April is National Financial Literacy Month. While numerous organizations promote various aspects of financial literacy, I want to share what this means to me in the context of my work as a forensic accountant.
Forensic accountants make their living investigating situations where one party has taken advantage of another party, often because the “victim” lacked some degree of financial literacy. This occurs in divorces where one spouse, typically the “moneyed” spouse, has handled all of the financial decisions throughout the marriage and the “non-moneyed” spouse is in the dark about the couple’s assets, liabilities, and cash flow. This can result in a long, drawn-out, and expensive divorce process because the non-moneyed spouse’s lack of knowledge regarding the finances increases their mistrust of information provided by the moneyed spouse when negotiating a property settlement agreement, alimony, and child support.
In professional services practices, such as law firms or medical offices, a bookkeeper or management company is often hired because the professionals prefer to focus on their chosen vocation, not on the mechanics of running the business. Unfortunately, the owners’ lack of financial literacy can provide an opportunity for the bookkeeper or management company to embezzle from the practice and betray the trust that has been bestowed upon them.
I could go on listing the types of situations where financial literacy can create an imbalance of financial knowledge, and result in one party being able to benefit unfairly from another party’s lack of knowledge. What I suggest, however, is that regardless of what situation you are in, and how busy you are with your chosen, non-financial, work, take some time to learn financial basics so you will be less likely to wind up needing to hire a forensic accountant sometime in the future.
If you are a business owner, look at your bank statements and copies of cancelled checks from time to time to monitor the activity and learn how to read a balance sheet and income statement so you can understand how your business is doing.
If you are embarking upon a personal relationship with someone and plan to combine your finances, don’t give up total control because your partner is better with numbers. Make sure you have access to bank and credit card accounts and monitor the activity so you know what is normal and can recognize unusual activity. Also, check your credit report on a regular basis to detect possible identity fraud.
I am a firm believer that a little knowledge can go a long way in protecting against fraud, waste, and abuse. Financial literacy is important to protect oneself and one’s business from those who would take advantage of a lack thereof. You don’t have to be an expert to know enough to protect yourself from financial threats, but if you make an effort to be mindful about financial literacy, you will be taking a big step in avoiding potential financial losses.
