A Forensic Audit is an examination of a company’s financial records to derive evidence which can be used in a court of law or legal proceeding.
Reasons for conducting a forensic audit
In a Forensic Audit, while investigating fraud, we would look out for:
- Conflicts of interest – When a fraudster uses his/her influence for personal gains that are detrimental to the company.
- Bribery – Offering money to get things done or influence a situation in one’s favor.
- Extortion – obtaining money or equivalents, through force or threats.
This is the most common and prevalent form of fraud. Misappropriation of cash, creating fake invoices, payments made to non-existing suppliers or employees, misuse of assets, or theft of inventory are a few examples of such asset misappropriation.
Financial statement fraud:
Companies get into this type of fraud to try to show the company’s financial performance as better than what it actually is. The goal of presenting fraudulent numbers may be to improve liquidity, ensure top management continue receiving bonuses, or to deal with pressure for market performance.
Some examples of the form that financial statement fraud takes are the intentional forgery of accounting records, omitting transactions – either revenue or expenses, non-disclosure of relevant details from the financial statements, or not applying the requisite financial reporting standards.
Anti-Money Laundering (AML) seeks to deter criminals by making it harder for them to hide ill-gotten money. Criminals use money laundering to conceal their crimes and the money derived from them. AML regulations require financial institutions to monitor customers’ transactions and report on suspicious financial activity.
Reporting Suspicious Activity
It is up to financial institutions to monitor their customers’ deposits and other transactions to ensure they are not part of a money-laundering scheme. The institutions must verify where large sums of money originated, monitor suspicious activities, and report cash transactions exceeding $10,000. Besides complying with AML laws, financial institutions must make sure that clients are aware of them.
Procedure for a forensic audit investigation:
A forensic audit has additional steps that need to be performed in addition to regular audit procedures.
- Plan the investigation – We would perform the below steps as part of our planning process:
- Identify what fraud, if any, is being carried out
- Determine the time period during which the fraud has occurred
- Discover how the fraud was concealed
- Identify the perpetrators of the fraud
- Quantify the loss suffered due to the fraud
- Gather relevant evidence that is admissible in the court
- Suggest measures that can prevent such frauds in the company in future
- Collecting Evidence – By the conclusion of the audit, we will understand the possible type of fraud that has been carried out and how it has been committed. The evidence collected should be adequate enough to prove the identity of the fraudster(s) in court, reveal the details of the fraud scheme, and document the amount of financial loss suffered and the parties affected by the fraud.
A logical flow of evidence will help the court in understanding the fraud and the evidence presented. We assure you that we will take precautions to ensure that documents and other evidence collected are not damaged or altered by anyone.
Common techniques used for collecting evidence in a forensic audit include the following:
- Substantive techniques – For example, doing a reconciliation, review of documents, etc.
- Analytical procedures – Used to compare trends over a certain time period or to get comparative data from different segments
- Computer-assisted audit techniques – Computer software programs that can be used to identify fraud
- Understanding internal controls and testing them so as to understand the loopholes which allowed the fraud to be perpetrated.
- Interviewing the suspect(s)
- Reporting – We will report to you on our findings and provide suggestions on how internal controls can be improved to prevent such frauds in the future.
- Court Proceedings – You can then proceed with filing a case with the local police and the court and we will offer our assistance as may be needed.
We would be glad to assist you with our professional service.