Forensic Accounting Expert Witness On Asset Misappropriation
In Preventing Damaging Effects of Asset Misappropriationforensic accounting expert witness Alan D. Lasko and accountant Bradley Kaye write:
Honest mistakes can occur that resemble fraud. One company may lose the receipt of the transaction, but the other company involved can provide the necessary information to prove that the expense was legitimate. This mistake would be uncovered by an external audit performed under Statements of Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit; however, in instances of actual fraud, standard financial audit procedures may not prove any wrongdoing without a confession or a report from another employee. Instances such as this may have a company utilizing the use of a forensic accountant, since a small company will not have an internal audit staff.
A forensic accountant may also be able to infer that fraud has occurred based on his experience with repeated transactions of this type. These types of suspicious transactions should be checked with scrutiny to ensure legitimacy. A forensic accountant can for example, analyze the cash flows and compare different sets of statistics to determine whether fraud may have been committed.
If the forensic accountant's investigation determines that there is significant asset misappropriation, legal action could be taken to return the losses. As the accusation of fraud could have significant conse-quences for both the individual and the company, it is imperative that the forensic accountant be able to provide expert witness testimony for the pending deposition and/or trial. Though asset misappropriation cannot be completely eliminated, there are certain steps which any company can take to mitigate the damaging effects that it could create. Some of these steps include:
• Strong internal controls
• A competent, relatively independent external or internal audit function
• An active and responsible audit committee
• A history of conservative accounting practices
• Stable management
• An overall corporate emphasis on ethical behavior
• Absence of new external pressures on management
• Notify all employees about the con-sequences of asset misappropriation
• Make available employee guidelines about fraud, including reporting any suspected fraud and the necessity to keep records of all transactions
• Encourage honest and high ethical standards throughout the company
• Have random investigations performed by a forensic accountant to ensure all levels of management are being honest
Asset misappropriation is a problem that will not go away on its own. Constant evaluations need to be performed from both internal and external perspectives through-out all levels of a company. This will help ensure that the effects caused by asset misappropriation do not become too damaging to a company and its investors. It will also send a message to the employees that management's philosophy is that this type of activity is not acceptable.