Forensic Accounting and Investigations

Introduction
Understanding forensic accounting and investigations is essential for businesses facing suspected fraud, financial misconduct, shareholder disputes, employee theft, data manipulation, matrimonial disputes, insurance claims, or accusations of tax evasion. Forensic accounting is a specialized discipline that combines auditing, investigative skills, financial analysis, and legal knowledge to uncover irregularities and present evidence that can stand in court. Whether a company is dealing with internal fraud, misappropriation of funds, unexplained inventory loss, falsified invoices, or CRA audit escalation, forensic accountants play a critical role in identifying the truth and protecting the business. This guide explains the full scope of forensic accounting and investigations in Canada.

Legal and Regulatory Framework
Forensic accounting and investigations are governed by Canadian auditing standards, litigation-support rules, civil procedure statutes, federal and provincial evidence laws, Income Tax Act enforcement provisions, Criminal Code provisions relating to fraud, Québec’s Civil Code and Taxation Act, and professional obligations for CPA-designated forensic specialists. Forensic accountants must prepare evidence that meets the requirements of courts, tribunals, insurance adjusters, CRA investigators, and regulatory bodies.

What Is Forensic Accounting?
Forensic accounting involves the investigation, reconstruction, and analysis of financial transactions to detect fraud, misconduct, or inaccuracies. The purpose is to uncover what happened, how it happened, who was involved, and how much financial damage occurred. Forensic accountants combine accounting expertise with investigative skills and fraud-detection techniques.

When Businesses Need Forensic Accounting
Common triggers include:
unexplained cash shortages
altered financial records
inventory loss
suspected employee theft
partner or shareholder disputes
financial manipulation by management
forged cheques or vendor fraud
CRA or ARQ audit escalation
cyber fraud or unauthorized transactions
divorce and matrimonial property disputes
insurance fraud investigations

If the accuracy of financial records is in doubt, forensic intervention is necessary.

Types of Fraud Investigated
Forensic accounting covers a wide range of fraudulent activity:
asset misappropriation (theft, embezzlement)
financial statement fraud (cooking the books)
payroll fraud (ghost employees, inflated hours)
procurement fraud (fake vendors, kickbacks)
inventory theft/shrinkage
sales skimming
expense reimbursement fraud
identity theft and digital payment fraud
False invoicing and unauthorized transfers are among the most common schemes.

Investigative Techniques Used by Forensic Accountants
Forensic accountants apply specialized methods including:
bank reconciliation tracing
data mining and financial modeling
review of internal control weaknesses
digital forensics
electronic document review
interview techniques
analysis of emails, logs, and metadata
expense-pattern analysis
lifestyle audits comparing income vs spending
background checks and corporate registry searches

The objective is to identify anomalies, collect evidence, and quantify damages.

Financial Statement Reconstruction
When records are missing, altered, or destroyed, forensic accountants rebuild financial statements using:
bank deposits
vendor records
customer invoices
third-party confirmations
POS system exports
digital backups
This reconstruction is essential in fraud cases and complex CRA investigations.

Asset Tracing and Recovery
Forensic teams locate stolen or misappropriated assets by reviewing:
bank transfers
crypto wallet activity
intercompany transactions
shell companies
trust structures
real estate ownership
Forensic accountants help lawyers recover assets through litigation, injunctions, or settlements.

Shareholder and Partnership Disputes
Forensic accountants provide independent financial reviews to:
value businesses
identify improper withdrawals
quantify shareholder oppression claims
detect unauthorized expense claims
resolve profit-sharing disagreements

These engagements often form part of litigation or mediation.

Forensic Accounting in Tax Investigations
CRA and Revenu Québec may escalate audits into investigations if:
records are inconsistent
income is unreported
GST/QST discrepancies persist
cash deposits do not match reported sales
major expenses lack documentation
Forensic accountants help reconstruct records, defend positions, and negotiate with tax authorities.

Digital Forensics and Cyber-Fraud Investigations
Modern forensic work involves analyzing digital footprints:
hacked systems
altered accounting files
fraudulent e-transfers
unauthorized payroll changes
internal sabotage
The rise of e-commerce and remote work increases digital fraud risk.

Forensic Accounting in Matrimonial Disputes
In divorce proceedings, forensic accountants:
trace hidden assets
analyze family business records
determine true income for support calculations
review personal spending patterns
value marital property
These engagements require sensitivity and strict confidentiality.

Insurance Claims and Loss Quantification
Forensic accountants support insurance claims by evaluating:
business interruption losses
fraudulent claims
employee theft
inventory loss
property damage valuations
Accurate quantification is essential for settlement negotiations.

Expert Witness Testimony
Forensic accountants often testify in:
civil courts
commercial litigation
family court
arbitrations
tribunals
They present expert reports, explain complex financial matters, and defend their conclusions under cross-examination.

Common Red Flags Detected Through Forensic Accounting
transactions just below approval thresholds
duplicate payments
employees refusing to share duties
lifestyle exceeding income
large write-offs or adjustments
vendor accounts with no physical address
suspicious round-number transactions
These indicators often signal deeper misconduct.

Why Forensic Accounting Protects Your Business
Forensic accounting prevents:
continued financial loss
internal fraud growth
tax reassessments from CRA/ARQ
legal exposure
reputational damage
A timely forensic investigation can save businesses from collapse.

How CRA and Revenu Québec Use Forensic Methods
CRA and ARQ use forensic techniques to detect:
unreported cash sales
GST/QST evasion
false invoicing
incorrect payroll reporting
overstated expenses
Forensic accountants help businesses prepare audit-ready explanations and defend legitimate transactions.

Mackisen Strategy
Mackisen CPA provides full forensic accounting and investigations services. We uncover fraud, trace assets, reconstruct financial statements, analyze internal controls, quantify losses, prepare expert reports, assist legal counsel, and support businesses during CRA and ARQ investigations. Our team combines investigative expertise with deep knowledge of financial reporting and tax compliance.

Real Client Experience
A Montréal retailer experienced large inventory losses; Mackisen uncovered employee collusion and vendor fraud. A construction company had falsified invoices; our forensic review exposed the scheme and recovered funds. A shareholder dispute required profit tracing; we quantified damages and supported litigation. A crypto-enabled fraud case needed asset tracing; Mackisen followed blockchain transactions and identified hidden wallets.

Common Questions
Do all fraud cases require forensic accountants? Yes for reliable evidence.
Can forensic accountants work with lawyers? Always — essential for legal cases.
Does CRA use forensic techniques? Yes for complex audits.
Can forensic accounting recover stolen money? Often, through asset tracing.
How long does an investigation take? Depends on complexity.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides expert-level forensic accounting and investigations to protect businesses, uncover fraud, support litigation, and defend against CRA and Revenu Québec disputes. Our forensic team delivers clear evidence, strong analysis, and trusted expertise for business owners, lawyers, and courts.