Why Reconstruction of Your Financial Records Matters
Whether through fraud, negligence or disaster, it’s easy for your company’s financial records to fall into a state of disarray. Appointing independent experts is vital in rebuilding your transactional trail to get your books back in order.
As a business owner, you might not have hands-on management of your books while you look after the day-to-day running of your business.
But then, inevitably, the time comes when you need to examine or submit your financial records only to find that they are in a state of chaos. It’s at this point when you realise that you need to reconstruct your financial records, but how you go about that process can either add to the confusion or allow you to efficiently get your books back on track.
Should this come about as a result of a dishonest bookkeeper’s actions or simple benign neglect, the reconstruction effort can be a colossal undertaking. When you consider that a modestly busy operating company can generate hundreds of thousands of transactions in the span of a single year, it’s easy to see how difficult it can be to try and solve this puzzle with numerous jumbled, missing, or fabricated pieces.
Forensic Reconstruction Basics
The first steps in a reconstruction assignment typically involve understanding and reorganising large datasets, such as ledger documents, accounting software output and hard copies of transactional records. The twofold purpose of these parallel tasks is first to understand the intended correct arrangement of transactional records, and secondly to identify trends and anomalies.
At this stage, it is always important to “clean” any manually produced records: to check for input errors, casting errors, and formula consistency. Where transactions appear out of order, reconciliation of transactions to their source documents, and querying company staff responsible for such items, can help isolate problematic internal controls or incompatible accounting functions.
It is not enough to simply rely on accounting software to do this for you, as many business owners believe. Off the shelf accounting software is typically designed with rudimentary error-checking functions that can certainly help catch certain types of mistakes. In the hands of a competent user, these programs do make the job easier. But these systems cannot counteract users who are willfully trying to cover fraud or who simply don’t understand bookkeeping and accounting concepts.
To give you an example of such fraud, let’s say you’re a silent partner of a profitable business and have reasons to believe that the managing partners have colluded in a vendor kickback scheme. They’ve concocted a second set of accounting books in service of their fraud. This continues until you, the silent partner, grow sufficiently frustrated and demand a review of the complete books and records. Upon review, it becomes obvious that profits have evaporated, but the cause of the leak and who might be facilitating it, is not.
Responding to Suspected Fraud
Perun Consultants’ experts are specially trained for circumstances where the potential for fraud is very high. When fraud is suspected, reconstruction assignments often trigger obstructionist and openly hostile responses from the responsible accounting staff. Attempting these tasks in an adversarial work environment creates special challenges that most accountants understandably avoid.
We have years of expertise and experience in dealing with complex reconstruction cases, where accounting records have been either deliberately altered or destroyed to conceal a fraud.
Our professionals have worked for a variety of regulatory and governmental agencies and have first-hand knowledge of modern techniques. Because of our multi-disciplinary, collaborative culture, we can quickly draw upon our eDiscovery, data analytics and financial modelling skills, and have developed a number of proven workstreams to manage the reconstruction of books and records, particularly in instances of fraud.
It is insightful and innovative forensic accounting analysis and reconstruction of records that can often prove to be crucial in resolving these problems and, if necessary, in quantifying the damage caused by any fraud schemes uncovered in the process.
But it isn’t just fraud that necessitates the need to reconstruct your financial records. Shareholder disputes, annual reporting deadlines, loan applications, disaster recovery, liquidations, receiverships, and mergers & acquisitions are common examples of the events that impose the need to produce accurate financial accounts.
If you would like to find out more about how Perun Consultants can help your business recover from mismanagement of your financial records, please contact us here.