by a investment company. Perhaps the pizza place is a national chain that is publicly traded on the stock market. Armed with the knowledge that they are committing fraud I could do the following – borrow 10,000 shares of the stock & sell it. Then reveal the fraud to the world and the company’s stock crashes, and I buy back the shares I sold (for much less money) and return them to the person I borrowed them from for a profit.
Either way, my job is to critically analyze the financial records of a person or company with the intent of discovering illegal activity.
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