Why Nigerian Startups Should Embrace Forensic Accounting To Navigate Growth And Success.

Startups and other high-growth potential businesses that were recently created and are still in the early stages of their existence face many challenges in Nigeria. These challenges range from initial low capital to a hostile and corrupt business environment, high business costs, taxes and other compliances, insecurities, access to honest and truthful staff and business partners, a highly competitive business environment, etc.

While they are thinking and working very hard on mitigating all these challenges to grow, be profitable, and continue to exist, it will be an excellent decision for them to embrace forensic accounting and partner with forensic accountants to scale. It is essential to describe the two to understand what forensic accounting stands for and what forensic accountants are made of.

What is forensic accounting?

Forensic accounting uses accounting, auditing, legal, psychology, and investigative skills to collect, analyze, interpret, and report potential or definite financial misconduct, such as fraud and embezzlement, to assist court proceedings.

Who are forensic accountants?

From the definition of forensic accounting above, forensic accountants can, therefore, be simply defined as a breed of accountants with accounting, auditing, legal, psychology, and investigative skills to collect complex financial data, analyze it, interpret it, and report the findings in such a way to assist courts in resolving financial cases ranging from breach of contract to financial misconduct, such as fraud and embezzlement. The services of forensic accountants can be divided into two major parts: Investigative and litigation support/dispute resolution. However, apart from these two primary services of forensic accountants, they also render other services that startups can benefit from.

It is not new that the impacts of fraud on businesses, including startups, can be extremely harmful. It can lead to the death of the business, significant financial losses, possible legal consequences, irreparable damage to the business’s reputation, loss of market dealings, and a decline in employees’ morale and trust, all of which can be destructive to the business. To therefore avoid all these, startups should embrace the skills of forensic accountants to enjoy the following:

1. Developing a Fraud Prevention Program and Robust Internal Control

Forensic accountants were trained to provide a strong fraud prevention program and robust internal control system that cannot be circumvented. They are competent to assess every business, identify gaps, and develop mitigating strategies for fraud and its impacts on business operations. Be aware that fraud kills many startups faster and significantly earlier than others, but unfortunately, startups don’t pay attention to it.

2. Ensuring Statutory Compliance

Failure to comply with laws and regulations such as taxes, pension, NSITF, etc., can devastate startups because it will expose them to future liabilities and penalties. And navigating these complex regulations and laws can be challenging for startups. Forensic accountants are skillful in conducting examinations of businesses to identify areas of non-compliance and assist in complying with regulations and laws, and therefore ensure that startups remain on the right side of the law to mitigate exposures, damage to business reputation, and possible legal consequences.

3. Detection of Financial Irregularities

Because of the small size of many startups and the low capital, employing adequate and necessary staff is thwarted, and segregation of activities among employees becomes impossible, exposing startups to errors and fraud in business operations. The services of forensic accountants can help with a thorough analysis of financial data to identify abnormalities, strange patterns, inconsistencies, and flows that may indicate the existence of fraudulent activities.

4. Developing Risk Management Policies

Like every other business, startups are exposed to many risks ranging from financial to legal, reputation, operational, security, and strategic risks. Not managing this risk very well can damage the image and reputation of startups and lead to financial losses. Traditional accountants and auditors may not have the required skills to manage these risks. Working forensic accountants will help mitigate them because they have the skills to evaluate business holistically and entirely to identify irregularities and loopholes, draft risk management policies to secure business interests, and prevent financial crimes.

5. Dispute Resolution/ Litigation Support

Startups may find themselves in legal disputes such as breach of contract and employees’ embezzlement; forensic accountants are trained to provide litigation support to their counsels in case preparation. They can analyze contract documents and financial transaction records and prepare forensic reports as evidence. They can assist in quantifying the damages and appear as expert witnesses during court proceedings to present expert opinions in resolving disputes.

Conclusion

Partnering with a forensic accountant as a startup can help protect your business/company from fraud and prevent significant financial losses, possible legal consequences, irreparable damage to reputation, loss of market dealings, decline in employee morale and trust, and destruction of your business.