Financial Forensics
Categories: Accounting, Metrics
We’ve all seen them: CSI, NCIS...all those forensic TV shows that made you sure you wanted to be a forensic investigator...because TV is totally like real life, right?
What they didn’t really show on those shows is financial forensics: the bad-guy catching glamor of TV with the un-glamor reality of knowing how to financially audit the bones off of someone. That’s right: financial forensics, the cool nerds. Financial forensics can be done by someone within an organization, or someone “on the outside.” It’s like armchair forensic accounting, except you could bet on it in the stock market and make some money shorting sketchy companies. All you need is a company’s financial statements, its filings, and the financial know-how.
Financial forensics isn’t only used to catch financial fraudsters, but also to prevent financial crimes and recover assets by following the money (literally). Anywhere there’s a money trail...from private companies to governments and nonprofits...there’s a potential for cooked books and theft.
Financial forensics done by a short-seller is what helped bring down Enron Corporation, which was violating rules and into all kinds of not-cool financial biddings, leading to its eventual implosion. A securities professional used financial forensics to notice the Ponzi scheme set up by Bernie Madoff. He even did the right thing and told the SEC about it, but they didn’t do anything for years.
Besides the money you can make doing financial forensics, there are also whistleblower awards. And the Best Fraud Alert Tweet goes to...
Related or Semi-related Video
Finance: What is Adverse Audit Opinion?27 Views
Finance a la shmoop. What is an adverse audit opinion and you know deficiency
letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]
you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]
They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]
D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]
the nice way to say it well then it means they didn't count the beans
properly when they gave their financial reports to their investors or whoever
the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]
profitable they really were or how well they were really doing so tens of
thousands of investors if you know the company was public when this all [Big line of people waiting to invest]
happened paid twenty seven dollars and 32 cents a share when with the real
numbers the stock probably should have been trading more at like you know
fourteen dollars and 27 cents a share big difference well basically an auditor
is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]
it's more of a dude there were material ie important
mistakes and they were pervasive like everywhere math, science, english, history
your failure it's no mystery that's how auditors talk really
all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]
massive numbers of lawyers who sue you.. massively.. in the world of finance an
adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]
several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]