Forensic Accounting
Investigation of financial records to detect fraud or support litigation.
Forensic accounting combines accounting with investigative skills to examine records for fraud, embezzlement, or financial crimes. Work includes tracing hidden assets, reconstructing destroyed records, and providing expert court testimony. Small businesses are particularly vulnerable to employee fraud due to limited internal controls.
Example
A business owner notices revenue growing but cash declining—a forensic accountant uncovers $85,000 in embezzlement by the office manager over two years.
Why It Matters for Your Business
Employee fraud costs small businesses an average of $150,000 per incident, making fraud prevention controls and detection knowledge critical.
Practical Tips
- •Implement separation of duties so no single employee controls an entire financial process.
- •Conduct surprise audits periodically, especially for cash-handling processes.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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