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The role of forensic accountancy in systems reviews

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The power of storytelling has helped capture the public’s attention and forced the government into urgent action as the fallout from the ITV Drama Mr Bates vs The Post Office continues. The Horizon issue isn’t new but in the context of a drama programme the viewer can relate more easily to the individuals, the situation and feel real anger at the injustice they have faced and are still facing many years on.

The ongoing public enquiry will no doubt over time apportion blame, but it remains to be seen whether the sub post masters will ever get full and fair compensation for the ordeal they have been through. For those whose lives have been ruined or have since ended, it is just too late.

Where does forensic accountancy come into this?

Since the drama aired, as a forensic accountant my views (especially in the local pub) are now being sought on this matter. It has become a talking point. People keep asking the same question – someone must have known about it and why didn’t they do anything to stop it?

Whilst situations like this are rare, the truth is that many businesses and business owners could also be exposed to risks that could threaten their livelihoods. Many put their head in the sand until it is too late.

We are expecting to see a rise in restructuring and insolvencies in some business sectors and the economy is largely taking the blame for this, however there will be some businesses who are in this position because either a crime has been committed or serious errors made that have yet to be detected. All too often a business owner finds out too late to save their business.

At what point are forensic accountants involved?

When I am called in to investigate the accounting records of a business, I am usually doing so because the company is already insolvent, and I am trying to claw back funds for creditors or identify if fraud or other poor conduct has taken place.

Where business directors have either identified a problem or have a suspicion and I have a bespoke brief, then the process of investigating can be time consuming, but it can help to save a business for the longer term.

Sadly, for the postmasters they didn’t have access to the required data to prove their case, but they could see in front of them something was wrong and many business owners who have found themselves in a similar position will be able to relate to this.

The indicators we look out for as a forensic accountant

When investigating accounting records there is a ‘fraud triangle’ which we look for – pressure, rationalisation and opportunity.

• Pressure – could be exerted on an individual because of someone or something and the downturn in the economy has certainly created pressure for many people.

• Rationalisation is the justification if fraud is being committed – it’s my money anyway, victimless crime, I will pay it back one day.

• Opportunity – staffing cuts, less segregation of duties, lack of process all provides the opportunity for someone to take advantage or for mistakes to be made.

Whilst the move to online accounting with real time banking makes it slightly harder for fraud to be hidden, without proper segregation of duties and robust procedures in place a business will still be exposed to risk. Also, directors need to be aware of their own director’s duties, as they are ultimately responsible for keeping accurate and up to date financial records.

So, what can you do now to avoid this risk in your business?

If you have any specific concerns or suspicions, then a forensic accountant can look at that area and they will report back with their findings. It is worth investing in their time and it may ultimately save your business. If you have a gut feel that something is wrong or if numbers simply don’t add up, then don’t delay taking action.

Alternatively, if you simply want peace of mind, then a review of your systems and procedures is a good place to start. This is useful especially if you are a new and growing business that needs systems in place which are robust enough for a growing and larger more established business. Your systems and people need to be challenged why they operate the way they do, and the answer “because it’s how we’ve always done it” simply isn’t good enough when livelihoods and personal liability are on the line.

To find out more about how a forensic accountant can help your business, get in touch today.

Dominic Dumville is a partner at Mercer & Hole.

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