Legal and Ethical Considerations When Hiring a Forensic Accountant

Alex Helfand, ENCE, Computer Forensic Specialist

It makes sense that you’d be looking at ethics and the law when looking for a forensic accountant to perform a fraud investigation – as those who perpetrate fraud clearly lack ethics and are breaking the law. But understanding these concepts in depth becomes more difficult, especially in the somewhat nebulous and individual realm of ethics. What about law and ethics are considered as part of the education of Certified Public Accountants (CPAs) and Certified Fraud Examiners (CFEs)? Does the professional code of ethics vary among accounting, the legal profession, and other professional services? How should these questions be considered when hiring a forensic accountant?

General Hiring Guidelines

A forensic accountant might be hired to serve as an expert witness for an attorney in a variety of cases, including divorces, economic damages and business valuations. A banker may use a forensic accountant to analyze collateral; an insurer could ask for an investigation of an insurance claim; a law enforcement officer may require a forensic accountant’s report to obtain an arrest warrant. Many types of businesses, non-profit organizations or other entities may need assistance investigating a case of fraud, or setting up measures to better protect against fraud. There are many considerations for the qualities, experience and background of the forensic accountant who may be hired; we review selecting the right one for the case here.

What to Look for in a Legal Background

As forensic accounting is the application of accounting knowledge and investigative skills to identify and resolve legal issues, clearly a forensic accountant should and would understand basic processes and issues of criminal and civil law including the rights of individuals under investigation and the rules of evidence. A CFE, for example, must pass an exam that covers financial transactions and fraud schemes, fraud prevention and deterrence, investigation and law.

As some fraud investigations involve a lot of electronic records and data, and advanced technologies, it is useful to hire a Certified Computer Forensics Examiner (CCFE) or an e-discovery specialist, who will be more familiar with the specific laws as they pertain to the use of such data in a case. If being hired as an expert witness, the forensic accountant should have an adequate legal background, as well as expertise in the area of testimony, to be able to be accepted as an expert by the court; this is more important than if being hired to review fraud prevention measures for a business or non-profit organization. For example, understanding property law and other areas related to divorce cases, often based on state laws as well, is desired for the forensic accountant handling that type of case.

The Subjective View of Ethics

It sounds appropriate that a forensic accountant should be ethical, and ethics is considered to be part of the desired and expected skill set. Prerequisite knowledge would include a review of general business ethics, and an awareness of their own personal code of ethics as it pertains to this specialization. Forensic accountants who are CFEs are required to take continuing professional education (CPE) credits, including ethics as a topic for those courses being offered. Aside from their own code of ethics, it is important to understand an entity’s culture, and the ethical environment present when performing an investigation or setting up fraud deterrents. In many cases, the forensic accountant will be trying to elicit information from others within the organization to discover where fraud may have been perpetrated, so understanding the business ethical environment is crucial. For those who help the forensic accountant during an investigation due to their desire to be personally ethical, it is important to understand the varying protections that exist for “whistleblowers” of fraudulent activity; and past criminal convictions may even prevent someone from entering the field of forensic accounting.

Ethics becomes more undefined when looking at accounting compared to the legal profession. The American Institute of Certified Public Accountants (AICPA) has a code of conduct that stresses a duty to the public that is greater than the duty to the client; the American Bar Association (ABA) on the other hand, has a code that focuses duty to the client first. The forensic accountant falls in the middle of these two views, so which way they may lean could determine whether they are better suited for a particular client. For example, when working for an attorney in a litigious situation, communication of information between the client and the attorney is protected from discovery based on the attorney/client privilege. The forensic accountant being hired may make a decision based on his or her own code of ethics, and opt not to partake in a side of a case they may not wish to support. This should be known before the hiring takes place.

It’s Not a Matter of If, But of How Much…

In the long run it serves to ensure that a strong legal knowledge and an ethical code are present for any forensic accountant considered. Starting with a solid foundation in both these critical areas will make finding the additional background desired that much easier, and give greater peace of mind for a fair outcome.

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