Cases of economic fraud are everywhere. Every day new modalities and methods arise for this, it is essential to know what a Forensic audit.
This is part of a security measure and fraud detection, which is developed above all in the field of public and private finances and which is mainly responsible for the investigation of scams.
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What is the Forensic Audit?
A Forensic audit it has to do with both accounting and various areas related to law, computing and more to achieve its mission. It is a practice that investigates conscientious and voluntary scams and shady acts, in which legal regulations are circumvented.
It can also be defined as a kind of supervision that must develop a high degree of criminal investigation. But, diverse fields come together here, ranging from accounting, to legal-procedural knowledge, finance and business.
The forensic auditAfter an arduous investigation, it will express a series of opinions and true and objective information, which will serve as evidence for any judicial procedure that is requested.
It is not a simple audit, since it involves a large, solid and complex team of professionals, including auditors, IT specialists, lawyers, accountants, etc. However, the team will be variable and will be composed according to the type of company audited, its formation and its type of operations.
In other words, the Forensic audit it is applied in the attempts to face administrative corruption, detect it and correct it within the financial statements. Likewise, it is used to investigate fraud in the operations of companies and institutions, to prove it in court or simply to determine negative economic impacts.
As mentioned above, multiple skills are applied in situations that include possible legal consequences and whose ultimate goal is to obtain as much evidence as possible to reach a judicial determination.
Although some priority benefits of a Forensic audit, it is necessary to emphasize that this is a method of prevention and confrontation of fraud and corruption.
Its purpose is based on gathering and presenting evidence, accounting, financial, legal, administrative and tax information, so that it is accepted within the justice system and there are solid bases when a legal debate is formed.
Now, if there are other objectives which are exposed below:
- Identify and prove the fraud perpetrated.
- Prevent and reduce cases of fraud, all this through the implementation of recommendations and advice, through internal control actions.
- Design and create fraud prevention programs.
- Review the internal control system.
- Thoroughly investigate and collect evidence that will ultimately be placed in the hands of the judicial authority.
- In the case of government agencies, it is necessary to provide technical support, in the judicial area, for the investigation of crimes and subsequent punishment.
Why is the Forensic Audit Performed?
The Forensic audit comes into play when the company needs to demonstrate that it has complied with the duty of care to establish and maintain adequate procedures, as well as various systems and controls that allow it to meet its obligations.
On the other hand, in the case of fraud committed by a member, this type of audit allows the company to fully assess the seriousness of the situation. To do this, you need to determine what course of action to take and take the necessary steps to remedy the damage.
From the above, the forensic investigation should be developed, which requires the follow-up of the preliminary steps such as determining the suspicions and / or reported incidents, collecting the respective information, analyzing all the data and finally generating the report of the causes of the forensic investigation. .
How is a Forensic Audit Conducted?
A forensic audit It has several steps to follow beyond the typical and necessary regular audit procedures. In this way, the following are presented:
- Plan the investigation: When hiring a forensic auditor, the auditor is required to understand what the specific focus the audit will take. For example, if the customer suspects a possible fraud in terms of the quality of the raw material supplied. Or if they are doing it simply to demonstrate solvency before some type of judicial complaint.
To do this, you must plan well to achieve objectives such as identifying the type of fraud, the period of time during which the alleged fraud has occurred, the way in which it was concealed, who were the perpetrators, what losses were generated, which are the relevant evidence that will be admissible in court and what measures can prevent such events in the future.
- Evidence collection: At the conclusion of the audit, the forensic auditor should already be able to understand the possible type of fraud that has been carried out and how it has been possible.
For this reason, the evidence collected during the process must be sufficient and conclusive to bring it to court, as well as to reveal the details of the scam and solidly know about the financial losses suffered by the affected parties.
In this way, all of this material will be able to provide the court with sufficient evidence to help it understand the fraud. Finally, those who act as forensic auditors are obliged to prevent the documents and other evidence collected from being damaged or altered by anyone.
Techniques for a Forensic Audit
The techniques commonly used to collect evidence in a forensic audit include the following:
- Nouns: Among which are making a reconciliation, reviewing documents, etc.
- Analytical processes: which are used to compare trends within the company during a specific period of time or to obtain comparative data from different segments.
- Computer-assisted audits: These are developed through computer programs that identify various frauds. For this step, it is required to understand the internal controls and put them to the test to reveal the gaps that allowed the fraud to be committed.
- Reports: All these procedures require various reports that will be presented to the client related to fraud. Thus, the report (s) should include the results of the investigation, a general summary of the evidence collected, an explanation of how the fraud was committed, and some suggestions on how internal controls can be improved to prevent such events in the future.
- Legal proceedings: During this point it is recommended that the forensic auditor be present during the court proceedings. This, in order to explain the evidence collected and how the suspect (s) was identified.
However, you should simplify complex accounting terms and be able to explain the procedure simply so that people can still understand the fraud that took place.
When is a Forensic Audit Required?
Investigations or any forensic audit are conducted for a number of reasons, including the following:
- Suspicion of corruption: In a forensic audit, while investigating fraud, an auditor would look at aspects of:
- Conflicts of interest: when the individual who scams takes advantage of his influence to obtain personal benefits to the detriment of the company.
- Bribery: It is a very common case and it occurs when money is offered to do irregular things or to influence a situation in one’s favor.
- Extortion: which happens when a person demands money to award a contract, to solve a situation or not to reveal any information.
- Misappropriation of assets: which is the most common and frequent form of fraud. This is developed in most cases by obtaining false invoices. Also with payments made to non-existent suppliers or employees, the misuse of assets or the theft of inventory.
- Fraud in financial statements: it is a way to avoid audits by disguising figures, but at the moment of some real supervision, the facade falls. In this sense, fraudulent figures are presented to allegedly improve liquidity, continue to receive bonuses or face the pressure of market performance before senior management.
Other examples of this type of fraud are the intentional falsification of accounting records, the omission of various transactions (whether income or expenses). Added to this is the action of hiding the relevant details in the financial statements, or the non-application of the rules, regulations or financial information instructions required by the official entity.
Characteristics of the Forensic Audit
On the characteristics that a whole should have Forensic audit, the following stand out:
- It requires a thorough and detailed investigation.
- Analyzes specific technical information (be it from the financial, legal, systems area, among others).
- It demands good criminal techniques.
- Compilation of evidence and various legal evidences.
- It requires affidavits and truthful testimonies.
- Preparation and presentation of the evidence obtained in court.
Experts in the field affirm that within a Forensic audit It is always necessary to take into consideration what they call with the terms of “Causal Chain”. This is an analysis that must be carried out through a model. Thus, it will be possible to understand and remember the facts or causes that were generated in an investigated event.
In other words, it would try to link in an inverse sense and in a clear way, the losses or damages, the events that occurred, the unsafe acts or contexts, the factors that had an impact and the failures detected within the management.
As Raúl Saccanni explains in one of his works, “in the fight against illicit crimes, the private and public sectors must work in collaboration. The first implementing effective tools to detect fraudulent maneuvers and suspicious operations in a timely manner, and the second, taking such signs to the last consequences. “
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