A fraud or embezzlement matter needs an economist or forensic accountant as soon as the amount taken, the period it ran, and where the funds went have to be established from the records rather than from an admission. The direct loss is reconstructed transaction by transaction, the consequential losses such as lost profits or penalties are measured separately, and the diverted funds are traced forward to the accounts and assets that received them. Counsel considering an expert should preserve the bank records, general ledger, and supporting documents immediately, because the reconstruction depends on them and they are easiest to obtain early.
Checklist
Preserve bank statements, cancelled checks, wire records, and the general ledger for the suspected period
Identify the suspected mechanism: fictitious vendors, payroll manipulation, skimming, or unauthorized transfers
Gather the documents that support each transaction type: vendor files, payroll registers, invoices, and approvals
Note the consequential effects: missed payments, penalties, lost business, or borrowing to cover the shortfall
Determine whether a restitution figure, a civil damages figure, or both are needed, since the presentation differs
Questions to ask the economist
How far back can the loss be reconstructed with the records available, and what happens beyond that point?
How do you confirm amounts against third-party records rather than the internal books alone?
How do you trace diverted funds forward to assets that might be recovered?
How do you separate the direct loss from consequential losses in the report?
Timeline
Two to four weeks to a preliminary loss estimate once bank records and the general ledger are available; the length of the scheme drives the schedule. The full reconstruction follows the retention and records phases.
Required documents
Bank statements, cancelled checks, and wire and deposit records for the suspected period
General ledger detail, payroll registers, and vendor master files
Invoices, approvals, and supporting documents for the suspected transactions
Records of the consequential effects: penalties, lost contracts, or borrowing
Common pitfalls
Relying on the internal books, which the scheme may have altered, instead of confirming against bank and third-party records
Delaying the records preservation until accounts are closed or retention periods lapse
Combining the direct loss and the consequential losses into one figure the fact finder cannot separate
What is the difference between quantifying the loss and tracing the funds?
Quantifying the loss establishes how much was taken, when, and by what mechanism, and it supports a damages or restitution figure. Tracing follows the diverted funds forward to the accounts, purchases, and assets that received them, and it supports recovery. The two use the same records but answer different questions, and counsel should decide early whether both are needed.
Who should be involved before the forensic accountant is retained?
Counsel, so that the engagement and the records the expert receives are structured with privilege and the possible criminal or insurance proceedings in mind. The victim entity's bookkeeper or controller may be needed to explain the accounting system, unless that person is a subject of the investigation. The bank and third-party records should be requested by counsel in parallel.
How is the cost of a loss reconstruction controlled?
By fixing the period and the suspected mechanisms at the outset and by phasing the work: a preliminary estimate from the bank records first, then the full transaction-level reconstruction, then tracing if recovery is realistic. Each phase is scoped in the engagement letter so counsel can weigh the next step against the amount at stake. The length of the scheme and the volume of transactions drive the schedule.
References
Association of Certified Fraud Examiners. (n.d.). Association of Certified Fraud Examiners. Retrieved August 27, 2026. acfe.com