A company may want to conduct an audit to gain a better understanding of its financial situation. A forensic audit assists a company with the specific goal of detecting fraud. Finding and eliminating fraud in your organization is critical to maintaining a positive business reputation. This article will explain what a forensic audit is, the procedures when a company may conduct one, and the Arizona audit report.
What Is a Forensic Audit?
A forensic audit examines and evaluates the financial records of a company or individual in order to generate evidence for use in a court of law or legal proceeding. Accounting forensic auditing is a specialization, and most large accounting firms have a forensic auditing department. Forensic audits necessitate expert knowledge of accounting and auditing procedures, as well as the legal framework of such an audit.
Forensic audits include a variety of investigative activities. A forensic audit is often conducted in order to prosecute someone for fraud, embezzlement, or other financial crimes. During the course of a forensic audit, the auditor may be called to testify as an expert witness in court. Forensic audits may also involve situations other than financial fraud, such as disagreements over bankruptcy filings, business closures, and divorces.
Why Does One Need to Perform a Forensic Audit?
Forensic audit investigations are carried out for a variety of reasons, including the following.
#1. Corruption
An auditor would look for the following in a forensic audit while investigating fraud:
- Potential conflicts of interest: When a fraudster uses his or her position for personal gain at the expense of the company.
- Bribery: Bribery is defined as offering money to get things done or influence a situation in one’s favor. Telemith, for example, bribed a Technosmith employee to provide certain data to aid Telemith in preparing a tender offer to Technosmith.
- Extortion: Extortion would occur if Technosmith demanded money in order to award a contract to Telemith.
#2. Misappropriation of assets
The most common and prevalent type of fraud is asset misappropriation. Misappropriation of cash, creation of fake invoices, payments made to non-existent suppliers or employees, misuse of assets, or inventory theft are examples of such asset misappropriation.
#3. Financial statement fraud
Companies commit this type of fraud to make their financial performance appear better than it is. The goal of presenting fraudulent numbers could be to improve liquidity, ensure top management continues to receive bonuses, or deal with market performance pressure.
Financial statement fraud can take various forms, such as the intentional forgery of accounting records, the omission of transactions—either revenue or expenses, the omission of relevant details from the financial statements, or the failure to apply the required financial reporting standards.
How Does Forensic Audit Work?
A forensic audit follows the same procedures as a regular financial audit. The forensic audit procedures include planning, gathering evidence, and writing a report, with the addition of a potential court appearance. Both sides’ attorneys present evidence that either proves or disproves the fraud and determines the damages suffered. They present their findings to the client as well as the court if the case goes to trial.
#1. Hire an auditor
A forensic auditor and an internal auditor are the two types of auditors. If you are unsure which type of auditor you require, consider contacting both. Internal auditors can prepare documents for executive boards and owners. If you believe that criminal activity has occurred at the company, try to hire a forensic auditor who specializes in locating evidence of such activities.
#2. Investigation Planning
The forensic auditor and team will plan their investigation during the planning stage to achieve goals such as:
- Identifying what fraud, if any, is being carried out
- Identifying the time period in which the fraud occurred
- figuring out how the fraud was concealed
- Identifying the fraud perpetrators
- Calculating the loss incurred as a result of the fraud
- Obtaining relevant evidence that can be useful in court
- Suggestions for future measures to prevent such fraud
#3. Gathering Evidence
The evidence gathered should be sufficient to prove the identity(s) of the fraudster(s) in court, reveal the details of the fraud scheme, and document the financial loss suffered by the parties affected by the fraud.
A logical flow of evidence will assist the court in comprehending the fraud and evidence presented. Forensic auditors must take precautions to ensure that no one damages or alters the documents and other evidence collected.
#4. Reporting
A forensic audit necessitates the presence of a written report about the fraud to the client, who may then proceed to file a legal case if they so desire. At the very least, the forensic audit report should include
- The investigation’s findings
- A synopsis of the evidence gathered
- An explanation of the fraud process
- Suggestions for preventing future frauds, such as improving internal controls
#5: Legal Proceedings
During court proceedings, the forensic auditor must be present to explain the evidence gathered and how the team identified the suspect (s). They should simplify any complex accounting issues and explain the case in layman’s terms. This is so that people who do not understand legal or accounting terms can clearly understand the fraud.
#6. Update processes
Following the completion of a forensic audit report, the company can work to improve its procedures. It can improve its reputation and financial standing by eliminating all instances of fraud and working to make transactions more transparent and lawful. They can either follow the advice of their forensic auditor or hire an operational or accounting professional to develop procedures to prevent future fraud.
Arizona Forensic Audit
The Arizona Senate heard testimony on Friday from the firm hired to conduct a so-called forensic audit of more than 2 million votes cast in Maricopa County during the 2020 elections, the latest in a series of election misinformation campaigns orchestrated by former President Trump.
The forensic audit has cost Arizona taxpayers and private donors millions of dollars, and even some of the Republicans who voted to authorize it have begun to express concerns about how Cyber Ninjas, the firm at the heart of the audit, handled it.
“They wasted nearly $6 million to tell us what we already knew while exacerbating an already unhealthy political environment,” audit opponent state Sen. Paul Boyer (R) told The Hill in a text message.
Here are five key takeaways from the report and the testimony given before the state Senate on Friday, which confirmed the election results: President Biden won Arizona as well as the Electoral College.
#1. Maricopa’s tally was correct.
The main event of the Arizona forensic audit was a hand recount of the approximately 2,089,000 ballots cast in Maricopa County in 2020.
President Biden won Arizona forensic audit by a 45,000-vote margin, nearly four times his statewide winning margin, making him the first Democrat to do so since former President Clinton.
According to the auditors, “[t]here were no significant differences between the hand count of the ballots provided and the official canvass results for the County.” This is a significant finding because paper ballots are the best evidence of voter intent, and there is no reliable evidence that the paper ballots were altered to any significant extent.”
Indeed, the Cyber Ninjas-led team discovered that Biden’s margin of victory in Maricopa County was 360 votes greater than the official canvass.
#2. The count raises more questions about Cyber Ninjas than Maricopa
Human error was present in Cyber Ninjas’ hand count, according to the information included in its report.
The Florida-based firm recounted ballots cast in both the presidential and Senate races, in which Democrat Mark Kelly defeated Republican Martha McSally. If everything went according to plan, the same number of ballots should have been counted in both elections—ballots cast for the Democratic candidate, ballots cast for the Republican candidate, ballots cast for any third-party candidates, and ballots that either did not record a vote, record many votes.
#3. The Forensic Report is Full of Made-for-TV Misleading Numbers
The Cyber Ninjas report includes several recommended areas for further investigation, broken down by severity level — critical, high, medium, low, and unknown (or, in its terms, “informational”).
Mail-in ballots cast from a voter’s previous address are the top priority, which Trump seized on even before the final report. The Cyber Ninjas report says that 23,344 voters who no longer live at the address where they register to cast ballots.
#4. Cyber Ninjas undercut some of the most egregious conspiracy theories
A particularly bizarre conspiracy theory circulated on Facebook and other social media networks in the weeks following the November election: Arizona ballots cast with a Sharpie marker were allegedly disqualified.
Cyber Ninjas devote a 158-word paragraph in its report to describing how ink bleeding through paper could affect a ballot . However, only the last eight words of that paragraph matter.
#5. The report will not appease election deniers.
Despite the audit results, some Republicans seeking to align with Trump rushed to repeat the former president’s false claims.
Arizona Attorney General Mark Brnovich (R), who is running in a crowded Republican primary to face Kelly in next year’s elections, promised action in a statement released before the official report was delivered.
“I will take all necessary actions that are in line with evidence and that I have the legal authority to take,” Brnovich says. “Arizonans have a right to have their votes counted correctly and protected.”
To his credit, Brnovich did not cite any of the evidence presented by Cyber Ninjas.
“The purpose of this Arizona forensic audit was to overturn the result of Arizona’s presidential election; prove fraud, and expose flaws in our election system,” said Mike Noble, a pollster and political strategist based in Phoenix. “It’s one true impact could be long-term damage to our trust in our electoral process.”
Conclusion
Following the completion of a forensic audit report, the company can work to improve its procedures. It can improve its reputation and financial standing by eliminating all instances of fraud and working to make transactions more transparent and lawful. They can either follow the advice of their forensic auditor or hire an operational or accounting professional to develop procedures to prevent future fraud.
Forensic Audit FAQs
What are the types of forensic audit?
Forensic Accounting Types
- Financial theft (customers, employees, or outsiders)
Securities fraud. - Bankruptcy.
- Defaulting on a loan.
- Economic losses (various types of lawsuits to recover damages)
- M&A-related lawsuits.
- Fraud or tax evasion
- Corporate valuation disputes.
What is the difference between forensic audit and account audit?
While auditors are tasked with determining whether a company’s financial statements provide an accurate picture of its current situation, forensic accountants are instructed to do the opposite. Forensic accountants are hired specifically to investigate cases of fraud.
How long does it take to do a forensic audit?
On average, the hours between the start of the investigation and the final issuance will be between 50 and 70. If more than one year is involved, the additional years will take approximately 30–40 hours per additional year.
Who orders a forensic audit?
In this case, a judge or an outside company may request a forensic audit to determine either the lost income as a result of a fraudulent report or the damage that falsified reports caused to shareholders, clients, and Employees.
