Forensic Auditing

What an Auditor Does

Specific antifraud duties a forensic auditor conducts include:

Business/internal employee fraud: the investigation of a business operation to ascertain if fraud exists, and if it does, to what extent and committed by whom. Additionally, a quantification of the loss is made, as well as a recommendation on methods of recovery. The process would also include the development and implementation of internal rules to prevent a reoccurrence.

Business economic losses: the involvement of the audit process to identify and quantify certain economic losses, that is, contract disputes, product liability, patent infringements, and construction breach of contract claims.

Business interruption losses: cases in which a forensic auditor is assigned to quantify the amount of calculated losses.

Criminal investigation: the involvement of the audit process in cases which will require information to be later presented at a criminal proceeding. The auditor can be retained by a law enforcement agency or by a party to the action.

Matrimonial disputes: forensic audits are utilized in disputes of this type to verify the assets of parties to a matrimonial dispute, quantifying the assets present as well as identifying any attempt to conceal assets.

Professional negligence: forensic auditors can quantify losses in cases involving alleged negligence of professionals other than accountants, and in cases involving accountants, they can both quantify losses as well as review adherence to generally accepted auditing or accounting principles.

Shareholder claims: cases in which forensic auditors are retained to examine claims by made shareholders of mismanagement, and possibly criminal fraud by company management. Recent cases of this type have involved Enron Corporation and WorldCom, with shareholders alleging losses due to fiscal mismanagement by upper management.

The usage of forensic auditing in investigating criminal enterprises is essential to prosecution efforts; the trail of money will provide investigators and prosecutors with evidence with which to charge individuals, possibly with Racketeer Influenced Corrupt Organization (RICO) charges. The majority of many criminal enterprises are cash operations, often in amounts that would require the filing of mandated federal banking documents. Criminal enterprises need to conceal the origin of their illegally obtained profits and seek to do so through moneylaundering, transferring monies back and forth through various accounts. In other cases, some criminals decide to enjoy the fruits of their labors and begin to spend money in amounts beyond their earning capabilities.

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