Forensic Audit: On November 10, a car blast took place near the Red Fort in Delhi, which has been termed as a terrorist attack. Dr. Omar Mohammad alias Dr. Omar Un Nabi, who has been identified as the person behind the Delhi blasts. Taking a big step in the investigation of Delhi blasts, the Central Government ordered a forensic audit of all the records of Al Falah University. Now you might be wondering what is forensic audit and why is it done?
In fact, if there is any financial fraud in any organization or company, money has gone missing from the bank, or any major fraud has been detected, then forensic audit is conducted for investigation. Every year the accounts of the company are checked to see whether everything is correct or not, but forensic audit is completely different from this. This happens when someone suspects that something wrong has happened like money has been stolen, fake bills have been made, bribery has taken place or company money has been misused. Meaning, this is a kind of “crime investigation”, but money and accounts are investigated in it. Just as police investigate crimes, forensic auditors investigate money crimes.
There have been many big cases in India like Nirav Modi-PNB scam, Yes Bank case, Satyam Computers fraud. Forensic audit was conducted in all these cases. In a normal investigation, there is only questioning. But in forensic investigation, fingerprints, CCTV footage, fingerprints are all checked so that it can be proved who committed the theft. Similarly, in forensic audit, every small and big bill, bank statement, email, cheque, invoice is all scrutinized to find out where the money went missing and who is responsible.
When does a forensic audit become necessary?
Forensic audit is conducted when there is strong suspicion that money has been embezzled. For example, the company’s money was stolen, someone took bribe, did something wrong to benefit himself or there was wrong or false writing in the accounts. Even in divorce cases, it happens that one of the husband and wife is hiding his money. In case of bankruptcy, closure of the company or any major legal dispute, forensic audit becomes necessary. Meaning, wherever there is any crime related to money, this investigation comes there.
What is the difference between forensic audit and normal audit?
In a normal audit, it is simply checked whether the accounts are correct or not and a report has to be given. But forensic audit is specifically for finding fraud. Auditors investigate every small and big thing so that they can prove that fraud has taken place. Their reports are considered as evidence in the court and these auditors themselves go to the court and give testimony. An ordinary auditor only points out the mistakes, a forensic auditor arrests the culprit. That is why it is called “account detective”. Due to this, forensic audit is required to find out asset misappropriation, scam, financial statement fraud.
How does a forensic audit work?
This is related to planning, gathering evidence and writing reports. Everything in this seems like a normal audit, but the difference is that there is complete preparation to go to court. Lawyers from both sides present their evidence – one wants to prove fraud, the other wants to prove it is a lie. It is also known how much damage was caused. Ultimately the report is given to the client and if the case reaches the court, these auditors themselves testify. Meaning, this investigation does not just stop at the documents, it goes till getting the culprit punished.
How does the process happen?
First of all, all the records of the entire company are confiscated. Then each transaction is checked. Is it a fake company or not? Did someone benefit his relative’s company or not? Withdrawal of money in cash and where was it spent? Let’s find out all this. Many times even mobile data, WhatsApp chats, emails are checked.
In forensic audit, first of all it should be found out whether fraud has taken place or not, and if it has happened, then how it has been done. Then it is seen how long this fraud was going on – for a month, for a year or for many years. After that it is understood how the culprits hid it. Like making fake bills, manipulating accounts or hiding bank transactions. Then names are taken out as to who actually did this. The amount of money lost or stolen is accurately counted. All the evidence is collected in such a way that it is valid in the court.
What is its benefit?
This strengthens the case in the court and the real culprit can be easily caught. Apart from this, the company comes to know about its loss, how much money has been lost and improves the system to prevent such fraud from happening again. But this is not just for the company. Rather, in case of a big scam in banks, government departments, NGOs, cooperative societies and anywhere else, forensic audit can be conducted on the orders of the government.
