Forensic Audit
Forensic Audit entails a thorough examination of records and documents to uncover and extract evidence related to a crime or fraud, which can be used in legal proceedings or presented in a court of law. Broadly speaking, the term “forensic” refers to the application of scientific methods and techniques in investigative processes. It is important to note that forensic auditing is distinct from forensic accounting.
Forensic accounting primarily focuses on investigating fraud committed against a business by employees, vendors, or customers. In contrast, forensic auditing is conducted when the fraud or crime is suspected to be committed within the business—by shareholders, owners, management, or partners themselves.
Forensic audit services typically deal with financial fraud and demand a high level of expertise in accounting and auditing. These audits are usually initiated by external entities to uncover and document evidence. For example, banks may commission a forensic audit in cases involving non-performing assets (NPAs) or when it is suspected that loan funds were not used for their intended purposes.
Who Commissions a Forensic Audit?
Typically, a forensic audit is commissioned by stakeholders, banks, regulatory authorities, financial institutions, or the court. Its main purpose is to verify and assess suspected fraud through concrete evidence and documented findings.
Process of conducting a Forensic Audit
The process of conducting a forensic audit closely resembles that of a standard financial audit, with one key addition—the requirement to present findings in a court of law or during legal proceedings. Unlike regular audits, the evidence collected during a forensic audit must be legally admissible and capable of withstanding judicial scrutiny.
1. Planning the Audit Investigation
- Thorough and strategic planning to achieve the investigation’s objectives.
- Application of appropriate methods and techniques to organize the investigation process.
- Determination of the timeframe during which the fraud took place.
- Assessment and calculation of the financial losses incurred.
- Identification of control weaknesses and system deficiencies that enabled the fraud.
2. Gathering Evidence
- The evidence collected by the investigation team must clearly establish the identity of the fraudster.
- Evidence should be organized in a logical, chronological order to facilitate easy understanding by the court.
- It must effectively reveal the details of the fraud and the associated financial losses.
- All evidence should be concrete, original, and free from any alterations or modifications.
- Evidence must be carefully preserved and protected against any potential damage or tampering.
3.Presentation of Audit Conclusions
- Clearly outline the scope and purpose of the forensic investigation.
- Provide a thorough account of the fraudulent activities uncovered.
- Summarize the evidence collected, highlighting key findings.
- Describe the methodology and sequence used by the perpetrators to commit the fraud.
- Include actionable recommendations to prevent recurrence of similar frauds.
4.Submission in Legal Proceedings
- The forensic auditor must present the gathered evidence in court and clearly explain how the suspects were identified.
- They should simplify and clarify complex accounting issues for better understanding by legal authorities.
- The auditor must fully cooperate with the court, offering complete support regarding the findings and procedures of the investigation.
