A Beginner’s Guide to Forensic Audit

Financial crimes are a trillion-dollar problem despite technological improvements in detecting and deterring their emergence. Moreover, offenders have become significantly sophisticated in taking undue advantage of the loopholes in the financial system that poses a risk to not just the entire financial industry services (FSI) but also the world at large.

With the surge in international partnerships and settlements, there has been a significant emphasis on enhancing technological capabilities. Invariably, this has led numerous Indian companies, banks, and conglomerates to systematically address unethical practices like fraud and misconduct.

Therefore, there is a need for investigative practices, like forensic auditing, to be adopted from the very beginning to balance the outcomes, risks, and costs for the overall financial health of all organisations.

An introduction to forensic audit

It is assumed that auditing is a simple process to examine a firm’s financial statements and ensure compliance and accuracy. However, there are other types of audits that help in uncovering potential threats and vulnerabilities of an organisation.

A forensic audit is a financial springboard for making impactful change. Its objective is to investigate the matter with the intention of finding suitable evidence in court. In fact, forensic audits require an expert who is knowledgeable about the legal framework along with the auditing procedures, especially during trial proceedings.

A forensic audit is often conducted to prosecute the offenders for financial crimes like fraud, syphoning and embezzlement.

The anatomy of a forensic audit

A forensic audit is designed to focus on reconstructing, reviewing, and dissecting the past financial transactions for a specific purpose, such as concerns of fraud, to avoid significant financial damage. The role of a forensic auditor is armed with a different skill set that goes beyond just reading financial statements.

This is exactly why the process is nuanced and investigative and includes elements like proper groundwork, closely examining and collecting relevant evidence, understanding the legal scope of evidence, communicating the results in a detailed report, and using effective ways to prove the case before appearing for legal or law proceedings.

1. Laying the groundwork

Before beginning the investigation, the forensic auditor creates a blueprint of objectives to be achieved by carefully planning each step. These objectives include:

• Understanding the basis of fraud
• Uncovering the duration and method of fraud concealment
• Identifying and discovering the names of the offenders
• Labelling the extent of loss because of fraud
• Finding ways to accumulate sufficient documentation and evidence to be presented in the court

2. Gathering relevant evidence

Human memory fades as time passes by and that is why it is important to collect as much evidence as possible to succeed in lawsuits. Consequently, preserving relevant evidence becomes the top-most priority for forensic auditors as that plays a crucial part in not only being admissible (allowed in the court) but also in proving the offenders’ role in the entire fraudulent outlook.

Additionally, to successfully pursue and win any court case, evidence is collected to back up the claim. Evidence can be of several types like material documents, audio, and video recordings, and witnesses’ statements (statements on behalf of witnesses who have seen or heard about the fraud).

3. Comprehensive report writing

After safely and meticulously collecting all the relevant evidence, the next logical step is to pen down all the details about the anomalies in a report. This could be later used in court if a legal case begins.

The fundamental areas that should be included are: uncovering the details of the investigation, a synopsis of all the evidence collected so far, quick-fire specifications about the fraud, and expert advice on preventing such fraudulent occurrences in the future.

4. Legal proceedings

The forensic auditor and his team work together, on behalf of the distressed party, to flesh out their stance during court proceedings. This includes sharing details of the identified suspect(s) and explaining the complexities of accounting methods in a simplified way.

It is the responsibility of the forensic auditor to present the facts of the issue in such a manner that it leads to a successful prosecution.

What is the best way to combat financial risk?

While forensic auditors are reputed to be number crunchers, they hold a higher responsibility than that. For instance, their key skills in introspective analysis and problem-solving competencies could help to blow the lid off several deceitful schemes.

But fighting financial crime doesn’t just require financial expertise, it also requires nerves of steel to face significant risks that can unfold against the backdrop of successful businesses.

Invariably, there are many ways to typically manage risks like unloading it onto somebody else, hedging it, or doing nothing and accepting it. However, the decision of acting on any one of these choices can make or break the future of any organization.

This is where iAcuity’s solutions minimize the room for error by offering the best ways to accelerate investigations by consistently delivering accurate analysis. As the world’s first hyper-automated AI Analytics engine, iAcuity is widely regarded to expedite the process of both — investigation and prevention — and combat financial crimes.

iAcuity harbours a compelling tool called Fund Trail for recognizing similar and dissimilar patterns that further helps stakeholders like forensic auditors to identify red flags in their investigations.

The intention is to simplify complex problems by boiling them down to one key attribute: Identifying the essential. Subsequently, this helps in mitigating financial crimes such as embezzlement, syphoning, inflated turnover, accounting fraud, round-tripping, and other financial anomalies.

Another benefit for the users is the elimination of laborious work through iAcuity’s powerful artificial intelligence algorithms and dashboards. This is useful for forensic auditors, law enforcement, regulators, and tax authorities, especially while handling voluminous databases and tracing fund flows from various accounts.

A distinct convenience of using iAcuity’s Fund Trail is its fluid cost-effectiveness along with lightning-speed results. This encourages you and your teams to focus on other prevailing problems without compromising on overall productivity.

Conclusion

In the face of widespread technology-related corruption, the value and reputation of businesses has never been more important. Inevitably, it becomes imperative to connect with world-class technology providers that dish out tailored solutions for financial problems, including financial crimes.

Extending beyond borders and locations, Fund Trail strives to create focused and extensive resolutions to issues that threaten the world of business and protect them against the risk.

Relying on the back of cutting-edge analytics and combined experience of four decades, Fund Trail provides its users an accurate and deep understanding of financial analysis, actionable intelligence to discover anomalies, and automated data management at every step of the process to strengthen their stance at all stages of a business dispute.