Forensic accounting is the practice of binding together accounting and auditing with investigative skills to assist in legal matters. It is primarily used in areas such as litigation support, investigation, and dispute resolution.

 

Two of those claims had been for £18,000 and £25,000 respectively. The insurance company retained the services of a Forensic Accountant to assess the documentation presented by Rad House in support of its claim.

Methodology

The lost inventory, according to Rad House, had been purchased from several sources. One was owned by other members of the family. Coincidentally that radiator shop had recently filed a claim for stolen inventory that, even more coincidentally had been purchased from another radiator shop owned by members of the same family. The family's run of bad luck was such that this third company had suffered the same fate not long before! The minimal documentation Rad House offered to prove it had actually received the inventory from the other (family owned) company did not stand up to review. Nor did the records of the other company indicate it had any radiators to sell at the time of the purported transaction.

Rad House also named another company as a supplier of the allegedly stolen radiators. This company had been recently sold to an independent third party by a relative of the Rad House owners. The new owner confirmed that soon after purchasing the shop he had given Rad House a letter of intent to sell it a certain quantity of rads. But he cancelled the agreement after the meeting because he didn't consider them trustworthy. No rads were ever delivered.

The actual lists of radiators Rad House had said it had lost were then examined. According to its records, Rad House had a large inventory in stock. The radiator business, however, operates on a one or two day turnover. The normal process is for a dealer to order parts as required. A check of Rad House's records showed it appeared to do business in this fashion. Why, it was questioned, did Rad House order model #300 on August 8, 1985, when according to its insurance claim, it had 25 radiators of that model in stock? Why did it happen for many other models as well? Why had Rad House assessed the lost radiators at £100 each when their daily records indicated they were purchasing them for £47?

Results

The final report concluded that a claim could not be supported, and provided a basis for it to be denied. The insurance company settled for £12,000 to cover damages by the alleged break in and the loss of antifreeze (for which documentation was more solid). However, the insurance company was satisfied the investigation had put an end to the recurring problem.