Fraud Investigation for Small Firms


Minnesota Society of CPAs Footnote Magazine
February/March 2017

The growth in forensic accounting and fraud investigation specialties has led accounting firms of all sizes to expand their practices to these areas. Experts agree that this practice area will continue to grow for the foreseeable future.

Is it as easy as it sounds to add forensic accounting to your firm’s competencies? Traditional audit staff may have excellent foundational knowledge that could be applied to fraud investigations, but offering consistent and reliable services to clients in the area of forensic accounting will take some work.

Here are areas your firm — especially if it’s small — should focus.

Service focus

It is a simple decision to start providing accounting services. The next step is deciding which specific services to provide. Many types of engagements can fall under the forensic accounting umbrella, so it is important to develop a focus.

The firm’s services could be tailored to fraud-related matters, such as corporate embezzlement, financial statement fraud or insurance claims fraud. Alternately, the forensic accounting practice could focus on litigation matters such as contract disputes, shareholder lawsuits, business valuation or bankruptcy consulting. It is also possible to focus on a specific type of litigation, such as intellectual property or family law matters.

A smaller firm (or a small team at a larger firm) may find an advantage in marketing itself as a high-quality provider of services. With a more narrow focus on the types of forensic accounting or fraud investigation engagements performed, the firm can develop expertise in a few niche areas. As the firm’s reputation and client base grows, the depth and breadth of services can increase as well.

Performing the investigation

Client selection is one of the most important parts of the engagement for a small firm or team providing forensic accounting services. Cases should only be accepted if they fall within the firm’s area of expertise and competency. Missed deadlines can be fatal to a practice, so it is also important to accept cases only if they can be completed within the timeframe set forth by the client.

Like a traditional tax or auditing engagement, the fraud investigation process must be administratively managed. There should be a budget and agreed-upon fees, as well as an engagement letter detailing the project and services to be provided. Initially, it may be difficult to create a realistic budget, but as more engagements are performed, the numbers will become more reliable. Employees must be assigned to the engagement, and roles must be assigned so that work is completed by competent staff and there is proper supervision.

The key to completing a thorough and reliable investigation is effective document management. A database should be used to track documents, the dates received, the sources of the documents and brief descriptions of them. This makes it easier to locate specific documents as the investigation progresses. Small firms or teams can easily falter if the documents in a forensic accounting engagement are not properly managed. Document management is sometimes neglected on smaller engagements, but this can cause problems when preparing a final report or testifying in court.

While work programs are a typical part of a traditional audit engagement, they are not necessarily used as heavily in fraud investigations or forensic accounting engagements. While there is often a general roadmap for a forensic engagement, each project is unique and may not lend itself well to standard procedures.

If an engagement team is not relying heavily on work programs, it is important that the staff is carefully supervised and that more experienced investigators play an active role in the investigation. Personal involvement is necessary throughout the engagement to ensure that all critical documents are examined and all necessary evidence is gathered.

Small-team advantages

“Bigger is better” may not always be true when performing fraud investigations. While large teams may be necessary for certain engagements, small teams or small firms can be advantageous to a project. A small group may have a much better focus on the services provided, or may have developed expertise in a niche area of fraud consulting or forensic accounting that may be valuable to the right client.

A smaller team is often easier to assess and manage. Clients understand that “what you see is what you get,” meaning that the true experts are usually heavily involved in all aspects of a small team’s investigation. This contrasts with a larger group, in which several inexperienced staff members may provide the bulk of the services with minimal oversight from the experts. With a smaller team, there are often fewer issues with supervision of staff, and there is usually better control over documents and evidence.

Quality control over a forensic accounting engagement is often easier with a smaller team of accountants. The most experienced investigators usually work more closely with the documents and, therefore, they are more knowledgeable about the evidence and issues.

Moving forward

Establishing a forensic accounting practice begins with the right person at the helm. The leader of this group should be well-experienced in providing fraud investigation and forensic accounting services in a variety of matters.

The next step is determining the focus of the services and the target market for these services. Staff must be put into place, relying on experienced auditors and forensic accountants, or appropriately training new staff. Once this foundation has been laid, the firm may begin marketing forensic accounting services and preparing to manage engagements.

Branching off into forensic accounting and fraud investigations should be exciting, particularly since it has the potential to be a significant source of revenue into the long term. However, the approach should be careful and measured in order to protect the reputation of the firm and provide the best possible services to the clients.

Tracy L. Coenen, CPA, CFF, is a forensic accountant and fraud investigator with Sequence Inc. in Chicago and Milwaukee. She specializes in cases of embezzlement, financial statement fraud, white collar crime, securities fraud and family law. You may reach her at 312-498-3661 or [email protected]

One thought on “Fraud Investigation for Small Firms

  1. Great article.
    I know someone who started a forensic accounting company a few years ago. The start was a bit rough. It’s a lot of work and dedication and you need to love what you do.

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